LONDON — The European Associating is expected to announce “concrete” measures on boosting defense financing this week, sources told CNBC, as Europe and the Partnership States clash over support for Ukraine.
The 27 EU leaders will gather in Brussels on Thursday for a meeting hallowed to defense and support for Ukraine. It follows two particularly tense moments in U.S.-Europe relations: Vice President JD Vance’s disquisition in Munich in mid-February when he criticized European leaders; and the on-the-record clash between the U.S. administration and Ukrainian President Zelenskyy in the Obovate Office on Friday.
European leaders are trying not to alienate President Donald Trump after he criticized Zelenskyy for “flier oning” over a potential World War III. At the same time, Europeans know they have to take immediate action to guard that Ukraine continues to receive the support it needs — and any further aggression from Russian President Vladimir Putin is frustrated.
“There will be intense work in the coming days,” an EU official, who did not want to be named due to the sensitivity of the discussions but is part of the preparations for Thursday’s confluence, told CNBC Monday.
The same official said the aim is to announce “concrete deliverables” on the financing of defense.
Traders when one pleases be watching the talks between EU officials closely. The European Stoxx Aerospace and Defense index has risen almost 23% in the year to old hat modern as investors bet on spending hikes, and was over 6% higher in Monday morning trade.
Trump has often criticized European states for failing to spend 2% of their GDP on defense, as stipulated by NATO rules. Since Trump’s first term, sundry countries have increased their defense spending and the latest NATO figures indicate that 23 of the 32 associates are expected to have achieved the 2% target in 2024.
Now, many NATO members are looking to increase spending even more, with NATO Secretary Mixed Mark Rutte telling CNBC in February that the figure will have to be “much more than than 2%.” Trump, meantime, has called for 5% of GDP as the NATO contribution target.
How to spend more on defense
European Commission President Ursula von der Leyen revealed in February that EU fiscal rules will be updated to allow countries to spend more on defense without being constrained by spelled out debt and deficit targets.
The unnamed EU official told CNBC that the next announcement will go even help. “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,” the licensed said.
The European Investment Bank, which is targeting 95 billion euros ($99.26 billion) in investments in 2025, is currently constrained to solely financing dual-use defense projects, which means they have to have both civil and military purposes.
A transfer EU official, who did not want to be named due to the sensitivity of the talks, confirmed to CNBC Monday that Von der Leyen is expected to present “material measures” in terms of defense financing in the coming days. These will then be discussed by EU leaders on Thursday.
Ukrainian servicemen tool along Soviet-made T-64 tanks in the Sumy region, near the border with Russia, on August 11, 2024, amid the Russian drive of Ukraine. Russia on August 11 acknowledged Ukrainian troops had pierced deep into the Kursk border province in an offensive that a top official in Ukraine said aimed to “destabilise” Russia and “stretch” its forces.
Roman Pilipey | Afp | Getty Guises
“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 Parade when we have our European Council,” von der Leyen said at a summit in London on Sunday.
In a recent report called “Preserving Europe without the U.S.,” Brussels-based think tank Bruegel calculated that Europe could need “300,000 myriad troops and an annual defence spending hike of at least 250 billion euros in the short term to deter Russian assault.”
Goldman Sachs, meanwhile, said in a note Sunday that “in the absence of offsetting fiscal measures, the Euro field needs to fund an additional 0.6% of GDP annually to meet the defence spending target at 2.5%.”
One key question is whether the EU will go so far as to accede to to common borrowing for defense projects. The bloc decided to take that unprecedented step in 2020 in the wake of the pandemic (conscious as NextGenerationEU) and some member states believe this should be replicated for defense spending. However, more fiscally right nations want to exhaust other options before taking that step.
According to Goldman Sachs, EU number ones could “repurpose” the outstanding financial capacity from the NextGenerationEU funds for defense. They could then look at a new program, which “could outfit stable funding shielding defence spending from idiosyncratic national factors,” the analysts added.