The feeling of urgency regarding the increase in military expend decades. The debate has been flying over the European capitals for years, but with few decisions. It has been months for the president of the European Commission, Ursula von der Leyen, announced the intention of presenting a white defense paper, which will see the light on March 19. The main stumbling block is financing and the German has now dodged the possibility of issuing joint debt, although the debate is taking strength. However, it faces the ‘no’ of Germany, Holland and Austria.
The estimate that the European Commission was handled is that 500,000 million euros would be needed next decade to tune the security and defense of the continent. A huge difference compared to the calculation that makes, for example, the Think Tank Bruegel, after the announced abandonment by the US. That entity considers that the annual increase should be 250,000 million euros. The S&P Financial Risk Agency has calculated that the EU should increase about 833,000 million euros a year to reach 5% of GDP in defense spending raised by Trump. The NATO general secretary, Mark Rutte, has reduced that ambition, but has placed the objective in “considerably higher than 3%” compared to the current 2% commitment.
Where to get that money is the main problem for the EU, which is already in a delicate situation regarding the competitiveness of its industry against the US and China. What is already clear is that the items for security and defense will experience a substantial increase in the next European budget. However, everyone agrees that one cannot wait for the multiannual financial framework for the 2028-2034 period to be in force to act.
Relief to fiscal discipline
Brussels has raised a change in the rules of fiscal discipline to allow member states to substantially increase their national spending. What the EU will do in broad strokes is not to take into account these investments when calculating the deficit and debt, giving a greater fiscal space so that they can shoot.
A message in which many European leaders coincide is in the need to have greater coordination of needs. “It’s not about spending more but spending better,” Pedro Sánchez has repeated lately. What underlies this statement is that the effort is not made only at the national level, but as a whole in the EU, and that demands some instrument in line with the European funds that were launched during the pandemic.
The head of European diplomacy, Kaja Kallas, has opened the door to that possibility. In an interview in BloombergEstonia defends Eurobons for defense spending as well as relocating the 93,000 million euros that have not been spent from the Next Generation funds for such items. “It is a short -term financing in which we have to really find how we can use leverage and act really fast. But it is also the medium and long term financing that we have to study, ”Kallas acknowledged.
In favor of the issuance of joint debt, Spain has been openly and in that position the southern countries have always been. This time others are also added such as Poland and the Baltic ones, which normally enter the package of ‘The Falcones’ contrary to that type of indebted tools. In the favorable block there are nuance discrepancies, but that can make a difference. Spain bets that the joint debt serves to finance the “European goods”, a wide range of priorities in which they include issues such as energy security or electrical interconnections. However, the countries of the east circumscribe the measure to military spending.
The ghost of a debt crisis
In any case, there are still countries totally opposed to the joint debt. Even some capitals show surprise regarding the possibility of increasing the figure that the European Commission intends to reach, which according to the defense commissioner amounts to 700,000 million. “That would mean that we would have to use defense or Eurobones bonds, and I do not see that that will happen or before the elections in Germany, or later,” says a community source.
The current Government of Olaf Scholz has closed the door, but the CDU candidate, Friedrich Merz, a favorite against this Sunday’s elections, has also sent a resounding message by being “very worried” for a new financial crisis for the high indebtedness . “It will be a sovereign debt crisis. We do not know when it will arrive. We don’t know where it will come from, but it will come, ”he told Political.
Austria and Holland are also in the ‘no’. “I don’t think more public debt is the way to follow. We need defense and a strong economy, but more debt is not, ”said Dutch Finance Minister Eelco Heinen at the beginning of Brussels.
“From a macroeconomic perspective, an increase in debt -financed expend that large -scale purchases would allow the EU to achieve lower production costs. “In the short term, this increase in spending should be financed with debt, both for political and economic reasons. But financing will have to increase permanently, ”he says This ideas laboratory in an article.
Pressure on Calviño
In what there is a consensus in the vast majority of capital, with the exception of the traditionally neutral, it is in the need for the European Investment Bank (BEI) that the Spanish presides over Nadia Calviño increases the credit dedicated to security projects and defense. The Member States, who are the shareholders of the BEI, decided to give the entity a specific role to increase their participation in the financing of the sector.
Last May the internal rules of the entity were changed to reduce the limits it had to invest in double -use (civil and military) projects and thus facilitate the specific investment in defense projects. With this modification of the standards of the BEI, which assumes that they no longer have to invest in projects that allocate at least 50% for civil use, investments have increased.
However, they are very far from the necessary figures. In 2024, 1,000 million were allocated to that sector of the total of 89,000 million that the BEI mobilized. Calviño’s forecast is that this figure doubles in 2025 and resists financing the weapons as such. “We are not a Ministry of Defense,” he said in the presentation of the results at a press conference in Brussels in January. The next day, 19 EU leaders, including Pedro Sánchez, urged him to do more. “The BEI must continue to explore new routes to play an even more prominent role in investment financing and the leverage of private financing for the security and defense sector,” they said in a letter.
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