The EU needs to invest €500 billion over the coming decades to shore up its defence and kickstart its defence industries but member states remain divided over what and where to buy crucial equipment and how to finance it all.
EU leaders will on Monday convene in Brussels to start thrashing out a common strategy to shore up Europe’s defence and how to finance it as massive gaps in thinking still remain.
It’s in the 16th century neoclassical Palais d’Egmont, in central Brussels, and not in their usual haunt in the European Council that leaders will gather in the morning for an informal retreat meant to give them the space to have frank and open discussions for their first ever summit dedicated solely to defence.
To further help loosen leaders’ tongues, no joint conclusions are to be expected at the end of the meeting, which will also be attended over lunch by the Secretary General of the NATO military alliance, Mark Rutte, and over dinner by Britain’s Prime Minister, Keir Starmer.
In between, the 27 EU leaders will discuss transatlantic relations and European defence with two key issues top of the agenda: which military capabilities the EU should spend cash on as a matter of priority; and how to finance the development and acquisition of these capabilities.
According to the European Commission, the EU needs to invest €500 billion on defence over the next decade when only €8 billion was earmarked for the sector in the bloc’s 2021-2027 budget.
Funding is desperately needed to kickstart the European defence industry after decades of under-investments, secure the military equipment needed to help Ukraine defend itself, and protect the bloc against any potential aggressor. Intelligence agencies have warned that Russia could be in a position to attack an EU country by 2030 as it continues to outproduce its European counterparts in military equipment despite the sanctions imposed by the West to cripple its economy and ability to wage war.
‘Shared sense of urgency’
Most EU member states, which are also NATO allies, agree that the reflection over capabilities needs to be done with the military alliance which has decades of experience to draw upon and which has, crucially, started the job of identifying its capabilities gaps and how best to plug them.
But there is also “a shared sense of urgency among member states and an agreement that Europe needs to become a more efficient, a more autonomous, and a more reliable defence actor,” a senior EU official said ahead of the meeting.
This has become even more urgent following Donald Trump’s return to the White House. The US President has lambasted EU NATO allies that are failing to spend the mandated 2% of their GDP on defence, called for spending to be raised to a 5% threshold and said he would encourage Russia to “do whatever the hell they want” to allies who don’t pay enough.
The US has also increasingly shifted its foreign policy focus towards the Indo-Pacific region and China in particular, sparking concerns that it could, in the years to come, pull some of its focus and military capabilities from Europe towards the Far East.
But consensus at the EU level is emerging around which capabilities the bloc should prioritise including air defence, maritime defence, military mobility, cyber defence and drones, an EU diplomat said on condition of anonymity.
One of the thorniest issues to work out over capabilities, the diplomat added, will be who acquires them, and who controls them.
Another potential area of contention is over whether to limit EU funding to the purchasing of European equipment, in other words, to impose a so-called European preference. According to another EU diplomat, also speaking on condition of anonymity, a compromise has been more or less found to earmark the funding towards equipment that has 65% of components coming from the EU.
Member states that are not yet completely sold on this compromise are “hesitant because of extra-European reasons,” the diplomat said. Avenues capitals are reportedly working on to bypass some of this reluctance would be to apply this preference to some specific types of equipment, as well as derogations, or to differentiate between short-term and long-term needs.
Funding puzzle
On financing, member states agree that defence should get a greater share in the next budget or multiannual financial framework (MFF) which runs from 2028 to 2034 and for which negotiations will start in the summer. They also acknowledge that extra funding is needed before then.
But they disagree on where to get the money from.
Some advocate for some flexibility in the bloc’s fiscal rules to allow member states to exclude defence spending from their national expenditures, others want to issue Eurobonds, while the repurposing of unused money from other EU programmes and the expansion of the European Investment Bank’s (EIB) mandate have been advanced by others.
The last two are the least controversial. Nineteen member states have, for instance, called for the EIB’s investing rules to be further stretched so that it could spend more on military activities. The EIB’s mandate was already updated in 2024 to allow it to pour money into dual-use projects, boosting its investments in security and defence to €1 billion last year. It expects to double that in 2025.
Another expansion would likely need unanimity from member states.
Frugal countries have, meanwhile, discarded for now an update to the bloc’s fiscal rules to boost defence spending and the issuing of common debt. One of the diplomats already quoted called it “irresponsible”.
But some frugal countries have shifted their stance in recent months. That is the case of Denmark, which signalled its willingness to use Eurobonds. In Germany, another country close to its purse strings, a change of government following elections in late February could see a warmer attitude towards the proposal.
‘The right timing’
The retreat, spearheaded by European Council President Antonio Costa, and Donald Tusk, the Prime Minister of Poland – which currently holds the six-month rotating presidency of the EU Council – should therefore not lead to any decisions or major announcements.
But EU diplomats and officials rejected any criticism that the bloc is being too slow with its defence strategy.
“We feel it’s the right timing because we have a sequence that makes sense,” the senior EU official said.
The retreat should provide the Commission with the guidance it needs to finalise its White Paper on Defence, due out on March 19.
Leaders will then have two months to digest the Commission’s proposals on how to boost Europe’s security and its defence industrial base before their next meeting in late June, which will conveniently fall right after a summit of NATO leaders where a revised spending threshold and capabilities target should be unveiled.
“The June summit will be when we’ll make choices,” an EU diplomat said.
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