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LONDON — The European Union is poised to unveil significant initiatives aimed at increasing defense funding this week, as tensions escalate regarding support for Ukraine amid ongoing clashes between Europe and the United States.
The 27 EU leaders will convene in Brussels on Thursday to focus on defense and ongoing assistance for Ukraine. This summit comes on the heels of two notably strained moments in transatlantic relations: Vice President JD Vance’s critical remarks directed at European leaders during a Munich speech in mid-February, and a recent confrontation between the U.S. administration and Ukrainian President Zelenskyy at the White House.
European officials are navigating the delicate balance of addressing domestic political sentiments while ensuring robust support for Ukraine. This includes managing relationships with President Donald Trump, who has openly criticized Zelenskyy for risking global conflict. European leaders understand the urgency of providing continuous support to Ukraine while staving off further provocation from Russian President Vladimir Putin.
“Intensive efforts are underway in the lead-up to this summit,” revealed an EU official, preferring to remain anonymous due to the sensitive nature of the ongoing negotiations. The official emphasized that the goal is to present “concrete deliverables” related to defense financing.
Market watchers are closely monitoring the discussions among EU officials. The European Stoxx Aerospace and Defense index has surged nearly 23% this year, as investors anticipate increased government spending on defense, with a notable rise exceeding 6% in Monday’s trading.
Former President Trump has frequently criticized European nations for not meeting NATO’s defense spending guideline of 2% of GDP. Since his initial term in office, there has been a marked increase in defense budgets among several NATO countries, with recent NATO reports suggesting that 23 out of 32 member nations are on track to meet this target in 2024.
In light of recent events, many NATO members are considering elevating their spending further. NATO Secretary General Mark Rutte remarked in February that contributions would need to exceed the 2% target. Trump has proposed a much higher 5% contribution standard for NATO members.
Strategies for Increased Defense Spending
In February, European Commission President Ursula von der Leyen announced plans to modify fiscal rules to enable countries to allocate more resources to defense without being bound by specific debt and deficit limitations.
An additional EU official, also opting for anonymity, confirmed that upcoming announcements will expand on existing commitments. “We are exploring increased funding for defense at the EU level, including greater flexibility in utilizing structural funds and adjusting the European Investment Bank’s (EIB) mandate,” added the official.
The EIB is aiming for 95 billion euros ($99.26 billion) in investments by 2025. However, current regulations restrict its financing to dual-use defense projects, which must have both civilian and military applications.
Von der Leyen is expected to present “concrete measures” regarding defense financing imminently, which will then be deliberated by EU leaders on Thursday.
In a recent statement, von der Leyen emphasized the urgent need to strengthen Europe’s military capabilities, outlining a comprehensive rearmament strategy for discussion during the upcoming European Council meeting on March 6.
A report by the Brussels-based think tank Bruegel, titled “Defending Europe without the U.S.,” projected that Europe might require “300,000 additional troops and an annual defense spending increase of at least 250 billion euros in the short term to effectively deter Russian threats.”
Goldman Sachs has also indicated that, without offsetting fiscal measures, the Euro area will need to allocate an additional 0.6% of GDP each year to meet a revised defense spending goal of 2.5%.
A pivotal issue is whether the EU will agree to common borrowing for defense initiatives. This decision was made previously in 2020 through the unprecedented NextGenerationEU initiative in response to the pandemic. Some EU member states advocate for a similar approach to bolster defense budgets, while more fiscally conservative nations prefer to exhaust alternative funding methods before proceeding with common borrowing.
According to Goldman Sachs, EU leaders could “repurpose” unallocated financial resources from the NextGenerationEU fund to support defense expenditures. They may consider a new initiative that could provide consistent funding, thereby insulating defense budgets from unpredictable national economic conditions.
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