EU mulls new defence funding mechanism with third countries to boost military readiness
EU finance ministers are set to think about a proposal to determine a brand new intergovernmental establishment referred to as the “European Defence Mechanism” (EDM) for defence-related lending and cooperation with non-EU nations such because the UK, Norway or Switzerland.
“Given the necessity to keep prudent fiscal positions, defence funding can’t proceed with out correct coordination,” Polish finance minister Andrzej Domański advised counterparts in a letter despatched final Friday.
The proposed mechanism mirrors a current British concept for a supranational rearmament fund. It will contain borrowing on capital markets and centralising defence procurement to scale back prices.
“As defence spending stays a nationwide prerogative, this intergovernmental mannequin might provide a more practical response to inadequate defence financing,” Domański added.
The EU-27’s finance ministers will likely be joined by their counterparts from the UK, Norway and Switzerland throughout their casual assembly in Warsaw on 11–12 April, the place a coverage paper by the Brussels-based financial assume tank Bruegel—together with the EDM proposal—will likely be mentioned.
Drawing on the mannequin of the European Financial institution for Reconstruction and Growth (EBRD), Bruegel’s paper proposes having the EU as a definite shareholder represented by the European Fee to make sure a easy coordination with the non-EU members.
In line with Bruegel researchers, the EDM’s mandate may embody establishing a single marketplace for defence and even proudly owning strategic army property, equivalent to a satellite tv for pc system for army intelligence and communication or superior missile expertise—measures that would scale back the fiscal burden of rearmament on member nations.
Whereas much like the present European Stability Mechanism (ESM), the proposed fund wouldn’t require participation from all 27 EU member states. It may additionally prolong its monetary attain to subscribed non-EU nations and members out of the euro space.
Becoming a member of the mechanism would require members to contribute a quota based mostly on their financial dimension, army spending and/or property, with selections doubtlessly taken in line with capital shares or certified majority voting.
The fund may additional help frontline members by means of interest-free lending or by allocating higher shares of procured gear to frontline members than these members pay for.
EU defence funding mechanisms don’t provide the best incentives
US President Donald Trump has urged NATO members to boost their defence spending to five% of GDP—a goal no member presently meets, and one that’s notably tough for the eight European NATO members which spent lower than 2% in 2024.
In response, European nations are pledging more cash to strengthen European defence—however greater budgets alone gained’t bridge the bloc’s functionality gaps.
Bruegel researchers argue that present EU defence funding instruments don’t provide the best incentives to match the Kremlin’s army manufacturing.
Present devices such because the European Defence Fund (EDF), the Act in Help of Ammunition Manufacturing (ASAP), and the Rearm Europe plan symbolize progress, however “the incentives provided are too small to handle the house bias in procurement or to coordinate the supply of ‘strategic enablers’ equivalent to army satellites,” the paper argues.
Nationwide defence markets stay dominated by native champions. In France, as an illustration, the highest two defence firms accounted for 69% of the sector’s home gross sales in 2024.
With the US more and more retreating from its conventional position as Europe’s protector, this fragmented method, the house bias in procurement and the present technological gaps have to be addressed urgently, the researchers say.
So how? Along with the European Defence Mechanism, Bruegel recommends increasing the position of present our bodies just like the European Defence Company in widespread planning, procurement, and funding.
It additionally suggests a brand new instrument much like the one utilized in response to the COVID-19 pandemic for short-term help to mitigate unemployment dangers in an emergency (SURE), and strengthening coalitions such because the everlasting structured cooperation for defence and safety (PESCO) to develop strategic enablers and cut back dependence on the US.
“Reliance on US producers could also be tough to beat,” the paper says, whereas stressing that Europe has an opportunity to rearm and cut back its dependence on the US if it undertakes a significant reform of each the demand and provide aspect of the defence market in Europe.
