Europe
EU proposes $158 billion defense loan as Trump pulls back
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Bloomberg News March 4, 2025
Andrea Palasciano and Jorge Valero
Bloomberg News March 4, 2025
President of the European Commission Ursula von der Leyen gives a press conference on the “Defence package” at the EU Commission headquarters in Brussels on March 4, 2025. (Nicolas Tucat/AFP/Getty Images via TNS)
(Tribune News Service) — The European Union will propose extending $158 billion (€150 billion) in loans to boost defense spending as the bloc tries to adjust to U.S. President Donald Trump’s abrupt pullback of American security on the continent.
After decades of underinvestment, European Commission President Ursula von der Leyen said that the EU also plans to activate a mechanism that would allow countries to use their national budgets to spend an additional $684 billion on defense over four years without triggering budgetary penalties.
Combined with the new defense spending loans, von der Leyen said the package could mobilize nearly $842 billion — if governments take full advantage of the new leeway.
“We are in an era of rearmament,” she told reporters in Brussels Tuesday. “Europe is ready to massively boost its defense spending.”
The euro rose as much as 0.3% to $1.0521, its highest level since Feb. 26, after von der Leyen’s announcements. European bonds trimmed earlier gains, with the yield on 10-year German debt trading around 2.46% compared to about 2.43% before the news.
The new loan instrument would be similar to one set up during the Covid pandemic to support member states’ short-time work schemes and similar measures. The legal basis cited by the commission indicates that it won’t require the unanimous support of all member states, which means it could avoid potential vetoes by countries like Hungary, according to people familiar with the matter, who were granted anonymity to discuss sensitive talks.
Any broader push for new EU borrowing to provide non-refundable grants, however, would have to win the backing of the 27 member states, a significant hurdle. Germany’s election winner, Friedrich Merz, has signaled he may be open to such plans, but Hungarian Premier Viktor Orban has indicated he’s likely to block efforts aimed at aiding Ukraine.
The EU has previously managed to get around Orban’s opposition to sustain support for Ukraine over the past months, but the Hungarian leader’s stance has hardened since Trump’s victory.
Europe is looking to mobilize hundreds of billions of euros in additional financing as it seeks to continue support for Ukraine at a critical moment, particularly after Trump ordered a pause in all military aid to Kyiv. Von der Leyen has called this a “once-in-a-generation moment’ and previously said the EU faces defense investment needs of around$526 billion over the next decade.
“This is about basically spending better and spending together, and we’re talking about pan European capability domains, like, for example, air and missile defense, artillery systems, missiles and ammunition, drones and anti-drone systems, but also to address other needs from cyber to military mobility, for example,” she said.
Defense stocks rose again on Tuesday as investors bet that European countries will have to keeping ramping up military spending. Thales SA rallied as much as 13%, while Dassault Aviation and Leonardo SpA were also up. The sector is up nearly 20% so far this week.
Von der Leyen sent a letter to the member states listing possible options to bolster national defense in the near term.
The proposal will be discussed by EU leaders at an emergency meeting Thursday, although they’re unlikely to agree on a proposed €20 billion military aid package for Ukraine. The latest draft of the summit’s conclusions seen by Bloomberg has no reference to a detailed initiative and instead just “calls for the urgent stepping up of efforts.”
The leaders are expected to assess their preferred ideas and mandate the commission, which is the EU’s executive arm, to work further on them before concrete proposals are put forward as early as their next gathering on March 21-22, according to people familiar with the matter, who spoke on the condition of anonymity.
Many EU countries, including France and Italy, face challenging budgetary situations and don’t have much fiscal capacity to dramatically increase borrowing.
The letter also listed some other options including mobilizing private financing through the capital markets, facilitating the use of some EU funds for defense purposes or expanding the lending practices of the European Investment Bank to include some military projects currently excluded.
The EIB is separately set to propose expanding its mandate to projects dedicated to military uses, a move thart would broaden its investment mandate to include more defense spending, according to a letter seen by Bloomberg.
With assistance from Greg Ritchie, Blaise Robinson and Alberto Nardelli.
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