EU Special Debts for Rearmament

➡️ EU Loans for Rearmament - Critical Analysis of EU Militarisation

The European Union is undergoing significant reforms of its defence policy, accompanied by an unprecedented increase in military spending and the introduction of new borrowing instruments.

These measures are a direct response to ongoing geopolitical tensions, particularly the war in Ukraine, and the growing uncertainty of U.S. security guarantees under Donald Trump.

In March 2025, the European Commission presented the "Readiness 2030" initiative, known initially as ReArm Europe. The goal is to mobilise €800 billion for defence spending by 2030.

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A key component of the plan is a €150 billion lending program available to member states for joint armament projects. Relaxation of EU budget rules will enable an additional €650 billion in national defence spending.

The initiative proposes redirecting existing EU funds, such as the cohesion policy (which helps support sustainable development), to defence. The European Investment Bank will play a larger role as restrictions on lending to defence companies will be removed.

Mobilising private capital to create a 'Security Union' will promote further investment in the defence industry.

In 2024, the defence spending of EU Member States reached an enormous €326 billion, approximately 1.9% of EU GDP. This represents a 30% increase compared to 2021. Investments in new defence technologies amounted to €102 billion, with 88% of these funds used to acquire new equipment, including air defence systems, drones, and artillery.

National Policy on Militarisation

Some member states have already taken significant steps to increase their defence budgets. Poland has increased its defence spending to 4.1% of GDP and plans to expand it further in the coming years. France has also committed to increasing its defence budget to €413 billion by 2030 while continuing to modernise its nuclear weapons.

Italy is increasing its investments in cyber defence and modern weapons systems. The Baltic states of Estonia, Latvia, and Lithuania have increased their defence spending significantly above the NATO target to reflect their exposed position in the east.

The introduction of joint EU debt to finance defence is, however, not welcome everywhere. Spain has criticised the idea of joint bonds, and fiscally conservative states like Germany and the Netherlands are sceptical of debt mutualisation.

The new German government, led by Chancellor Friedrich Merz, is pursuing a clear course of military buildup and defence spending intending to transform the Bundeswehr into Europe's strongest army. Special national funds and special EU loans have been utilised for this purpose.

The Bundestag has reformed its debt brake, permitting defence spending above 1% of GDP to no longer count toward regular government debt. A special fund for infrastructure and security investments of up to €500 billion has also been approved.

Fractions are forming within the governing coalition. Merz is focused on military strength and European deterrence, whilst some SPD politicians are warning against excessive militarization. SPD foreign policy expert Ralf Stegner has criticised the plan to increase the defence budget to 5% of GDP, describing it as fiscally irresponsible. Stegner and others have called for a greater balance between security, state welfare, and future investments.

Dangers of EU Rearmament

While geopolitical tensions understandably create pressure for action, accelerated EU militarisation appears to be a risky change of course with unclear long-term consequences.

The massive increase in overall debt and relaxed national spending threaten the already strained economic situation. Even in 2024, the EU's net new debt was around €700 billion – and rising. An expansive defence spending policy could drive inflation and seriously affect the fiscal flexibility of future generations.

According to the Kiel Institute for the World Economy (IfW), the cost of war in Europe would vastly exceed the cost of investing in effective deterrents. How can Europe justify issuing massive joint debt for military purposes while debt rules still restrict investments in climate, education, and social justice?

The Memorandum Group warns that a sharp increase in military spending without tax increases or adjustments to the debt limits will inevitably lead to cuts in social sectors.

The reallocation of existing EU funds to defence spending has controversial implications for democracy. Without broad public debate or sufficient parliamentary oversight, decisions on billion-dollar defence projects could be made in specialised technocratic committees and behind closed doors. The need for a quick defence response should not be at the expense of democracy, especially on issues that fundamentally affect the Union's identity.

Commitment to such high levels of debt, despite no assurance of the plan's effectiveness, is reckless. Currently, the EU's military capabilities are highly fragmented, with armament projects which are often inefficient and nationally isolated.

Without extensive reforms, the EU risks losing billions of Euros in what could be dedicated to national interests. Lifting existing restrictions on arms loans by the European Investment Bank raises concerns that the private interests of military corporations will be prioritised in the future – at the expense of a transparent focus on the common good for everyone.

The director of the Stockholm Peace Research Institute (SIPRI), Dan Smith, recognises the need for increased defence efforts but warns against a hasty approach. He highlighted that Europe already invests more in armaments than Russia, even without the Readiness 2030 plan. Smith calls for careful planning and greater cooperation to effectively deploy resources and ensure long-term security.

With each step toward financial, industrial, and institutional rearmament, the traditional European model of conflict resolution and diplomacy is pushed further into the background. Critics warn that an arms buildup will not make Europe more secure but merely more dependent on a military narrative, with incalculable consequences for Europe as a whole.

Alternatives to EU Rearmament – Diplomacy & Common Security

Given the increasingly volatile situation globally, how can we ensure security sustainably and ethically without undermining democratic, economic and human rights principles? An alternative security strategy requires a more comprehensive approach. It encompasses crisis prevention, resilience, dialogue, diplomatic initiatives, and a targeted reform of the European security narrative.

Substantial funding for crisis prevention and conflict management would tackle the root causes of conflict. In 2023, the EU spent just €2.2 billion on military research and development projects under the European Defence Fund. A total of €280 billion was spent on defence. During the same period, less than €300 million was allocated to conflict prevention measures.

A targeted expansion of these funds to at least €1 billion annually – as proposed by the European Peacebuilding Liaison Office (EPLO) would significantly contribute to defusing global conflict hotspots and raising Europe's peace policy profile.

Strengthening social and economic resilience offers a more effective long-term alternative to traditional military buildup. The Covid-19 pandemic, the war in Ukraine, and the climate crisis have demonstrated how strongly Europe's security depends on functioning supply chains, energy sovereignty, and social cohesion.

Investments in energy independence, for example, through the expansion of renewable energies, would significantly reduce Europe's geopolitical vulnerability. According to the European Commission, full implementation of the REPowerEU plan would require investments of €210 billion by 2030 - substantially less than the planned €800 billion for military purposes, but with far-reaching effects for stability and sustainability.

New impetus is also needed in the diplomatic sphere. Instead of primarily focusing on deterrence, the EU should once again assume a leading role as a mediator, for example, by reactivating multilateral dialogue between NATO, the OSCE, and non-aligned states. A relaunch of the Conventional Armed Forces in Europe treaty (CFE) or a European non-proliferation treaty for autonomous weapons systems would significantly contribute to improved diplomatic efforts. As a broader aim, the EU should take its role as a player in development and climate policy more seriously because stable, fair international relations are by far the best prevention against future conflicts.

Instead of competing for national defence budgets and expensive duplication of military capabilities, the EU could build a leaner, more efficient Security Union based on shared defence competencies, a coordinated procurement policy, and a much larger role for the European External Action Service (EEAS).

According to a report by the European Defense Agency, inefficient structuring already costs the EU €26 billion annually - money that could be saved through smarter integration and then used for sensible alternatives.

Author: Maximilian Stark 26.05.25, translated and edited by Rachael Mellor, licensed under CC BY-SA 4.0

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