Eurobonds for defence: first tentative green light arrives

Brussels – On the anniversary of the thousandth day since the start of Russia’s large-scale invasion of Ukraine, celebrated by the Europarliament with a special plenary session to which President Volodymyr Zelensky participated from Kyiv, the foreign ministers of five EU countries opened to the issuance of joint debt to finance military spending, including efforts to reach the NATO-agreed 2 per cent of GDP target for defence. Target that, in reality, has already become obsolete.

Obligations in the NATO house

In a joint statement published today (Nov. 19), the heads of diplomacy of France, Germany, Italy, Poland, United Kingdom, and Spain said they consider it “imperative to strengthen NATO by increasing security and defence spending, in line with previous commitments.” The reference is to the decision, dating back to 2014, to fix military spending by Alliance member states at 2 per cent of GDP to ensure an adequate level of preparedness for possible external threats.

However, in light of recent developments on the international chessboard, ministers agreed on the need for “higher spending”in order to “address growing security threats and meet deterrence and defence requirements in all areas of the Euro-Atlantic area.” First among such developments, not even to mention, is the Russian aggression of Ukraine launched by Vladimir Putin on Feb. 24, 2022, which entered its 1,000th day today. While the president of the aggressed country was making his speech in the EU Parliament, the Kyiv military was firing, for the first time since the beginning of the conflict, the long-range ATACM missiles into Russian territory, after receiving yesterday the green light from U.S. President Joe Biden.

The ministerial meeting held in Warsaw was one of the so-called “Weimar Triangle” (consisting of France, Germany, and Poland), enlarged to include Italy, Spain, and the United Kingdom. The incoming EU High Representative for Foreign Policy, Kaja Kallas, also attended it. On the table were several issues related to the war in Ukraine, including the position to be taken vis-à-vis the re-election of Donald Trump to the White House.

Eurobonds for defence

Among the main points, the long-standing issue of defence Eurobonds, financial instruments that should allow the Twenty-Seven to issue joint debt securities on international markets to support defence spending and investment, has resurfaced. Last June, EU leaders had postponed the negotiation on joint financing to 2025 under the auspices of the new EU executive.

“For the first time here in Warsaw, the five largest European countries agree on the need for European defence bonds,” said host Radoslaw Sikorski on the sidelines of the meeting, according to whom the discussion represented “a significant breakthrough.” Among the governments represented in the Polish capital, the most sceptical had always been the German government, which, in keeping with the fiscal rigorism dear to Berlin, had historically opposed the issuance of common debt at the European level.

In contrast, the Italian government has always favoured Eurobonds, which would allow Rome to take advantage of subsidized interest rates. But, noted Farnesina titular Antonio Tajani, there is “a problem” called the Stability and Growth Pact (SGP): “We have made commitments with Brussels; we have seven years to reduce the deficit-to-GDP ratio,” the deputy prime minister reminded, “and defence spending must be unbundled (from the deficit calculation, ed.) if we want to get to the 2 per cent” decided by the alliance.

A proposal “welcomed by the new commissioner for Defense” Andrius Kubilius, Tajani continued, and which will also be crucial “to be able to count more within NATO,” where “it is right that there should be a European and an American pillar.” He was echoed from Brussels by Defense Minister Guido Crosetto, who reiterated the call already launched last summer, which for now has always fallen on deaf ears. We will now see if the von der Leyen bis Commission will do anything to change the rules of the game, allowing member states to increase their defence budgets without incurring infringement proceedings.