Raising overall European Union membership joint defence spending will be a priority when Poland assumes the EU presidency next month, Polish Finance Minister Andrzej Domanski declared yesterday. European nations, he said, are looking for ways to increase defence spending in light of Russia’s ongoing invasion of Ukraine and the imminent return to the White House of U.S. President-elect Donald Trump, who has repeatedly insisted that NATO’s commitment to defend its own can apply only if alliance members meet their obligation to spend a minimum of 2% of GDP on defence.
“Europe needs to take the threat from the east, from Russia, seriously – there will be no going back to business as usual”, Domanski told reporters in Brussels. His talks with other finance ministers indicated broad support for Europe “to do way more”.
EU finance ministers will meet in Warsaw in April to review possible financing models. He pointed out that major undertakings such as a European air defence system hinged on cooperation and collaboration between nations and were not just about money.
Poland takes over the EU’s rotating six-month leadership in January. The European Commission has established a new post of defence commissioner and estimates it will cost at least 500 billion euros to strengthen the bloc’s overall defence capacity in the coming decade As an example of the need for a more efficient and cohesive approach to defence matters, Domanski singled out what he termed the insanity of Europe’s 12 different tank systems.
Any joint financing model is bound to involve new joint EU borrowing, with two approaches considered possible. In one, the EU’s long-term budget could be used as security for new borrowing, as happened with the EU’s post-COVID 800 billion euro recovery fund. The alternative is a Special Purpose Vehicle (SPV) with paid-in capital that would borrow against that capital, modelled on the eurozone bailout fund, the European Stability Mechanism (ESM), which can lend up to 500 billion euros.
Drawing on the EU budget would require the unanimous agreement of all 27 EU member countries, which, given Hungary’s close ties with Moscow, might be complicated. Moreover, the budget option would limit participation to EU members and put the European Commission in charge – a move some countries would not appreciate. Creating an SPV would allow the EU to invite in other countries like Britain and Norway, would keep the scheme under the control of the governments, not the Commission, while keeping the debt raised off the balance sheet of governments.
“There are a couple of solutions on the table. It’s way premature to decide which would be chosen” Domanski observed.
The extent of the EU’s financing needs is expected to be clearer and more readily understood once a report by the new EU Defence Commissioner Andrius Kubilius comes out in early March.
