EU pushes emergency plan to send €150B in defense loans to governments

BRUSSELS — The European Union’s latest response to Donald Trump’s decision to walk away from America’s longstanding protection of Europe is to announce a plan to send loans of up to €150 billion to governments to help them boost military spending.

Facing the most serious crisis within the Western alliance since 1945 as the United States sides with Russia, Europe is desperate for ways to fire up defense expenditure, which is paltry compared with America's contribution.

The EU has not traditionally involved itself in funding armed forces ― preferring since the 1950s to build roads, subsidize farmers and establish cross-border cultural projects ― but the pivot to financing military power underscores the radical and rapid reshaping of global dynamics.

In a speech on Tuesday ― 48 hours before the EU’s 27 national leaders are to hold a crisis summit in Brussels ― European Commission President Ursula von der Leyen said governments should be able to draw on €150 billion in loans over the next five years. This is not money that already exists in any budget — it would involve the Commission using its financial heft to borrow cash that it would then loan on to individual governments and they would eventually need to pay back.

The loans could be used to buy artillery, missiles, ammunition, drones and anti-drone systems and will also enable EU countries to send weapons to Kyiv. It would allow governments to “massively step up their support to Ukraine,” von der Leyen added.

But €150 billion between 27 countries over five years will barely touch the sides. By way of comparison, the U.S. — the biggest military spender in the world — has earmarked $883 billion for defense just this year.

Von der Leyen’s plan, which still needs signing off by governments, is similar to how the bloc raised money to help countries recover from the Covid pandemic, with the difference being that there will be no free money ― this plan consists entirely of loans. Several EU officials signaled that the €93 billion of unclaimed loans that were earmarked for that Covid fund could now be channeled into defense, but the Commission distanced itself from that idea.

The stark questions over Europe’s security following Trump’s election to the White House was thrown into even sharper focus on Monday night when the U.S. president announced the suspension of all military aid to Ukraine ― another effort to show force following last week’s bullying of Ukrainian President Volodymyr Zelenskyy in the Oval Office.

In the wake of Trump’s announcement, European politicians reiterated their support for Kyiv.

Kremlin spokesperson Dmitry Peskov meanwhile celebrated the news, describing it as “the best contribution towards peace,” according to state-controlled Russian media RIA Novosti.

Intense diplomacy

Von der Leyen said the announcement was part of a “Rearm Europe” plan to unlock up to €800 billion of additional defense spending over the coming years. She outlined these ideas in a letter to national governments on Tuesday morning.

What follows now is an intense period of diplomacy ― among EU countries; between the EU and U.K.; within the wider Western alliance that includes Turkey, Canada and Norway; and with the U.S.

The bloc’s 27 national ambassadors are meeting Tuesday to sketch out a plan for the emergency summit between leaders in Brussels on Thursday. Leaders are expected to endorse this €150 billion plan as part of a wider conversation ― that in the immediate term will also be about sending more of its own money to Ukraine, and in the longer term is about nothing less than the future of the continent itself.

“Europe is ready to massively boost its defense spending, both to respond to the short-term urgency to act and to support Ukraine, but also to address the long-term need to take on more responsibility for our own European security,” von der Leyen said.

Countries in NATO aim for defense spending of 2 percent of gross domestic product — but in recent days, France and the U.K. have signaled their intention to go far beyond that. On Sunday, French President Emmanuel Macron said his goal was to raise France’s expenditure to between 3 percent and 3.5 percent of GDP. That would involve France spending around €27 billion more than its current 2.1 percent level.

Part of the EU’s problem is that governments find it tricky to spend more on defense without falling foul of the bloc's beefed-beefed up debt and deficit rules, aimed at preventing an economic crisis.

But it’s clear that averting a military crisis now takes precedent.

'Exceptional circumstances'

To allow more spending, von der Leyen said she will trigger the EU’s national escape clause. That prevents military expenditure from being counted in the bloc's punishment mechanism for countries breaching EU spending limits.

This clause can be activated when “exceptional circumstances outside the control of the member state lead to a major impact on the public finances” of a country, according to the spending rules that were revamped only last year.

Von der Leyen, however, did not lay out the specific conditions to be attached to prevent rampant spending from highly indebted countries.

EU finance ministers will discuss this in a planned meeting on Monday and Tuesday next week, according to an internal note seen by POLITICO.

The Commission president also floated repurposing more regional funds for defense purposes, unlocking private capital by creating an EU-wide investment space and changing the rules of the European Investment Bank to allow more military spending.