Europe needs to strengthen its defense and military capabilities. But how should this spending be financed? Suggestions vary.
The US bears by far the largest share of the cost of financing NATO, a military alliance that unites 32 countries.
And European security depends on American soldiers and their weapons to a large extent – that is, on special military capabilities that Europeans do not yet have at their disposal.
For example, in the air transport of tanks or troops, but also in satellite reconnaissance and surveillance.
For Europeans to be able to defend themselves against Russia without American support, an additional 250 billion euros would be needed each year (on top of existing defense and armaments spending), according to the Brussels-based Bruegel Institute and the Kiel Institute for the World Economy.
Specifically, it concerns 50 brigades with a total of 300 soldiers and 3.400 new tanks.
For comparison: sending a single new brigade to Lithuania (with around 5.000 soldiers) brought the German Bundeswehr to the limit of its existing capabilities.
Two-speed Europe?
European Commission President Ursula von der Leyen will propose this week a “relaxation” of the strict rules regarding the maximum amount of national debt, which is set by the Maastricht Treaty.
Specifically, this means that member state governments can invest billions of additional euros in tanks, fighter jets or ammunition, without counting these investments in the allowed deficit foreseen by the Maastricht Treaty.
Chancellor Olaf Scholz supports this proposal, which is in line with the declared German position that defense should remain within the jurisdiction of national authorities, meaning that armaments spending should be financed from the budgets of member states.
To accelerate security cooperation in Europe, the Brussels-based European Policy Centre (EPC) suggests that the 27 EU countries should not try too hard to reach unanimous decisions, but instead that those countries that want to do so should move forward more quickly.
This “coalition of the willing”, as it is said, should also include countries that are not currently members of the Union, such as Great Britain or Norway.
These countries would pay money into a common fund (the European Security Financing Fund), and with the common funds, as stated further, the “financial leverage effect” could be achieved.
By joining forces, we can borrow much more than would be possible with the sum of our individual capacities.
Joint debts: yes or no?
France, Spain and Greece want European armaments to be paid for with joint European loans, which would help avoid an additional burden on their already overstretched national budgets.
First of all, it is French President Emmanuel Macron who proposes the creation of a European military defense fund, modeled after the EU fund for overcoming the consequences of crisis management during the coronavirus pandemic.
But the German finance minister disagrees. Several other countries that practice strict budget discipline have similar reservations.
These countries prefer a concept where defense spending will remain the responsibility of national governments in the future.
However, it would be completely unclear how countries like Spain or Italy, which spend less than 1.5 percent of their GDP on defense, could approach NATO’s stated target of 2% of GDP in the future, especially when viewed in the context of their (very) high state debt.
Shared weapons?
Until now, joint arms procurement has been an exception within the EU.
The consequence of this practice is the fact that five times more different weapons systems are used in Europe than in the US.
From an economic point of view, it would be much better to announce a tender for the development of new weapons, and award this job to the concern that produces military equipment and makes the best offer.
If all armies, for example, were to purchase a pre-agreed model of tank, then producing a larger number of tanks would ultimately be cheaper (per piece).
What appears to be a good idea economically often fails due to national selfishness.
So far, the Ministry of Defense has preferred to purchase systems produced by domestic arms factories. The implementation of joint projects would be delayed due to the complicated process of harmonizing positions.
According to military experts, joint procurement is, despite all this, something that has the greatest potential for better equipping the army at affordable costs.
Favorable loans?
Many EU members are united in their assessment that the European Investment Bank (EIB) should approve favorable loans for the purchase of weapons and ammunition.
So far, this has not been in line with the EIB statutes.
Weapons production is supported by the credit line only in exceptional cases – in principle only when the weapons can also be used for civilian purposes, for example for satellites or drones.
The “relaxation” of these rules could allow medium-sized companies in the arms and defense sector in particular to be “provided” with favorable loans.
