Europe is in urgent need of rearmament. The Russian invasion of Ukraine and the broader threat posed by Vladimir Putin's regime to Europe necessitate this.
The administration of U.S. President Donald Trump has also indicated that neither Ukraine nor U.S. NATO allies can expect further support from Washington.
For insights on how to finance the necessary increase in military investments, read the column by former economic advisor to the President of the European Commission, Philippe Legrain, titled Rearmament Without the U.S.: Three Mechanisms to Provide Europe with Additional Defense Funding. Below is a brief summary of it.
The author reminds us that President Donald Trump wants European NATO members to raise defense spending to 5% of GDP, while NATO Secretary General Mark Rutte acknowledges the need for "significantly more than 3%."
This is feasible, according to Philippe Legrain.
Specifically, Poland has already increased its military spending to over 4% of GDP with the goal of reaching 5%, and other frontline states such as Estonia and Lithuania are not far behind.
"Now the rest of Europe must follow their example. But how can these expenses be financed? Given the stagnation of European economies and financial difficulties, many governments are reluctant to raise taxes or cut social spending," questions the former economic advisor to the President of the European Commission.
In his view, the most apparent political solution right now is borrowing.
However, as Legrain points out, additional borrowing faces obstacles such as a high level of public debt, EU budget rules, and domestic political constraints.
Nevertheless, he proposes three ways to address this issue.
The first is to exclude defense investments from EU fiscal rules, which generally limit government borrowing to 3% of GDP.
Last year, the European Commission initiated an "excessive deficit procedure" against Poland, which rightly argued that its increased borrowing was necessary to protect the country—and all of Europe—from the growing Russian threat.
Fortunately, European Commission President Ursula von der Leyen seems to agree with Poland's position. She suggests activating the Stability and Growth Pact provision (which allows for higher borrowing during crises) to boost defense investments.
The second option is collective borrowing to finance a one-time investment in defense, as proposed by French President Emmanuel Macron.
There is already a precedent: the EU recovery fund after COVID-19 amounting to €750 billion.
A challenge here is the stance of Hungarian Prime Minister Viktor Orbán, who openly supports Putin, as well as other countries. The position of four EU neutral countries—Austria, Ireland, Cyprus, and Malta—could also pose a problem.
One possible path is to create a coalition of interested states that could issue joint bonds outside the EU, also involving non-aligned partners like Norway and the UK.
Finally, the third option, continues Philippe Legrain, is to expand the mandate of the European Investment Bank (EIB).
Currently, the bank only finances dual-use (civil-military) projects, but 19 EU governments have proposed allowing it to fund purely military projects, such as the production of tanks and munitions.
"Increasing defense spending to prevent Ukraine's defeat and contain Russia is significantly cheaper than war. Otherwise, as Rutte warns, Europeans will have to either learn Russian or emigrate to New Zealand," concludes the former economic advisor to the President of the European Commission.
For more details, see Philippe Legrain's column Rearmament Without the U.S.: Three Mechanisms to Provide Europe with Additional Defense Funding.