EU leaders avoid controversy as they discuss defense spending boost

Hind Al Soulia - Riyadh - BRUSSELS — EU leaders on Monday didn't appear to have coalesced around key options to boost common spending in defence, calling for the European Commission to first explore ways they could increase their own national investments in the sector.

Leaders urged the Commission to look into the flexibilities the Stability and Growth Pact could offer to allow for national boosts in defence spending, Commission President Ursula von der Leyen told reporters after an informal retreat in Brussels.

Under the Stability and Growth Pact, member states are obligated to implement a fiscal policy that aims to keep government deficit under 3% of GDP and debt under 60% of GDP. Failing to do so can result in an Excessive Deficit Procedure (EDP) from the Commission and penalties including fines. Eight member states - Belgium, France, Hungary, Italy, Malta, Poland, Romania, and Slovakia - are currently targeted by such a procedure.

Several EU countries including Poland, Italy, Greece and the Baltics, have been asking for such a review of the Pact, citing the precedent made during the COVID-19 pandemic when the Commission suspended fiscal rules to enable governments to assist companies and citizens with their pandemic-induced bills.

On the common financing side, the two other options leaders asked the Commission to explore in more detail in its White Paper on Defence to be released on March 19 are a change to the European Investment Bank's (EIB) lending rules and for private European banks.

The EIB’s mandate was already updated in 2024 to allow it to pour money into more dual-use projects, and it boosted its investments in security and defence to €1 billion last year. It expects to double that in 2025.

A change to the EIB's mandate, von der Leyen said, would "make it easier for the private banking sector to follow suit".

European households' savings reach almost €1.4 trillion, well above the €800 billion in the United States, yet little of that money is invested in defence as the sector is not seen as sustainable under the bloc's taxonomy rules.

European Council President Antonio Costa flagged during the same press conference that "other ideas were mentioned today, including additional common options and more innovative ones" as "it is clear to everyone that we need to act faster than that". But neither he, nor von der Leyen or Polish Prime Minister Donald Tusk, also present to answer journalists' questions, dared to name the elephant in the room: the issue of joint borrowing.

Some frugal countries, such as the Netherlands, continue to vehemently oppose the proposal championed by France, Spain, Italy, Poland and the Baltics. But others, such as Denmark, have warmed up to this possible instrument, another COVID-era invention.

But innovative solutions will be necessary to plug the massive financing gap in defence the EU faces.

Little money (around €10 billion) was earmarked for the defence sector in the current eight-year budgetary cycle that runs to 2027 and negotiations for the next multiannual financial framework (MFF) will start only in the summer.

But the Commission estimates that the EU needs to invest €500 billion in the sector over the coming decade so that it can continue to support Ukraine but also ensure it is in a position to defend itself following decades of under-investments.

Spending 2% of GDP on defence - the minimum target set by the NATO military alliance in 2014 - would inject an additional €60 billion annually into the sector but several European allies still have yet to reach that threshold. The alliance is meanwhile expected to "significantly" up that target at a summit of leaders in late June, its Secretary General, Mark Rutte, told journalists earlier on Monday as he joined EU leaders at their retreat.

Another area leaders have tasked the Commission to explore in order to boost the European defence industrial base is a simplification of EU rules on procurement, von der Leyen said.

"Our coordination in defence must be strengthened, for instance, from joint procurement, ensuring interoperability. That brings down costs and gives us scaling opportunities and advantages," she said.

Leaders also discussed the military capabilities the EU should spend cash on as a matter of priority with Costa saying the emphasis has to be placed on "areas where there is a clear European Union added value."

"In the discussion today there was a clear focus on air and missile defence, for example, but also to mention just a few, missiles and ammunition, military mobility and strategic enablers," he said.

But the issue of rolling out a so-called European preference for common spending was not addressed at the press conference, suggesting it remains a subject of division between capitals.

France's Emmanuel Macron reiterated upon arrival that such a preference was necessary to boost strategic autonomy and plug dependencies but other leaders, such as Lithuania's Gitanas Nausėda argued that procuring "military equipment from the United States would be a matter which creates a constructive, and not a destructive economic agenda" with Washington following threats from Donald Trump of US tariffs on EU goods.

Von der Leyen did however say that "if we spend billions and billions of taxpayers’ money, we need return in increase know-how and good jobs in Europe".

Partnerships with like-minded partners on security and defence were also addressed by leaders, in particular with NATO, the US and the UK, whose Prime Minister Keir Starmer, attended the gathering over dinner.

Brussels and London will continue the discussion at a summit in the UK on May 19, Costa announced. — Euronews