‘Rearm Europe’: EU chief proposes $158 bn common defence fund to boost military spending

European Commission President Ursula von der Leyen on Tuesday proposed a new initiative aimed at increasing military spending across the European Union.

According to a Politico report, she recommended that EU countries be allowed to access up to €150 billion ( $157.76 billion) in loans as part of a comprehensive five-part strategy to enhance defence budgets.

She unveiled the “Rearm Europe” plan, which aims to facilitate up to €800 billion in additional defence expenditures over the coming years, added the report.

She outlined these ideas in a letter to national governments on Tuesday morning.

The announcement comes after US President Donald Trump’s decision to halt all military aid to Ukraine after a contentious meeting with Ukrainian President Volodymyr Zelenskyy at the Oval Office last Friday.

The EU’s 27 ambassadors are set to discuss von der Leyen’s proposals during a meeting on Tuesday, which will pave the way for a crucial summit of EU leaders on Thursday.

“Europe is ready to massively boost its defence spending, both to respond to the short-term urgency to act and to support Ukraine, but also to address the long-term need to take on more responsibility for our own European security,” Politico quoted von der Leyen as saying.

EU governments are seeking ways to significantly boost defence spending as President Trump steps back from Ukraine and Europe.

The Commission aims to facilitate increased defence budgets while staying within EU rules on national debt and deficits. To create more fiscal flexibility, von der Leyen plans to activate the EU’s national escape clause, which exempts military spending from penalties for countries exceeding spending limits, reported Politico.

This clause can be invoked during “exceptional circumstances” that severely impact a country’s public finances, according to revised EU rules.

However, von der Leyen did not specify conditions to curb excessive spending by heavily indebted countries.

EU finance ministers will discuss this in a planned meeting on Monday and Tuesday next week, reported Politico.

As part of the plan, she also offered cheap loans for defense to EU countries in a further attempt to mobilise funding.

The new instrument will be worth €150 billion and finance EU-wide defence capabilities including artillery, missiles, ammunition, drones and anti drone systems. This money will also free up space for EU countries to send weapons for Ukraine.

“With this equipment, member States can massively step up their support to Ukraine,” von der Leyen was quoted as saying.

In her statement, von der Leyen, however, was tight-lipped on where this funding will come from.

Officials suggested it could partly come from €93 billion in unclaimed loans from the EU’s post-Covid recovery fund, aimed at green and digital investments.

Commission officials believe this unused money can be redirected with a simple majority of EU countries, rather than unanimous consent.

Countries like France, Italy, and Spain prefer EU joint debt for defense, but this is contentious in Germany and Northern Europe.

Von der Leyen also proposed repurposing regional funds for defense, unlocking private capital through an EU-wide investment framework, and adjusting European Investment Bank rules to allow more military spending.

The draft conclusions for Thursday’s summit emphasize the need to change the bank’s practices regarding core defense projects and increase available funding.

With inputs from agencies