Europe must spend more on its own defence
Military expenditure should be exempted from the EU’s fiscal rules.
The combination of Russia’s war of aggression in Ukraine, instability in the Middle East and broader global power shifts means that Europe must take greater responsibility for its own security.
The European Commission estimates that an additional €500bn in defence investment is needed over the next decade. This is not just a necessity, but also an opportunity to secure the European strategic autonomy for which I have long advocated. But to do so requires collective action on two fronts: first, we need a sustainable financing model for increased defence spending; and second, we have to transform Europe’s defence industry.
On financing, the problem is that, in the new European fiscal framework, any substantial increase in defence spending is likely to trigger what are known as excessive deficit procedures (EDPs), designed to keep a country’s budget under control. This is inefficient and potentially very costly.
But there is a simple way to overcome this difficulty: defence expenditure should be excluded from fiscal targets ex-ante. This will allow member states to spend more on defence while preserving fiscal credibility and favourable financial conditions.
By giving member states this fiscal space we will increase our defence and security capabilities. But it won’t be enough. That’s because after a certain point, markets may add defence premiums to our sovereign bond yields. In addition to increased fiscal costs, this could disincentivise defence spending and result in disproportionate burden sharing among EU member states.
The inclusion of security and defence in the European Investment Bank’s list of strategic priorities will help. But on its own that will cover only a fraction of our investment needs. That is why, building on the positive market experience of the EU’s Recovery and Resilience Facility, I am proposing the creation of a new European instrument, at least €100bn in size, to finance our collective defence requirements.
Spending more on defence must, however, go hand-in-hand with increased efficiency. As both the recent Draghi and Letta reports set out, the European defence industry remains fragmented, lacks scale and needs further consolidation and specialisation to create poles of excellence.
Developing complex next-generation defence systems requires investment that exceeds the capacity of any single member state. This is why, in May last year, together with the Polish Prime Minister Donald Tusk, I set out an ambitious proposal for the creation of a European air-defence shield, as a credible deterrent against potential aggressors.
Announcing and financing such a major European initiative, swiftly followed by other flagship projects, would have an immediate impact in four areas.
First, it would allow individual member states, and the EU as a whole, to address crucial weaknesses in their defence capabilities. Second, it would strengthen Europe’s technological and industrial base. Third, it would visibly increase Europe’s contribution to Nato and strengthen transatlantic co-operation. Finally, and perhaps most importantly, it would send an unmistakable signal that Europe is united and determined, a global power to be reckoned with.
The fact that the president of the European Commission, Ursula von der Leyen, included the idea of flagship European Defence Union projects in the political guidelines for her second term is to be welcomed. So, too, the upcoming white paper on the future of European defence, as well as the “preparedness union strategy”. Both will help to set the stage for creating a European Defence Union.
That matters because one of the basic assumptions behind greater European strategic autonomy should be that the territorial integrity of every member state is inextricably linked with that of all the others, and the EU as a whole. That is why we must strengthen the credibility and operational value of the mutual defence (42.7 TEU) and solidarity (222 TFEU) clauses in the EU treaties.
As a frontline member of both the EU and Nato, and one facing unique and immediate security challenges, particularly in the eastern Mediterranean, Greece has long understood the critical importance of defence investment. But those security challenges are no longer regional in nature. The geopolitical stakes for Europe have never been higher.
If our union is to remain a pole of peace and stability, we must put in place a robust, unified and credible deterrence capability. There is no time to lose.