European defence: faced with urgent funding needs, what innovative strategies are there for 2025?

Over the past few months, it is undeniable that Europeans have become aware of the urgent need to increase the resources they devote to their defence, not only to provide military assistance to Ukraine but also to strengthen, if not rebuild, their defence industrial base. Finally! One might be tempted to say. The conclusions of the European summit held in Brussels last week further reinforce this observation. Just a few days after the publication by the Commission and the High Representative of the Union for Foreign Affairs and Security Policy of the first European defence industrial strategy, the willingness expressed by Member States to accelerate the implementation of this strategy is a very encouraging sign.

Unfortunately, all this requires money, a lot of money, and very quickly… But there is little or no money available. The draft regulation, an investment programme accompanying the new European strategy, currently has a budget of only €1.5 billion. European countries are still almost €200 billion short of their target of spending 2% of their GDP on military expenditure, including €46 billion for Germany (almost a quarter of the required amount), €35 billion for Italy and €32 billion for France. The Europeans made this commitment in 2014 within the framework of NATO, shortly after Russia’s annexation of Crimea. Time is running out, as the deadline for achieving this is 2025 and Donald Trump has already threatened to crack down on those who do not meet this commitment if he wins the next US presidential election.

What are the alternatives? Apart from a further increase in military spending by countries, which seems illusory, either because their debt severely limits their room for manoeuvre, or because there are many areas requiring funding (health, education, climate change, agriculture, etc.), or, as in the case of Germany, because budgetary rigour is enshrined in the Constitution. European institutions are no better off. With a budget representing barely 1% of GDP and a multiannual financial framework that has been derailed by recent crises (pandemic, energy war), it is clear that resources are lacking. Europeans are therefore looking for ‘innovative’ sources of financing.

Whether it be the proposal to create a €100 billion sovereign wealth fund, the issuance of European bonds (Eurobonds), the reform of the European Investment Bank (EIB) statutes to enable it to lend to defence manufacturers, or the use of exceptional profits generated by Russian assets frozen as part of sanctions, there is no shortage of ideas and the lines are shifting, as evidenced by the reversal of the so-called frugal countries, which are now rather in favour of reforming the EIB. However, there is a sense of urgency and it is clear that the possibility of further debt mutualisation is still divisive. At last week’s European summit, Member States already put this item on the agenda for their June summit.

To be continued at the next summit!