Ursula von der Leyen: "EU countries must increase their defense spending by 1.5% of GDP"

• The increase in defense spending will not be included in the budget deficit of each EU member state

Europe has entered a new era of rearmament and is ready to massively increase its defense spending, by 1.5% of the Gross Domestic Product (GDP) of each member state of the European Union, said Ursula von der Leyen, President of the European Commission yesterday.

Ursula von der Leyen stated: "Member states are ready to invest more in their own security, if they have the necessary fiscal space. We must give them the opportunity to do so. That is why we will soon propose activating the national exception clause in the Stability and Growth Pact. This will allow Member States to significantly increase their defence spending without triggering the Excessive Deficit Procedure. For example: if Member States were to increase their defence spending by 1.5% of GDP on average, this could create a fiscal space of almost euro650 billion over a four-year period".

The Head of the Community Executive said that this is just one of five measures set out in the ReArm Europe Plan which she has submitted to European leaders for debate and action at the European Council meeting in Brussels tomorrow.

The plan presented by Von der Leyen is based on using all available financial levers to support a rapid and significant increase in defence spending. While immediate action is essential, the plan also pursues a long-term vision, ensuring the stability and resilience of European defence capabilities over the next decade. The ReArm Europe plan is structured around five key areas, each aimed at strengthening financing and streamlining defence spending:

1. Increasing the use of national public funding for defence

2. Creating a new financial instrument, a fund that will provide loans of euro150 billion to member states for defence investment. This mechanism aims to improve the efficiency of spending through a common procurement strategy. Through this approach, Europe aims to support the development of pan-European defence capabilities, including: air and missile defence systems; artillery and ammunition systems; drones and anti-drone systems; cybersecurity and military mobility.

In addition, this instrument will allow member states to step up their military support for Ukraine, providing it with the equipment it needs to address the security threats it faces. Through common procurement, costs will be reduced, fragmentation will be minimised and interoperability between European armed forces will be strengthened.

3. Using the EU budget to finance defence. In this regard, a set of new possibilities and incentives will be proposed for Member States so that they can use cohesion policy programmes to support increased defence spending. This measure will allow for a more efficient use of existing European funds and will contribute to increasing the defence capabilities of Member States in a coordinated and sustainable way.

4. Mobilising private capital by accelerating the Savings and Investment Union to stimulate private investments in the defence sector, which aim to develop advanced technologies and strengthen Europe's defence industrial base.

5. Involving the European Investment Bank in support of defence, by mobilising additional resources, which will allow financing the increase in industrial and technological capacities, thus providing essential support for the modernisation of European defence systems.

Overall, the ReArm Europe Plan could mobilise almost euro800 billion to strengthen European security. According to an analysis that I presented in yesterday's edition of the BURSA Newspaper, the defense financing gap between the US and the EU is approximately 850 billion euros, a gap that stems from the fact that since the NATO summit in Wales in 2014, very few of the EU member states that are also members of the military alliance have allocated and spent 2% of GDP, a threshold that was approved at that summit. If Europe were to allocate a minimum of 3.5% of GDP for defense - the US allocation -, then the respective defense financing gap increases and amounts to 2.6 trillion dollars.