MNI INTERVIEW: EU Defence Boost Likely To Be Off-Budget
MNI (BRUSSELS) - Funding increased European defence spending is more likely to be done outside of the European Union budget in a special purpose vehicle, Guntram Wolff, a senior fellow at Bruegel and the Kiel Institute and a former CEO of the German Council on Foreign Relations told MNI.
"I think it is going to be an SPV frankly. That's my sense. Some countries don't want to and I don't think countries have the patience to spend two years persuading Hungary and Slovakia to drop their veto," Wolff said in an interview.
Obstacles to EU-level funding include treaty constraints on the bloc's spending, including a prohibition on purchases of lethal equipment.
Wolff was among the first experts to circulate the now-widely accepted minimum increase needed in EU defence spending of EUR500 billion. The key issue is whether a joint spending effort by European countries comes in addition to spending increases already planned at the national level, he said. (See MNI: Brussels To Cling To Barnier Govt Spending Control Pledge)
While the Polish EU presidency in the first half of 2025 will try to drive momentum behind increased European defence spending, Wolff pointed out that there is unlikely to be a German government in place before April or, more likely, May.
WHITE PAPER
"The real debate will be on spending needs. Where to buy from? Which companies do you buy from and how do you mobilise those companies?" said Wolff, turning to the European Commission's upcoming White Paper on defence.
"The key issue for the White Paper is to establish what our critical needs are for the 'most extreme military contingencies'," Wolff says, referring to the strong wording in the job mandate of the new EU Defence Commissioner Andrius Kubilius, which also calls for joint investments and full-spectrum capabilities.
That level of ambition will require not just a lot of funding but that will need to be front-loaded too.
"It's quite clear that the amounts we are talking about, if we want to be really ready in five years, as [NATO Secretary General] Mark Rutte has said, then you really have to do a lot and you have to front-load a lot and you have to find the budget resources for it."
EU countries will not find a loan-based funding scheme attractive, given that even France can still fund itself at more or less at the same rate as the EU, he said.
"What they will want to do in terms of financial engineering is to do something that doesn't hurt for the next 10 years. So basically they will issue debt with a few guarantees but without it being relevant for the national budget and repayment starting at the earliest in 10 years."