Ukraine War: What is Included in the European Commission's Plan to "Rearm Europe"?

On Tuesday, March 4, European Commission President Ursula von der Leyen proposed lifting the 3% public deficit limit, enabling member states to invest up to €650 billion more in the defense sector, in addition to a €150 billion loan package. This proposal came just hours after the United States announced the suspension of military aid to Kyiv, signaling a strong European commitment to strengthening defense capabilities.

The "Rearm Europe" Initiative

Launched in Brussels by Ursula von der Leyen, the "Rearm Europe" initiative aims to facilitate up to €800 billion in defense investments across the continent. With U.S. President Donald Trump threatening to halt support for Ukraine, European leaders received a letter from von der Leyen outlining the five components of the program, including immediate aid to Ukraine.

€150 Billion Loan for Defense Investments

EU member states will be allowed to borrow funds from the European Union to finance defense investments. A total of €150 billion will be allocated, primarily for anti-aircraft defense, missiles, drones, anti-drone systems, cyber defense, and artillery systems. According to a press release, this initiative will enable member states to significantly increase military support for Ukraine, ensuring an immediate supply of essential defense equipment.

Lifting the 3% Public Deficit Limit for Defense Spending

To encourage member states to increase defense spending, von der Leyen proposed reactivating a safeguard clause that was in place during the COVID-19 pandemic (2020-2023). Under this clause, countries exceeding the 3% GDP public deficit threshold would not be subjected to fiscal penalties if the excess spending is directed toward defense.

This measure would allow EU nations to boost defense expenditures without triggering excessive deficit procedures. If member states increase their defense spending by 1.5% of GDP over the next four years, it could represent an additional €650 billion investment in security. Loans acquired under the €150 billion framework will also benefit from this fiscal exemption.

Utilizing Cohesion Funds for Defense Investments

The European Commission aims to channel EU Cohesion Funds, traditionally used for regional development projects like infrastructure, toward defense investments. By amending existing regulations and implementing incentive mechanisms, the Commission intends to simplify the process of financing defense initiatives. While the 2021-2027 Cohesion Fund budget is set at €392 billion, the exact portion allocated to defense remains unspecified.

Expanding the Role of the European Investment Bank (EIB) and Private Sector Involvement

Currently, the European Investment Bank (EIB) is not authorized to directly finance defense-related projects. However, von der Leyen announced plans to expand its operational scope, with further details expected soon. According to a letter obtained by AFP, EIB President Nadia Calviño has called for the development of investment opportunities tailored for the defense sector.

Additionally, the European Commission seeks to encourage greater private sector participation in defense financing. Due to risk assessments by financial agencies, banks have been reluctant to engage in military investment projects. The Commission aims to mitigate these concerns and enhance the availability of private capital for defense initiatives.

Upcoming EU Summit Discussions

On Thursday, March 7, leaders from the 27 EU member states will convene in Brussels for an extraordinary summit to discuss these proposals. The agenda will also include a proposal from EU foreign policy chief Kaja Kallas to increase military aid to Ukraine by €30 billion.

As the geopolitical landscape evolves and U.S. support for Ukraine remains uncertain, the EU is taking decisive steps to bolster its defense infrastructure, ensuring long-term security and stability across the continent.