The European Commission proposed borrowing up to 150 billion euros on Tuesday to finance loans for EU governments as part of a wider defence initiative prompted by Russia’s war in Ukraine, after the U.S. announced it will halt support.
European Commission President Ursula von der Leyen emphasised the urgency of the situation, saying: “We are living in the most momentous and dangerous of times. We are in an era of rearmament. And Europe is ready to massively boost its defence spending.”
The announcement came just one day after U.S. President Donald Trump suspended military aid to Ukraine, highlighting increasing divergence between European and American approaches to continental security and relations with Russia.
The proposed borrowing would fund pan-European defence priorities such as air defence systems, missiles and drones within a broader package that officials say could mobilise up to 800 billion euros for European defence capabilities.
EU leaders will begin preliminary discussions on the proposals at a special defence and Ukraine summit on Thursday, with certain elements requiring approval from EU member governments.
Much of the Commission’s package focuses on encouraging member states to increase defence spending and redirecting existing funds rather than allocating new EU money.
The proposal notably excluded joint borrowing for grants—rather than loans—for defence projects, an approach advocated by Baltic states and France but opposed by Germany and the Netherlands.
Polish Defence Minister Wladyslaw Kosiniak-Kamysz expressed preference for grants, stating: “I believe that would be more effective.” German Foreign Minister Annalena Baerbock characterised the package as an “important first step.”
As part of the framework, the European Investment Bank announced plans to reduce restrictions on defence project financing and broaden eligibility criteria, though maintaining its prohibition on funding weapons and ammunition.
The Commission also proposed exempting defence spending from limits imposed by EU fiscal rules on government debt, suggesting: “If Member States would increase their defence spending by 1.5% of GDP on average this could create fiscal space of close to 650 billion euros over four years.”
European leaders say they face mounting pressure to bolster defence capabilities as Trump’s return to power has reinforced concerns about the reliability of U.S. security guarantees through NATO.
EU member states spent 326 billion euros on defence in 2024, approximately 1.9% of GDP according to the European Defence Agency. French Finance Minister Eric Lombard emphasised on Tuesday that Paris “must go faster and harder” on defence spending.
Additionally, the Commission proposed allowing countries to utilise EU cohesion funds—traditionally aimed at equalising living standards across Europe—for defence purposes.
European aerospace and defence stocks rose following the announcement, with the Stoxx Europe Aerospace and Defence index showing gains.
Lucas Guttenberg from the Bertelsmann Stiftung think tank noted that while the Commission is “trying to make sure that fiscal policy does not stand in the way of defense policy,” the approach offers only “small effects on the actual problem, namely the availability of long-term funding.”
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