By Jan Strupczewski
BRUSSELS (Reuters) -European Union leaders will discuss on Thursday how to finance a sharp increase in defence readiness to deter any possible future attack from Russia and become less dependent for security on the United States.
The European Commission on Tuesday proposed several ways to raise the funds that would add up to around 800 billion euros over several years. Below are the ideas put forward:
RELAXING EU SPENDING RULES
The Commission proposed that defence spending be exempt from EU laws that put annual spending limits on governments to protect EU public finances and the value of the euro currency.
Not all EU governments support the idea, as they say special treatment for defence spending already exists in the rules. What is missing, they say, is a broader definition of defence investment, an issue they would prefer to focus on.
The Commission estimated that if EU governments were to increase their defence spending by 1.5% of GDP on average, it would create fiscal space of close to 650 billion euros over four years. The downside is that such borrowing would widen budget deficits and could worry bond investors, economists said.
MONEY FROM THE EU’S 2021-2027 BUDGET
The current seven-year EU budget of 1.2 trillion euros, created well before the Russian invasion of Ukraine, has no proper funds for defence.
But around one-third of it is earmarked to equalise the standard of living between regions in the 27-nation EU – the so-called cohesion funds – and some of that cash can be used for projects that would be somehow linked to defence, like shelters for civilians or strengthening roads and bridges to allow the passage of tanks.
“We will propose additional possibilities and incentives for Member States that they will decide, if they want to use cohesion policy programmes, to increase defence spending,” the Commission said.
NEW JOINT EU BORROWING
The EU could borrow 150 billion euros against the security of the EU budget to provide loans to governments for defence investment. The funds would be for projects that benefit all in the EU and would pool demand and entail buying together. The projects would include pan-European air and missile defence, artillery systems, missiles and ammunition drones and anti-drone systems as well as cyber and military mobility.
($1 = 0.9560 euros)
(Reporting by Jan Strupczewski and Yoruk Bahceli; Editing by Hugh Lawson and Christina Fincher)
