MNI: EU Set To Consider New Agency To Fund Defence-Officials

The European Union is likely to consider the creation of a new agency to provide joint funding for a major boost to defence spending, with the European Stability Mechanism as a rough blueprint, EU finance officials told MNI.

While any such discussions are unlikely to occur before European parliamentary elections in June, officials noted that developments on the Ukraine-Russia front line could force the pace of events. Big EU ammunition manufacturers require long-term, high-volume contracts they can rely on, they said.

Meanwhile finance ministers meeting in Luxembourg on Friday are expected to agree to expand European Investment Bank lending to the defence sector by enlarging the envelope of dual-use technologies and infrastructures which qualify for such financing, stopping short of funding for weapons and ammunition. But only EUR6 billion of EIB loans are at stake over the coming years, well short of the EUR100 billion boost to annual defence spending identified as necessary by Internal Market Commissioner Thierry Breton. (See MNI: EU Vote Pushes Back Fiscal Rule Implementation-Officials)

RESISTENCE TO DEFENCE NGEU

Early options for boosting defence funding included a new iteration of the EUR800 billion NextGenerationEU programme put in place to drive the European economy after Covid, but this met with resistance from countries like Germany and France which fear Commission encroachment into another key policy area.

Lending by a new agency would likely be on the basis of government guarantees and so would have the advantage of being able to bypass hurdles like Germany's constitutional debt brake, which would not be the case with the NGEU model which has faced legal challenges in German courts.

The ESM was set up in 2012, as part of moves to support states like Greece and Ireland which were hard hit by the sovereign debt crisis, and exists outside the EU institutional framework.