Demands for EU joint debt as leaders seek even more cash for arms

Good morning. News to start: Europe’s biggest military powers are drawing up plans to take on greater responsibilities for the continent’s defence from the US, officials told the Financial Times, including a pitch to the Trump administration for a managed transfer over the next five to 10 years in order to avoid the chaos of a rapid unilateral withdrawal from Nato.

Today, we report on the calls from many EU countries for the bloc to raise new joint debt-for-defence spending, and the UN’s top humanitarian tells Laura that cutting aid to instead buy weapons is a self-defeating strategy.

In the red

A fortnight after backing a defence spending boost of up to €800bn using national budgets, EU leaders yesterday touted an additional idea: common debt, write Andy Bounds and Barbara Moens.

Context: On March 6, EU leaders endorsed a proposal to borrow €150bn against its unspent budget, allowing member states to buy weapons. In addition, they can breach the bloc’s strict deficit rules, which could rake in an additional €650bn.

But many countries have now seized on a less painful option: repeat the Covid-era joint debt programme. More-indebted countries such as Italy and Spain could then rely on richer Dutch and German taxpayers to pay some of the money back.

Greek Prime Minister Kyriakos Mitsotakis fired the first shot. “Maybe we should be more ambitious,” he said as he arrived at a leaders’ summit in Brussels. He called for a “joint borrowing facility that would also offer grants to member states”.

“We will have to do common borrowing again,” said French President Emmanuel Macron after the meeting, citing the need to spend more and pay back the previous fundraising, though he also acknowledged there was “no consensus” on it yet.

Traditionally frugal Netherlands hit back: “We are against eurobonds,” Dutch Prime Minister Dick Schoof said. “For the Netherlands, there are limits, and they are very logical limits.”

But the old alliance of frugal countries that would normally fortify the Dutch opposition to common debt is weakening. While Sweden opposed the move, Denmark is open to joint European projects and money if necessary, diplomats said.

Germany still backs the Dutch position but things could shift in Berlin under the next government, one EU official said.

Meanwhile, all the big European political parties also endorsed joint debt. The European People’s party said that defence spending could come “through joint debt instruments if needed”.

The Party of European Socialists called for “a European financial instrument to boost investment and capabilities in security and defence through common European debt”.

Liberal Renew, which includes France’s President Emmanuel Macron, issued its own demand.

The Greens and the radical right European Conservatives and Reformists, which includes Italian Prime Minister Giorgia Meloni, are also in favour.

Chart du jour: Green retreat

Global companies have started to drop climate goals from executive pay plans, as the corporate world retreats from ESG initiatives in the face of fierce US opposition and mounting costs.

Self-defeating

The UN’s top humanitarian official has warned of the long-term destabilising effect of Europe cutting global humanitarian aid in order to re-arm, writes Laura Dubois.

Context: The UN is in deep trouble after US President Donald Trump slashed international aid funding, on which the UN relies for more than 20 per cent of its budget.

But European countries are also increasingly signalling they will spend less on international crises and focus on re-arming themselves instead.

Tom Fletcher, the UN’s under-secretary for humanitarian affairs, told the FT that European countries were “being quite explicit about that real trade-off”, citing cuts in Sweden and the UK, as well as signals that France and Germany could also cut funds.

“The cuts in Europe . . . are a recognition from the Europeans that there’s a war on their continent and that they feel it needs to do more defence,” Fletcher said.

He acknowledged that unlike the US, Europe was making “reluctant cuts” and not “rejoicing at the cost”.

But he warned that reducing aid would destabilise already fragile regions and could ultimately make Europe more unsafe. “Overseas aid makes you more secure, there’s a long-term dividend in it.”

Fletcher said that aid “reduces long-term migration, reduces the risk of economic crises, pandemics and so on in the future”. He said now was a “crucial moment” to raise funding to Syria as the country rebuilds after years of civil war and emigration.

Ultimately, he said, aid was “your first line of defence against these massive global challenges, which you can’t keep out with just a fence or a wall”.

What to watch today

1. Germany’s upper house of parliament votes on its debt-for-defence package.

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