According to the eight officials POLITICO consulted, among the ideas being brainstormed at the top table is EU countries jointly raising money on debt markets to pay for defense. This way of generating funds ― for anything, let alone for common defense ― would once have been unthinkable, in particular because governments like Germany fear being on the hook for countries who spend more recklessly. But that taboo was broken when the EU financed multiple such initiatives to aid national post-pandemic economic recoveries.
Officials confirmed that the Russia-Ukraine conflict might well be the next catalyst for common debt to fund a temporary cash pot designed for a specific outcome. It could be similar to the €100 billion jobless reinsurance scheme, SURE, that Brussels’ legislators established to boost unemployment benefits during the pandemic.
“War is back in Europe and the security guarantee of the U.S. in Europe [are] not indefinite, whether [U.S. President Joe] Biden is re-elected or Trump comes back,” said Manfred Weber, leader of the center-right European People’s Party and its leading candidate in the 2019 EU election. “If we want to be in control of Europe’s security agenda in the decades to come, our ambition will need to be exponentially bigger than is now the case.”
Stocks and bonds
With politicians scrabbling for cash they can funnel toward keeping Europe safe, a second idea raised with POLITICO was to repurpose the loans that remain unused from the EU’s €800 billion post-pandemic recovery fund. The initiative expires in 2026.
Another idea, more radical still, is to use so-called Cohesion Funds, money from the EU budget that is traditionally spent on modernizing rural areas, such as by developing energy grids and railways. With a bit of legal creativity, some of this money could also be used bolster the defense capabilities of countries bordering Russia, such as Poland and Finland.
A further potential scheme would create an investment label for defense-focused funds that hold portfolios of stocks, bonds and other financial securities that big asset managers and private equity giants can invest in.
In this way, pension funds and wealth managers could invest money in projects that finance “EU common policy goals,” as one official put it, such as defense. The label would give money managers legal certainty and would flag priority investments within the defense industry.
