EU leaders to discuss breaking the defense bond taboo at Brussels summit

Hind Al Soulia - Riyadh - BRUSSELS — The highly divisive prospect of using so-called Eurobonds to finance efforts to ramp up the EU’s defense capacities will be floated as the bloc’s 27 leaders meet in Brussels on Thursday.

It’s seen as a first attempt to test EU member states’ appetite for jointly issuing debt to bolster the bloc's defense industry as war rages on its eastern flank.

Although divisive, French President Emmanuel Macron and Estonian Prime Minister Kaja Kallas have both backed the idea in the past. In February's summit, Kallas suggested that the bonds should amount to a total of €100 billion.

But the taboo of issuing common EU debt to arm member states will be difficult to shrug off, as the more fiscally frugal capitals are highly skeptical of the move.

A senior diplomat from a northern EU country, speaking on condition of anonymity, said they were hesitant to consider defense bonds, advocating for a market-based approach and more private investments.

Another senior EU diplomat said, however, that it was necessary to “launch the debate” about potential defense bonds, adding that with Russia running a war economy, the EU also needs to think seriously about its own preparedness for conflict.

In his invitation to leaders, European Council President Charles Michel calls for “radical and concrete steps” to put the EU’s economy “on a war footing”, and has in the past called for European defense bonds to streamline the bloc’s military spending.

It’s part of a push to find more innovative and creative ways of replenishing the EU’s defense stockpiles, which have been drained since Russia’s full-scale invasion of Ukraine prompted EU member states to send weapons and military equipment to Kyiv’s aid.

The summit will follow a raft of breakthroughs on EU support to Ukraine this week, including a deal on a €5-billion weapons fund for Ukraine struck by EU ambassadors Monday, and a proposal tabled by the European Commission Wednesday to use windfall profits from Russian assets immobilized in EU states to arm Ukraine.

The EU executive also announced on Wednesday it had tasked former Finnish Prime Minister Sauli Niinistö to prepare a report on the bloc's civilian defense preparedness, in light of the ongoing war in Ukraine.

The so-called ‘frugal five’ - Austria, Denmark, Finland, the Netherlands and Sweden - have in the past firmly opposed issuing EU public debt in times of economic crisis, for fears it would punish richer countries such as themselves.

The COVID-19 pandemic first forced the EU to break its taboo on raising common debt, with an agreement for the Commission to fund the landmark €800-billion post-pandemic recovery plan, known as Next Generation EU, by issuing EU bonds on the capital market.

While the plan has been hailed a success and a leap forward in terms of the EU’s financial solidarity, a rise in borrowing costs has meant it is costing the bloc more than anticipated, potentially dampening prospects it will be championed in other future crises.

Another senior diplomat said that Michel's bonds proposal is "unlikely to go anywhere" as so many member states are uninterested in raising joint debt.

An alternative means of ramping up defense spending has been pitched by 14 member states, who call for the European Investment Bank's mandate to be amended to allow it to fund investments in military equipment and infrastructure.

"We need to explore different possibilities that would enable the EIB to invest in defense-related activities beyond existing dual-use projects," a letter addressed to the EIB by the countries, which include France and Germany, reads.

"This would mean discussing and re-evaluating current definitions of dual-use projects and the list of excluded activities as well as reconsidering its defense industry lending policy and other restrictive elements."

Another initiative under discussion will be the Czech Republic's plan to deliver tens of thousands of extra artillery shells to Ukraine's armed forces as they aim to withstand the Russian offensive.

Czech foreign minister Jan Lipavský says his country had procured 300,000 shells that will be sent to the frontlines, with first deliveries scheduled before June.

Senior diplomatic sources suggested as many as 20 EU countries could sign up to the initiative, which involves buying unused ammunition from unknown Western countries.

Denmark, Belgium, Germany, the Netherlands and Sweden have already confirmed their participation.

During the two-day summit which kicks off on Thursday, leaders will also decide whether to endorse the Commission's recommendation to open accession talks with Bosnia and Herzegovina, and adopt the frameworks that should guide accession talks with Ukraine and Moldova.

Diplomatic sources suggested no country was likely to block the decision on opening talks with Bosnia and Herzegovina, although the country's bid has in the past faced opposition.

Leaders will also try to put aside their differences on the crisis gripping Gaza and agree to call for "an immediate humanitarian pause leading to a sustainable ceasefire" in the besieged Gaza Strip. — Euronews