The European Union is preparing to announce significant measures to enhance defense financing, with EU leaders scheduled to gather in Brussels on Thursday. This meeting, primarily dedicated to defense and support for Ukraine, marks a pivotal moment as the EU seeks to strengthen its military capabilities in response to growing geopolitical tensions. The anticipated announcement comes as the European Stoxx Aerospace and Defense index has surged nearly 23% this year, reflecting investor confidence in increased defense spending.
The European Commission President, Ursula von der Leyen, emphasized the urgency of bolstering Europe's defense capabilities.
"We urgently have to rearm Europe. And for that I will present a comprehensive plan to the leaders on how to rearm Europe on 6 March when we have our European Council," – Ursula von der Leyen
EU leaders are expected to unveil concrete measures in defense financing in the coming days. This development is timely, as 23 out of 32 NATO members are projected to reach the 2% defense spending target by 2024. The European Commission announced in February that it would amend fiscal rules, allowing countries to allocate more resources to defense without being restricted by specific debt and deficit targets.
Currently, the European Investment Bank (EIB) faces limitations in financing defense projects exclusively for dual-use purposes. However, discussions are underway to adapt the EIB mandate and explore additional funding avenues at the EU level.
"We are looking at additional funding for defense at the EU level, including through flexibility in the use of structural funds and adaptation of the EIB mandate," – EU official
The EIB has set a target of 95 billion euros ($99.26 billion) in investments by 2025. In light of these goals, Goldman Sachs suggested that EU leaders might consider repurposing remaining financial resources from the NextGenerationEU funds for defense initiatives. Established in 2020 during the pandemic, these funds could play a crucial role in addressing Europe's defense needs.
The idea of common borrowing for defense projects is also gaining traction within the EU. As part of this strategy, the European Council will deliberate on a comprehensive plan to rearm Europe during their meeting on March 6.
"In the absence of offsetting fiscal measures, the Euro area needs to fund an additional 0.6% of GDP annually to meet the defence spending target at 2.5%," – Goldman Sachs
The urgency of these discussions is underscored by Bruegel, a Brussels-based think tank, which highlighted the need for 300,000 additional troops and an immediate increase in defense spending by at least 250 billion euros. Such measures aim to deter potential Russian aggression and bolster Europe's security infrastructure.
"300,000 more troops and an annual defence spending hike of at least 250 billion euros in the short term to deter Russian aggression." – Bruegel
NATO Secretary-General Mark Rutte emphasized that Europe's defense spending should exceed current targets.
"Much more than 2%." – Mark Rutte
These developments come amidst ongoing concerns about global security dynamics, with former US President Donald Trump cautioning against what he termed as "gambling" over a potential World War III.
"Gambling" over a potential World War III. – Donald Trump
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