EU to propose new common fundraising to fuel defence splurge

Good morning. The US is suspending military aid to Ukraine as Donald Trump seeks to increase pressure on Volodymyr Zelenskyy to agree a peace deal with Russia, a move that piles intense pressure on European countries to increase support to Kyiv. 

On that note, it’s a defence heavy newsletter today. Our finance correspondent reveals a new joint funding idea being pitched to EU leaders, and my Dublin colleague reports on Ireland’s plans to make it easier to deploy its troops as peacekeepers abroad.

In it together

A new common financing mechanism will be proposed to EU leaders as a response to demands for a massive and quick boost to European defence spending, writes Paola Tamma.

Context: Spurred by US President Donald Trump’s demand for Europe to spend more on defence and his rapprochement with Russia, European Commission president Ursula von der Leyen will present funding options for a surge in defence spending today ahead of an extraordinary leaders’ summit on Thursday.

These are set to include a new ad hoc funding instrument of an amount roughly equivalent to €93bn in planned but untapped post-pandemic recovery loans, whereby the commission would borrow on the markets and lend to member states, three people familiar with the discussion said. 

Other options set to be mentioned include repurposing regional development funds for military investments. The commission has also said it will allow countries to spend more on defence without incurring sanctions under EU fiscal rules.

Some more ideas that have been floated include pushing the European Investment Bank to invest more in defence, and setting up new credit lines from the European Stability Mechanism, the bailout fund set up after the global financial crisis.

“I will inform the member states through a letter about the re-arm Europe plan. We need a massive surge in defence, without any question,” von der Leyen said yesterday. EU capitals will ultimately decide which of the funding options are acceptable.

Leaders were going to discuss joint defence needs and resources at a summit later this month, but the timeline has been accelerated after Trump’s initiative to start bilateral peace talks with Russia and his threat to withdraw US support to Ukraine. 

“That logic has now been completely upended by Trump’s overtures to Putin — and the need for Europe to demonstrate it can put its money where its mouth is and now,” said Mujtaba Rahman, Europe director at political risk analysis firm Eurasia Group.

This week the national leaders have to discuss funding as a matter of urgency, one person said, whereas the discussion about what it should be spent on will follow, with input from Nato. “The money discussion is a lot easier than the discussion of what,” they said.

EU Council president António Costa, who convened and will chair the summit, wrote to Hungary’s Viktor Orbán yesterday to politely dissuade him from his threat to veto the meeting’s attempt to find consensus.

“Regarding European Defence, I welcome the fact that no objections are raised in your letter,” Costa wrote. “I note that there is a divergence on the path to achieve peace [in Ukraine] . . . Nevertheless, we agree on the central objective.”

Chart du jour: Making a killing

Shifting attitudes to defence priorities and massive market returns have seen ethical investors quietly drop their reluctance to arms companies.

Reporting for duty

Militarily neutral Ireland is preparing to make it easier to deploy troops overseas, as it considers being part of a future European peacekeeping force in Ukraine, writes Jude Webber.

Context: Ireland’s cabinet is today expected to back a draft bill changing how soldiers can be deployed in peacekeeping missions. Currently, under the so-called triple lock, approval from the UN Security Council, cabinet and parliament is needed to send more than 12 troops abroad.

Simon Harris, Ireland’s foreign, defence and trade minister, says “we cannot have a situation” where permanent security council member Russia could veto Irish deployments. 

His bill seeks to change the triple lock to a double lock — requiring a green light from the cabinet and parliament alone — and would lift to 50 from 12 the number of troops that can be deployed without such approval.

Harris insists the move has not been triggered by calls for a peacekeeping force in Ukraine but Ireland, which has taken in one of the highest proportions of Ukrainian refugees per head and has supported Kyiv with non-lethal aid, is also keen to stress it will not avoid discussion of taking part.

Harris stresses his bill does not mean ending Ireland’s long-held policy of military neutrality. But it is contentious: a recent poll showed 46 per cent of respondents rejected changes to the triple lock, versus 41 per cent in favour. Sinn Féin, Ireland’s main opposition party, has said it will oppose the legislation.

What to watch today

1. European Commission president Ursula von der Leyen participates in the Strategic Dialogue on Steel in Brussels.

2. Informal meeting of EU telecommunications ministers in Warsaw.

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