“ReArm Europe” gets support with calls to make budget rules flexible in the long run for Defense

Ursula von der Leyen’s plan, ReArm Europe, to boost Defense capabilities production at the EU level received the unanimous endorsement of the capital last Thursday, as Heads of State and government gathered in Brussels for an extraordinary European Council meeting.

As the final text of the conclusion states, EU leaders welcome “the intention of the Commission to recommend to the Council the activation, in a coordinated manner, of the national escape clause under the Stability and Growth Pact as an immediate measure” to boost defense spending and meet the NATO-led objective of channeling 2% of GDP for military purchases. The defense spending average in the EU is 1,9% higher compared to GDP Member States.

The call to accommodate a surge in defense spending even by exceeding the 3% deficit/GDP ratio as a criterion that the Stability and Growth Pact enshrines as a golden rule for sustainable finance is a broken taboo also for frugal countries. This was especially clear in the part of the text of conclusions where the European Council demanded the European Commission to explore “further measures to facilitate significant defense spending at national level in all Member States.”

The introduction of such a reference means that Germany succeeded in convincing the Member States to work on a possible revision of fiscal rules in the long term. It would be a further leap than that suggested by the European Commission, which is seeking a 1,5% surge in GDP expense devoted to defense policy to reach an additional 650 billion worth of investments by 2030.

Leaders avoided explicitly mentioning the proposal to voluntarily redirect Cohesion funds for defense needs, as some Member States, with Italy at the forefront, oppose that option. They limited themselves to asking the Commission to propose additional funding sources “including possibilities and incentives offered to all Member States in the use of their current allocations.”

During a press conference on the sidelines of the European Council, Ursula von der Leyen stated that the new instrument based on a budget of up to 150 billion is an option that could benefit around 20 Member States, which pay higher interest rates on national bonds than those issued by the European Commission. The instrument will be proposed under article 122 of the Treaty on the functioning of the European Union, the same provision that the EU Commission triggered during the last pandemic for the Next Generation EU recovery program.

Further down the document, the text reads, “A stronger and more capable European Union in the field of security and defense will contribute positively to global and transatlantic security and is complementary to NATO. ” Leaders also stressed “the importance of working together with like-minded non-EU partners.”

No unanimity was reached on the five principles that leaders discussed to define a just and lasting peace for Ukraine. Among those leaders listed the fact that “there can be no negotiations on Ukraine without Ukraine” and that any comprehensive peace agreement “needs to be accompanied by robust and credible security guarantees for Ukraine that contribute to deterring future Russian aggression.”

Due to the Hungarian Prime Minister, Viktor Orban, opting out of the part of the text related to support for Ukraine, it was adopted as a declaration by 26 Member States. Asked about Orban’s refrain, the President of the European Council said to journalists that Ukraine can benefit from the support of 26 out of 27 Member States.

“Hungary has a different strategic approach on Ukraine, and that means that Hungary is isolated among the 27”, he further stressed. “We respect Hungary’s position, but it’s one out of 27”, he proudly remarked.