Defense: How Europe's security is to be financed

The talks between the heads of state and government on the financing of European defense are in full swing. On Sunday, British Prime Minister Keir Starmer is inviting some of his colleagues to London. A special EU summit will then take place in Brussels next Thursday. Council President António Costa has also invited Ukrainian President Volodymyr Zelenskiy to this summit.

The special summit is intended to prepare the ground for far-reaching decisions on European defense. According to the current timetable, these are then expected to be finalized at the EU summit in June.

The following building blocks are emerging :

The exact design of this new instrument is still unclear. A major new EU debt program along the lines of the Next Generation EU coronavirus recovery program is not expected for the time being. Germany is not least opposed to this. The lion's share of the armaments effort must continue to be undertaken in the member states, according to Brussels.

The financial requirements are enormous : Germany alone is likely to need at least EUR 610 billion more for the Bundeswehr over the next 15 years. This is shown by new figures calculated by security experts Christian Mölling, Torben Schütz and Noah Heinemann for the Future Department.

The money is needed to provide the military capabilities already promised to NATO. This includes the Lithuanian brigade, for example. But also to replace conventional US combat troops in the future. "If these requirements were to be covered by regular annual defense spending, expenditure amounting to around 2.7 percent of GDP would be necessary for the period up to 2040," the experts estimate.

According to information from CDU circles and the Élysée Palace, CDU chancellor candidate and party leader Friedrich Merz is said to have spoken to French President Emmanuel Macron on Wednesday evening about a new billion-euro defense fund as a permanent aid for Ukraine and for Europe's defense capability. This financial instrument could be equipped with a banking license and thus grant loans to finance armament projects. It would be modeled on the ESM, which was founded as a separate financial institution during the sovereign debt crisis to rescue the crisis-ridden euro states and was filled with EUR 700 billion.

With a starting capital of ten billion euros, the bank could mobilize EUR 90 billion. At least that is the estimate of the authors of a concept paper: former commander of the British armed forces, Nick Carter, think tanker Edward Lucas and Guy de Selliers, who was involved in the creation of the European Bank for Reconstruction and Development (EBRD) in the early 1990s. This could be used to finance armaments projects as well as military infrastructure for cyber security and logistics. The participating countries would each guarantee the capital invested and could conclude long-term purchase agreements with the manufacturers.

As a non-EU country, the UK is also to be included from the outset. Poland also wants to be involved. Deputy Foreign Minister Marek Prawda said on request: "We support this." The advantage would be that at least the leveraged loans to private industry would not appear on the books of the member states.

However, some experts doubt the usefulness of such a new bank : if the aim is to exempt loans from EU budget rules, "you don't have to go to a lot of trouble to set up a new institution, simply changing the budget rules is enough," says Lucas Guttenberg from the Bertelsmann Stiftung. Such a bank would be more of a "financial policy symbol of cooperation, which in reality is a solution in search of a problem."

Please also see the Opinion article in this issue.