Russia’s war in Ukraine is igniting an old debate in Brussels over debt

Russia’s war in Ukraine is igniting an old debate in Brussels over debt

French President Emmanuel Macron welcomes Ukrainian President Volodymyr Zelensky and German Chancellor Olaf Scholz for a meeting at the Elysee Palace in Paris, France, February 8, 2023.

Sarah Meyssonnier | Reuters

Munich, GERMANY – Should we, as a united company, borrow on global markets and take on new debt together?

That’s the question on EU officials’ minds as they promise to spend more on defense in the face of Russia’s attack on Ukraine.

This debate is not new – and it is historically complex.

For many years, EU states, which have traditionally been more conservative in the way they spend their money, did not want to join the rest of the union in tapping capital markets. They feared that their fiscal prudence would ultimately be compromised by other nations with looser ideas about how they should spend their money.

However, in 2020, the 27 members of the European Union decided that the best way to deal with the financial and exceptional impact of the Covid-19 pandemic was to take on debt together.

Now, almost four years later, some EU officials say what they did during the pandemic was a good plan to finance their new defense plans.

But others have a different opinion.

“This is not a magical solution, but it could actually help accelerate and expand our industrial capacity. And that’s exactly what today is about,” Alexander de Croo, Prime Minister of Belgium, told CNBC on Friday on the sidelines of the Munich Security Conference about what taking on new debt could mean for Europe’s defense plans.

Estonian Prime Minister Kaja Kallas said in an interview with Bloomberg that joint bonds were a good way to strengthen the bloc’s defense capabilities.

But Federal Finance Minister Christian Lindner made it clear during a panel discussion at the Munich Security Conference this weekend: “It’s nice in Brussels.” [of] a place to look for problems [and] always presenting the same solution, mutualized debt.”

Instead, Lindner suggested that the EU should develop a single market for defense products, promote sector consolidation and advance joint procurement of military equipment.

Dutch Prime Minister Mark Rutte also made it clear that he would not support shared debt at EU level.

He said that to finance new defense spending, “you either increase it nationally or you increase it.” [it] through [the EU’s] own resources, which brings with it certain political and structural disadvantages.”

“Ultimately the money comes from the people through taxes and I would say we should do it at the national level,” he said at the MSC.

The question of how to increase defense spending across the region is particularly important at this time. EU leaders are feeling pressure to do more amid Russian security threats and the uncertain outcome of the upcoming US election.

Germany has been benefiting from a “peace dividend” for years, says the Defense Minister

Former US President Donald Trump caused an uproar in many European capitals earlier this month when he said he would not come to the aid of NATO allies that fail to meet defense spending of 2% of GDP in the event of an attack by Russia .

His comments may have been seen as a sign that the US may no longer be a reliable partner in upholding NATO’s Article 5, which states that an attack on one member is an attack on all members.

Many European NATO countries have missed this spending target for years, citing financial crises and historical reasons. However, according to NATO, 18 of the defense alliance’s 31 members are now on track to keep that promise this year.

Although Russia’s security threat is not imminent, it is also steering many European leaders to spend more on defense.

Danish officials have warned that Russia could attack a NATO country in three to five years. German officials have suggested a similar timeline.

At a panel discussion in Munich moderated by CNBC, German Defense Minister Boris Pistorius said: “2% can only be the beginning. We could – we probably will – need more in the next few years.”

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2024-02-19 06:13:07