LONDON – The European Union is set to announce “specific” measures to promote defence finance this week, sources told CNBC in clashes between Europe and the US over Ukraine’s support.
The 27 EU leaders will meet in Brussels on Thursday for a meeting dedicated to the defense and support of Ukraine. This follows two particularly tense moments in US-Europe relations. Vice President JD Vance’s speech in Munich in mid-February criticized European leaders. And then a record-breaking clash between the US administration and Ukrainian President Zelensky in the oval office on Friday.
European leaders are trying not to alienate President Donald Trump after Zelensky criticized Zelensky for a potential “gambling” in World War II. At the same time, Europeans know that they must take immediate action to ensure that Ukraine continues to receive the support they need.
“There will be intense work in the coming days,” EU officials said on Monday that they didn’t want to name it because of the sensitivity of the discussion, but that they are part of the preparations for Thursday’s meeting.
The same official said the purpose was to announce “specific deliverables” on defense funding.
Traders are closely watching the talks of EU officials. Europe’s Stoxx Aerospace and Defense Index has so far risen about 23% per year, and has risen more than 6% in trade on Monday morning, as investors were betting on spending hikes.
Trump often criticizes European countries for not spending 2% of his GDP on defense, as stipulated in NATO rules. Since Trump’s first term, several countries have increased their defence spending, and the latest NATO figures show that 23 of the 32 members are expected to have achieved a 2% target in 2024.
Today, many NATO members are considering increasing their spending even more. NATO Executive Director Mark Latte told CNBC in February that the figure should be “over 2%.” Meanwhile, Trump has called for 5% of GDP as NATO’s contribution goal.
How to spend more on defense
European Commission Chairman Ursula von der Leyen announced in February that EU fiscal rules would be updated so that the country could spend more on defense without being constrained by certain debt and deficit targets.
An unnamed EU official told CNBC that the next announcement would go further. “We are considering additional funding for defense at the EU level, which will provide flexibility in using structural funds and adapting to EIB mandates,” the official said.
The European Investment Bank, which aims to reach 95 billion euros ($99.26 billion) in investments in 2025, is currently restricted to fund dual-use defense projects only. This means that both civil and military purposes are required.
A second EU official who doesn’t want to name it because of the sensitivity of the talks confirmed to CNBC on Monday that von der Reyen is expected to present “specific measures” in terms of defense funding in the coming days. These will be discussed by EU leaders on Thursday.
Ukrainian military personnel were driving Soviet-made T-64 tanks in the Smie area near the border with Russia on August 11, 2024 amid Russia’s invasion of Ukraine. On August 11, Russia admitted that Ukrainian forces were stabbed deeply in the Kursk border area, and that Ukrainian top officials had said they had “destabilized” Russia and aimed to “stretch” its forces.
Roman Pilippe | AFP | Getty Images
“We must urgently drive Europe away, so we present our leaders with a comprehensive plan on how the Council of Europe will run through Europe on March 6th,” von der Reyen said at the London summit on Sunday.
In a recent report, “Protecting Europe without the US,” Brussels-based think tank Brugel calculated that Europe could “need to require an increase of at least 250 billion euros in the short term, with troops of 300,000 and annual defence spending.
Meanwhile, Goldman Sachs said in a memo on Sunday that “if fiscal measures are offset, the eurozone will need to fund an additional 0.6% of GDP each year and meet its defensive spending targets at 2.5%.”
One important question is whether the EU will be able to agree to a general borrowing for defense projects. The Bullock has decided to take that unprecedented step in 2020 in the wake of the pandemic (known as NextGenerationeu), and some member states believe this should be replicated for defence spending. But more financially conservative countries want to run out of other options before taking that step.
According to Goldman Sachs, EU leaders were able to “reuse” their outstanding financial capabilities from NextGenerationEU funds for defense. They were then able to see the new program. The new programme can “provide stable funding defence spending from singular national factors,” analysts added.
