MNI: EU To Discuss Proposal For Joint Defence Funding With UK

European Union finance ministers will discuss a paper outlining a proposal for a new joint-funding mechanism to pay for a defence buildup, which would include non-EU states such as the UK and Norway, at their meeting in Warsaw on April 11-12, EU officials told MNI.

The paper, from leading think tank Bruegel, comes as countries like France, Italy and Spain argue that a new EUR150 billion SAFE loan facility and a relaxation of the EU’s fiscal rules via national escape clauses to allow for more military spending are insufficient, particularly given the vulnerability of their national finances.

“Most member states talk about [national escape clauses] and SAFE as good first steps, but no-one pretends this is going to solve all the problems,” an EU source said, noting that that member states and the Commission are already talking about how to involve third countries.

“SAFE is open to them in theory,” he said, referring to non-EU states.

Talks among Ecofin sherpas at the end of last week revealed a lukewarm response to the European Commission's current proposals, with hopes for a coordinated take up of national escape clauses looking like falling flat. (See MNI: EU Defence Finance Not As Coordinated As Hoped - Official)

"Around 20 countries indicated they would potentially use the national escape clause and around 10 countries could use SAFE," one national finance ministry official said.

LOWER UPTAKE

"My expectation is that the uptake of the EUR150 billion will be just partial and from the national escape clause much less than the EUR650 bullion highlighted by the Commission," said Bruegel fiscal expert Zsolt Darvas. 

Some countries, Spain among them, have indicated that they may only apply for  escape clauses to show solidarity with other member states and may not make actual use of the exemption. The Netherlands, Sweden, Denmark and Ireland would on paper have no need to apply, given their relatively sound fiscal positions. 

France has already said it will not apply and high-debt Belgium is thought likely to follow its neighbour. (See MNI: France, Other EU States, To Forego Defence Escape Clause)

Italy is using the talks on EU financing to push for an extension of the 2026 deadline on using NextGenerationEU Covid reconstruction funds and has yet to make clear its stance on the escape clause, officials said. (See MNI: Defence Spending Deepens Italian Government Fractures)

It is also becoming clear that even Germany - the one big and committed escape clause taker - is very unlikely to make the end-of-April soft deadline for applications since it has yet to draft and submit its medium-term fiscal-structural plan to the Commission because of its recent general election. 

The Bruegel paper is likely to be used to strengthen the case of those countries which are continuing to press behind the scenes for a common funding approach, such as Italy, Spain and France.