150 billion euro plan to 're-arm Europe' announced

European Commission (EC) President Ursula von der Leyen on March 4 proposed a new common instrument to increase military spending across the European Union (EU).

She proposed allowing EU states to borrow up to 150 billion euros as part of a five-point plan to expand defence spending.

Speaking to reporters, she presented her plan for "Rearmament of Europe" to mobilize up to 800 billion euros in additional defense spending in the coming years. These ideas were outlined in a letter sent to national governments on the morning of March 4.

Ms von der Leyen's statement came just hours after President Trump decided to halt all military aid to Ukraine, following a tense meeting with President Volodymyr Zelensky in the Oval Office on February 28.

The 27 EU ambassadors will discuss von der Leyen's proposals at a meeting on March 4, laying the groundwork for a crucial summit of EU leaders on March 6.

"Europe is ready to significantly increase defense spending, both to respond to the urgent short-term need to support Ukraine and to address the longer-term need to take greater responsibility for Europe's own security," von der Leyen said.

EU governments are looking to significantly increase defense spending as President Trump pulls back from Ukraine and Europe.

The European Commission wants to help countries increase defense spending without violating EU rules on public debt and budget deficit limits.

To create more fiscal space, von der Leyen said she would trigger the EU's national escape clause, under which military spending would not count towards sanctions against countries that breach EU spending limits.

Under EU spending rules revised last year, the provision can be triggered when “exceptional circumstances beyond the control of a member state result in a major impact on public finances”.

However, Ms von der Leyen did not spell out specific conditions to prevent overspending from highly indebted countries.

As part of the plan, she also proposed low-interest loans for defence to encourage EU countries to raise more finance.

The new €150 billion instrument will fund defence capabilities across the EU, including artillery, missiles, ammunition, drones and anti-drone systems. It will also give EU states more financial space to send weapons to Ukraine.

"With this equipment, member states can significantly increase their support for Ukraine," von der Leyen stressed.

However, she did not specifically disclose where the funding would come from.

Some of the money will come from 93 billion euros of unused loans in the EU's post-COVID recovery fund, set up in 2021 to boost green investment and the digital transformation, officials said.

European Commission officials are confident that this unused money can be re-allocated with the support of a majority of EU countries, rather than requiring absolute consensus.

Highly indebted countries such as France, Italy and Spain support issuing common EU debt to finance defence, but this remains controversial in Germany and some Nordic countries.

In addition, the European Commission President also proposed using more regional funds for defense purposes, unlocking private capital by creating a common investment space across the EU, and changing the rules of the European Investment Bank (EIB) to allow for more military spending.

Draft conclusions from the EU leaders' summit on 6 March stressed that the EIB's activities "related to core defence projects" should be adjusted and the level of funding available should be increased.