Trump's likely revenge in the United States and Putin's aggressive behavior are encouraging Europeans to develop their own defense industry in ways never seen before.
Hungarian Prime Minister Viktor Orban said after a personal meeting with him what Europeans should expect if Donald Trump wins the US presidential election. Trump does not want America to finance European security, Orban emphasized on March 10 in an interview with the Hungarian TV channel M1. “If Europeans are afraid of the Russians or generally want a high level of security, then let them pay for it. Either they must build their own army, their own equipment, or, if they use the Americans for this, then they must pay the Americans the price of security. He speaks about this directly and clearly,” Orban outlined Trump’s position.
Europeans are already preparing for such a development. They are not preparing in the sense that they are saving money to pay Trump. No, they started developing their defense industry. And not only at the level of individual countries, such as France, Germany, Poland, but also at the level of the European Union. A manifestation of this was the European Defense Industrial Strategy (EDIS) and the first step towards its implementation - the European Defense Industrial Program (EDIP). Both documents were published by the European Commission on March 5.
Opportunities for Ukraine
All this has a direct bearing on Ukraine. The faster the European defense industry grows, the more weapons and ammunition it will be able to give us (and the lion's share of these supplies will be paid for by the European Union itself). At the same time, these are new opportunities for the Ukrainian defense industry, and they are explicitly mentioned in the strategy and program.
These documents promise Ukraine's participation in EU defense industry programs. The EU-Ukraine Defense Industry Forum will be held in 2024. They also promised assistance in the restoration, reconstruction and modernization of the Ukrainian defense industry.
“A strong, resilient and competitive European defense industry is a strategic imperative and a precondition for enhancing our defense readiness. We must also strengthen our military support for Ukraine, including by supporting its defense industrial base. EDIS marks a paradigm shift towards a Union that is a strong player in the field of security and defense,” said EU High Representative for Foreign Affairs and Security Policy and Vice-President of the European Commission Josep Borrell.
EDIS also plans to make the European defense industry stronger, more responsive and more innovative. As part of this, a defense innovation office will open in Kyiv. “There is a lot of innovation going on in Ukraine now, I think we are increasingly seeing previous civilian technologies being used for defense purposes. These are very important innovations. And I believe that it is important that we use this office for training on the European side, so that the defense industry is an industry that is united in an ecosystem where Ukraine is fully integrated,” Danish Margrethe Vestager, Executive Vice President of the European Commission, explained to Radio Liberty.
Time and money
Such plans usually have two problems: no time and no money. The program published by the European Commission is just a draft. It must be approved by the new European Parliament, which will be elected in elections on June 6-9, and approved by the European Council at its summit. Politico quotes a European Commission official as saying he hopes the European Council and the new European Parliament will begin negotiations on the EDIP in December with a view to completing it by February 2025.
The situation with money is even worse. Currently, EDIP includes funding from the EU budget in the amount of 1.5 billion euros for 2025-2027. Of these, for 2025 - only 3 million, for 2026 - 620 million and for 2027 - 877 million. “When there is a political consensus saying that we need to do more on the budget front, we will already have [EDIP] tool. It is important for us to create this tool,” Politico quotes an explanation from a representative of the European Commission.
To fill the EDIP, not only the EU budget can be used, but also other sources. In particular, EDIP proposes that the European Council use profits from frozen Russian assets “to support Ukraine, including its defense technological and industrial base.”
Back in early January, the European Commissioner for the Internal Market, Frenchman Thierry Breton, said that he wanted to attract 100 billion euros to EDIP. It is within its competence that the defense industry of the European Union countries falls. He stressed that the European Union has no other choice but to sharply increase its own arms spending in order to be prepared for whatever happens in the event of Trump’s revenge.
"Investors lined up"
The idea of where to get this money was voiced by Estonian Prime Minister Kaja Kallas three weeks ago: to stimulate its defense industry, the European Union must develop a plan to issue Eurobonds worth 100 billion euros. In an interview with Bloomberg, she said the next European Commission, which will be formed after European Parliament elections in June, must take the same unified approach to security as the current one has taken in tackling the Covid pandemic.
“We are in a situation where we need to invest more and [explore] what we can do together because the bonds that countries will issue individually are too small to scale,” she said. “Eurobonds could have a much bigger impact.”
According to Bloomberg, the idea of exploring joint borrowing to build up the EU's defense capabilities was also supported by French President Emmanuel Macron and European Council President Charles Michel. More frugal countries such as the Netherlands and Germany are likely to be less keen, the agency noted.
And now, three weeks later, it says the idea of EU defense bonds has caused a stir among potential investors.
“Bond investors are lining up to finance the war against Putin,” says Bloomberg. According to him, we are no longer talking about 100 billion, but about an amount 10 times larger - a trillion euros: “Bond investors are calling on the squabbling leaders of the European Union to come together over defense spending and make the bloc’s trillion-euro bond program permanent . This means demand will not be among the issues facing EU policymakers as they debate whether to build up common military capabilities through joint bond issues. Fund managers starved of AAA-rated securities say they are demanding more European issuance.”
As you know, everything is learned by comparison. Bloomberg notes that the European Union already has about 450 billion euros in bonds outstanding, mostly issued to finance a post-pandemic recovery fund. The program will stop issuing new bonds after 2026, but there is growing confidence among investors that EU bond issuance should become permanent, the agency says.
Compared to 450 billion to fight Covid, the amount of 100 billion to prepare for war with Russia does not look impressive. A trillion is already more serious.
In February, Italian EU Economic Commissioner Paolo Gentiloni called shared borrowing a “reliable way” to combat crises. As Bloomberg notes, the plan is supported by countries whose defense industries could benefit (such as France), as well as countries whose proximity to Russia heightens their sense of threat (such as Estonia), although it faces opposition from more conservative countries. financial relations of European countries.
The issuance of EU bonds will also reduce the need for individual states to borrow. This is very important, given that interest payments on debt already exceed defense spending in six EU countries that are part of NATO (Italy, Spain, Hungary, Belgium, Portugal, Greece), according to the German Ifo Institute. In Italy, which is particularly heavily indebted, interest payments are nearly triple annual military spending.
On March 11, Josep Borrell spoke in favor of the idea of Eurobonds for the defense industry. “Debates have recently begun about a joint EU loan to cope with the serious effort required to invest in our defense capabilities and our defense industry,” he said in a blog post on the EU’s official website. - In my opinion, it would make sense. We have already done this successfully to deal with the consequences of the Covid-19 pandemic, I don’t see why we shouldn’t do this when Russia threatens our very security and we urgently need to build up our defense capabilities and our defense industry.”
So, whether this idea will be realized remains in question. But Putin and Trump are working together to quickly convince the Europeans that this is necessary.
