MNI: Joint Europe Defence Funding In EC Budget Talks-Officials

More joint European funding of defence is likely to emerge as a key topic in the drawn-out negotiations over the European Commission's next seven-year budget to be presented in July, officials told MNI.

While defence will remain largely dependent on national budgets and the bloc’s new EUR150 billion SAFE lending facility even as NATO members ramp up to a new spending target of 5% of GDP, other possibilities include greater funding from the EU budget itself, more flexible use of Cohesion Funds and the possible rolling over of debt under the existing NextGeneration EU programme, repayments on which would otherwise start from 2028, officials said.

While these options may or may not be present in the Commission’s initial Multiannual Financial Framework proposal, they could appear in the subsequent negotiations with member states and the European Parliament, which can take months or years, they said.

"There will be a second stage which will be a presentation of the MFF by the Commission and then we will see later when the conditions are there to discuss defence financing. It will inevitably come in my opinion,” a senior EU official said, noting that other pending tasks include the implementation of SAFE and the formal granting of national escape clauses to EU fiscal rules for defence spending for at least 12 member states. (See MNI INTERVIEW: France Ready To Join SAFE Loan Facility)

"There are ideas floating around, but it's too early in the process to start the discussion now," the EU official said.

BOLSTER DEFENCE INDUSTRY

Countries like France have argued for joint European borrowing to pay for areas like defence, as well as to bolster the reserve role of the euro by deepening the pool of assets denominated in the currency, but the probability of a big joint programme along the lines of NextGenerationEU to pay for defence seems low.

"Today Europe's problems are more micro, you can raise money for defence but if you don't know how to intelligently deploy those funds it's just piling up more and more debt. It's much harder to know whether and how to deploy funds for fighters or drones or tanks or satellites and with which partners than it is to give a macro demand push," one source said. (See MNI: EU To Weigh Defence Needs When Approving Mergers)

A key priority will be ensuring that defence contracts are whenever possible awarded to European countries rather than leaked abroad.

The NATO summit is June 24-25 this week and EU leaders will meet in Brussels on June 26-27, following a preliminary agreement for EU NATO members to commit to reaching the 5% target by 2035 target, though with an exemption for Spain.