European Union finance ministers are meeting in Brussels Monday to discuss new strategies for funding defense spending as the continent responds to escalating security threats and shifting geopolitical dynamics.
The discussions, led by Polish Finance Minister Andrzej Domanski, focus on new joint borrowing initiatives, the use of existing EU funds, and an expanded role for the European Investment Bank (EIB). These talks follow a decision made by EU leaders last Thursday to explore these financing options, with concrete decisions expected by June.
Urgency to Boost Defense Spending
The meeting comes amid growing urgency to strengthen Europe’s military capabilities, especially after U.S. President Donald Trump froze American military aid to Ukraine, casting doubts on Washington’s long-term commitment to NATO and European security.
“Given the rapidly evolving security landscape, Europe must reflect deeply on the future of defense spending,” Domanski wrote in his invitation letter to EU ministers. “A stable and predictable funding framework is essential to systematically develop European defence capabilities.”
One of the key proposals under discussion is a European Commission plan for the EU to raise €150 billion ($163 billion) through borrowing, which would be secured against the EU budget and used to provide loans to member states for defense projects.
FILE PHOTO: Polish Finance Minister Andrzej Domanski rings the bell at the start of the European Union finance ministers meeting, in Brussels, Belgium February 18, 2025. REUTERS/Yves Herman/File Photo
Expanding the Role of the European Investment Bank
Ministers will also examine the possibility of using EU cohesion funds for dual-use projects that benefit both civilian infrastructure and military operations.
Another critical issue is broadening the scope of the European Investment Bank (EIB), which is currently limited in the types of projects it can finance. Some EU governments are advocating for the EIB to increase funding availability for defense-related initiatives, ensuring that Europe has the resources to scale up its military production and infrastructure.
Debating Changes to EU Fiscal Rules for Defense
On Tuesday, the second day of discussions, finance ministers will tackle how to adjust EU fiscal rules to allow for increased national defense spending. The European Commission has proposed letting all 27 EU member states increase defense budgets by 1.5% of GDP annually for the next four years, without triggering penalties under EU debt rules.
However, there is debate over what constitutes defense spending under EU regulations. Currently, the EU’s definition includes only military hardware purchases, but not:
- Hiring soldiers to operate new equipment
- Building ammunition factories
- Reinforcing roads and bridges to accommodate military movements
Many governments are pushing for these expenses to be classified as defence spending, allowing them to be counted towards the EU’s relaxed budget rules.
How Long Should the Fiscal Leeway Last?
Another contentious issue is the duration of increased defence spending flexibility. The European Commission suggests a four-year timeframe, but some countries—including Germany—argue that defense projects often span a decade or more and that the rules should be changed permanently rather than through a temporary exemption.
Additionally, Poland has proposed using 2021 defense spending levels as a benchmark for measuring the increase, rather than 2022, when Russia’s invasion of Ukraine caused a sharp surge in military expenditures across Europe.
