Southern European countries-France, Italy and Spain-are rejecting the European Commission’s plan to boost defence spending with cheap loans, fearing it will increase their already heavy debt burden, Politico writes, citing its sources.
According to the publication, the resistance, led by France, Italy and Spain, is dealing a significant defeat to European Commission President Ursula von der Leyen’s drive to strengthen Europe’s military autonomy. His proposal, which includes a 150 billion euro loan package and emergency provisions to loosen EU fiscal rules, was aimed at unlocking major new defence investments and reducing the bloc’s reliance on US protection.
Politico notes that this stalemate risks derailing Brussels’ plan to ship more weapons from Europe to Ukraine.
The journalists write that heavily indebted countries in southern Europe are increasing demand for so-called defence bonds – grants financed by joint EU borrowing on capital markets that must be unanimously approved by the bloc’s 27 countries.
Von der Leyen has not yet backed the idea, given the likely opposition from fiscally-minded northern countries such as Germany and the Netherlands, which fear it could set a precedent for mutual debt repayment.
One EU diplomat has made it clear that a loan waiver from southern countries would undermine support for defence bonds among fiscally conservative countries.
Italy and Spain are particularly pushing to broaden the definition of defence spending that can be exempted from EU fiscal rules. Madrid proposes to include border control, cyber security and infrastructure resilience.
So far, however, neither Rome nor Madrid has confirmed whether they will apply emergency provisions. Some EU officials suggest they are putting things on hold, hoping von der Leyen will soften her stance on defence bonds ahead of the next leaders’ summit in June.
France, meanwhile, has said it has no plans to activate the provision, according to two EU diplomats. With a debt-to-GDP ratio of more than 110 per cent, Paris fears spooking markets or jeopardising its credit rating.