Common defense bonds? Macron pushes, Germany says no
It will not yet be the famous and perhaps elusive common European army, but Europe is moving towards a radical change in its economic structure: defense bonds. This, at least, is the plan of Emmanuel Macron, who more than anyone is pushing to enter what could almost fully be called a “war economy”. The French president has decided to break the deadlock and at the European Union summit in Brussels he will insist on embracing his idea: “War is back” in Europe.
The idea of defense bonds is supported primarily by Macron and Estonian Prime Minister Kaja Kallas, who have both already supported the idea in recent months. At the February summit, the figures were also made, with Kallas suggesting that the bonds should amount to a total of 100 billion euros. Since then, the Elysée has raised the rhetorical level, with Macron who has even speculated on several occasions about sending NATO troops to Ukraine. Possibility discarded and rejected by (almost) everyone, including Italy. But now the French leader wants a radical change in Europe's approach to security and defense.
The request for joint bonds seems destined to dominate the discussions in Brussels and, above all, to put to expose divisions over how to finance Europe's biggest rearmament since the end of the Cold War, at a time of tension in national budgets. The bloc is exploring myriad ways to finance additional defense spending, from using slices of the common budget to lenient treatment of military spending under rules governing national budget deficits.
Other controversial proposals include using the proceeds of Russian sovereign assets tied up in Europe to finance armaments for Ukraine and to allow the European Investment Bank – the bloc's lending arm – to invest more in defense. The proposal on Russian assets, according to an estimate by the Financial Times, could raise around 3 billion euros a year. But EU diplomats said it was too early for leaders to approve it this week and that states that have doubts about its legality will need more time to decide their position. However, some countries, including Hungary, Malta and Cyprus, do not agree.
Radical turning point in the EU economic structure: Italy could be decisive
So what to do? France proposes joint indebtedness, argue that all potential financing options should be considered together, given the importance of the goal of developing the European defense industry and supporting Ukraine. The idea of a joint loan, which would be similar to the EU issuing joint bonds during the pandemic, could find agreement with several countries, including Italy.
Ma Germany and many other countries in central and northern Europe, including the Netherlands, Austria and Denmark, they firmly oppose it. For the so-called “frugals”, the issuance of common EU debt in favor of member states seems to be an insurmountable taboo, even if the move could serve from a common defense perspective. Also Finland and Sweden, the two new entries into NATO would not agree. On the other hand, all these countries have already in the past firmly opposed the issuance of EU public debt in times of economic crisis, fearing that this will punish richer countries like them.
Macron will try to insist. Having against Scholz, the position of Meloni government could play an important role in deciding the fate of a proposal that could change the face of the European economic structure and bring back the specter of a potential conflict not only on the desks of the Defense ministries, but also on those of the Treasury ministries.
