Emmanuel Macron to revive demands for European defence bonds

Emmanuel Macron will urge EU leaders on Thursday to embrace radical plans to boost defence spending, reviving demands for joint bonds that are adamantly opposed by Germany.

The French president’s push at an EU summit in Brussels is set to lay bare the divisions over how to finance the biggest rearmament of Europe since the end of the cold war at a time of strained national budgets.

Diplomats say Macron’s stance could dominate the summit, which is set to discuss how to manage a resurgent Russia that some capitals, including Paris, believe poses an existential threat to the continent.

“Obviously, we are raising the issue to say that we need to have innovative sources of funding,” said an Elysée official. “What we want is not to start the debate with limitations on the sources of financing that can be imagined or mobilised. So euro bonds for us . . . should be examined.”

The EU is wrestling with how to step up support for Ukraine and make European defences more robust, amid fears that US aid to Kyiv is dwindling and American protection could be withdrawn if Donald Trump returns as president.

The bloc is exploring myriad ways to finance additional defence spending, from using slices of its joint budget to treating military spending leniently under rules governing national budget deficits.

Other controversial proposals are to use earnings from Russian sovereign assets immobilised in Europe to fund weapons for Ukraine, and to allow the European Investment Bank — the bloc’s lending arm — to invest more in defence.

The Russian asset proposal, which the EU commission put forward on Wednesday, could raise about €3bn a year.

But EU diplomats said it was too early for leaders to endorse it this week, and that states with concerns over its legality would need more time to decide on their position. Some countries, including Hungary, Malta and Cyprus, are uncomfortable with using these profits for weapons.

Leaders however are set to “invite” the EIB to “adapt its policy for lending to the defence industry and its current definition of dual-use goods, while safeguarding its financing capacity”, according to draft conclusions seen by the Financial Times.

Joint debt, as proposed by France, was “not a feasible option”, said a senior EU official involved in the pre-summit negotiations. “The risk you run is that by seeking to push things as far as you can, you just strengthen the opposition.”

Paris says that all the potential financing options should be considered alongside each other given the importance of the objective to develop Europe’s defence industry while supporting Ukraine.

The joint borrowing concept, which would be similar to the EU’s jointly-backed bond issuance during the pandemic, has been backed by some other leaders including Estonia’s Kaja Kallas.

But Germany and several other so-called frugal countries including the Netherlands and Denmark, say the joint borrowing idea is not a viable option.

“We have to find a way to finance the boosting of our defence industry and how to help Ukraine. We need European money,” Petteri Orpo, prime minister of Finland, told reporters on the eve of the summit. “But [joint borrowing] is very difficult.”

One German official said that arguing over fresh joint borrowing would only distract from the urgent need to assist Ukraine and more feasible solutions, such as using Russian assets.

“A debate about possible additional financial instruments in the future might be intellectually stimulating but doesn’t really help us in the current situation,” said the official.

European Council president Charles Michel, who is chairing the summit and sets its agenda, has endorsed Macron’s position and will urge others to debate it on Thursday.

“The [European Council] president is pushing for a debate to happen,” said a senior EU official involved in summit preparations. “We need to address this question at leaders’ level.”

European defence bonds “could be a powerful means to strengthen our technological innovation and industrial base”, Michel wrote in an opinion piece published in multiple European newspapers this week.

The German official said in response: “I have the feeling that the council president got a bit ahead of himself in this debate.”

Pre-summit negotiations by EU ambassadors saw opponents of the bond-raising remove a reference to “exploring . . . innovative sources” of funding from conclusions to be adopted by the leaders, according to officials present.

Diplomats acknowledge that proponents of defence bonds are outnumbered by sceptics. “You can call it being in the minority, but you could also interpret it as being ahead,” said a second diplomat, from a country that supports the idea of fresh joint debt.

Additional reporting by Laura Dubois, Andy Bounds and Alice Hancock in Brussels

Letter in response to this article:

Defence spending needs some wartime solutions / From Gavin Greenwood, Brighton, East Sussex, UK