MNI: European Commission Eyes EUR100Bln Defence Tool-Source
MNI (BRUSSELS) - The European Commission is working on a new joint-funding instrument for about EUR100 billion to help pay for a significant boost to European spending as a proposal for Thursday's Brussels summit, a well-placed source told MNI, with EU member states likely to pay for the lion’s share for any increase in military budgets.
While the Commission had originally hoped to repurpose unused loans from the EU’s EUR650 billion Recovery and Resilience Facility, that proved legally problematic, the officials said, adding that the new defence instrument could provide loans at attractive rates to countries such as Italy, Poland, Romania and Bulgaria.
The source provided no information as to the time-period over which the funds could be disbursed.
The Commission initiative follows the call from European Council President Antonio Costa for EU leaders to decide on "substantial additional funding" at the summit. It comes amid media reports that Germany’s centre-right Christian Democrats and centre-left Social Democrats are discussing two off-balance-sheet funds totalling almost EUR1 trillion for defence and infrastructure, for which they would hope to gain approval in the outgoing parliament in the next few weeks.
EU plans are homing in on four main pillars, including the new Commission tool, with national escape clauses from the bloc's fiscal rules for defence providing the bulk of the planned spending boost, sources close to preparations for Thursday’s summit said. (See MNI: EU Seeks To Avoid Stigma From Fiscal Opt Outs For Defence)
National Escape Clauses which will exempt increases in defence spending at the country level will be aimed at narrowing the gap between the current level of defence spending of 1.9% on average at the EU level and the 3% to 3.5% mooted by NATO's leadership.
COHESION FUNDS
Unused cohesion funds will also be repurposed for defence purposes and the European Investment Bank's mandate altered to facilitate loans to defence projects.
Along with the new instrument, these will be targeted at multi-country defence and dual-use infrastructure projects.
Efforts to involve the European Stability Mechanism have reportedly fallen by the wayside because by treaty its support is confined to member states of the euro bloc and a change in its mandate would be needed for it to support defence.
"ESM is in principle a last resort credit line so you would need a thorough change in the mandate,” one source said. (See MNI INTERVIEW: EU Summit To Decide On Defence Boost Options)
The issue of how to circumvent the opposition of pro-Russia Hungary and Slovakia to further EU support for Ukraine's continued struggle remains an obstacle to agreement on more funding for the country at the March 6 summit.
But one source close to the talks said it was not expected that this would hinder progress on increased spending for the EU's own defence efforts:
"On defence, [Hungarian Prime Minister Viktor] Orban is happy to cooperate, his issue is supporting Ukraine,” the source said.
Following today's London summit, UK Prime Minister Keir Starmer said there was a European "coalition of the willing" to help monitor any peace deal in Ukraine. EU and non-EU European leaders also agreed to maintain their support for Ukraine as well as their sanctions on Russia.