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Ahead of an EU summit on Thursday (June 27), the European Commission is working to finalise plans including “innovative solutions” to finance the EU’s defence industry and awaits a needs assessment to justify the creation of a €500 billion fund.
The committee’s recommendation to “explore all options for mobilising funds” to provide financial support to the defence industry, boost its production to meet wartime needs and provide investment prospects for the sector is long-awaited.
Although EU leaders Ask in March The EU’s executive Commission is due to present ideas at its next summit, but it is unclear whether it will be ready and what it will contain.
Multiple EU sources confirmed to Euractiv that the Commission is currently studying the proposal, but declined to give a clear timeline for when it would be submitted.
“We have not seen the letter from the president of the European Commission,” an Elysee Palace source told Euronews.
Among the “creative solutions”, much attention has been paid to the controversial idea of collectively borrowing cash from financial markets through “Eurobonds”.
The proposal has not yet been formally tabled, and one source said the idea is not expected to be included in the proposal.
While several member states, such as France and Estonia, are looking forward to discussing the topic, frugal countries, especially the Netherlands, have been reluctant to discuss it.
Since March, other measures have been introduced and implemented, such as using Sanctioned Russian assets In the EU, and Relaxing lending standards European Investment Bank (EIB)
One EU diplomat said the commission should also carry out a “proper needs assessment” before proposing funding opportunities, something other countries have also requested in the past.
None of the European Commission’s previous defense industry plans since the outbreak of the war in Ukraine have been accompanied by a detailed needs assessment. The EU’s executive arm has argued, among other reasons, that the information is confidential and that the urgency of the situation does not allow for additional measures.
It is not yet clear how much money the EU executive believes is needed to develop EU industry.
But a source at the Elysee Palace said that “various figures are being proposed, such as 400 billion euros or 500 billion euros”, but they are “awaiting a needs assessment (…) We need examples that can fill the gap in financing capacity”.
A second EU diplomat briefed on the matter told European Events that the European Commission estimates that more than €500 billion will be needed over the next decade to expand the defense industries in Europe (€400 billion) and Ukraine (€110 billion).
Internal Market Commissioner Thierry Breton said the 100 billion euro need Development of European industry.
But as for how to find funding, there are currently several options.
The Elysee Palace said the commission should “propose a wide range of financing options in line with evolving financing capacity needs”.
“There is still a lot we can do before discussing Eurobonds,” the first EU diplomat said.
“We can do more on joint procurement and removing market barriers within the defense industry.”
They also suggested considering leveraging private capital, such as through Capital Markets Unionor ensure ESG Criteria (Environmental and social governance) are consistent with the need for defense investment, so there is less resistance from banks and the European Investment Bank to lending.
A third EU diplomat told Euractiv they wanted the EIB to further adjust its lending policy so it could invest more in defence equipment production.
The EIB continues to refuse to finance purely defence activities such as weapons production.
Meanwhile, EU leaders will call on the European Investment Bank to “further adapt its lending policy towards the defence industry while safeguarding its financing capacity”, the draft final summit declaration reads, adding pressure on the bloc’s multi-million lender.
Europe’s top spenders have also been arguing that all countries should spend at least 2% of GDP on defense, in line with targets set by the Western military alliance NATO. Estonia, for example, has worked towards a 3% target.
Jan Puy, secretary general of the Association of the National Defence Industries (ASD), told European Events: “Building defence capabilities is a long-term challenge that requires not only long-term planning and funding, but also the public and private sectors to work together towards common goals.”
He added: “Given the scale of the challenge, we believe the solution must be a combination of different approaches, involving both the public and private sectors.”
(Editing by Alice Taylor)
Read more by Euractiv
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