The common EU defence debt, between emergencies and legal challenges

In 2024, Sauli Niinistö, a former Finnish President, drafted a Report on European Defence, which shows that to date the EU is still not prepared to handle threats to its security autonomously. According to Niinistö, 'preparedness' implies a change of mindset, i.e. moving from reaction to proactive planning. Decades of peace have led to an overall disinvestment in security in Europe, to the point that today the defence spending of individual member states varies widely, from Ireland, which spends less than 0.25 per cent of GDP, to Poland, which will reach 5 per cent this year. The expenditure that individual countries devote to defence is significant because the EU Treaty provides for a mutual defence clause, which obliges other EU states to assist a member state that suffers armed aggression on its territory.

Faced with an increasingly fragmented and unpredictable geopolitical scenario, on 4 March EU Commission President Von der Leyen announced a European defence investment plan worth EUR 800 billion. This figure represents more of an optical illusion than actual resources deployed by the EU. Under the 'Ready for 2030' plan, it will be possible to decouple defence investments from the Stability Pact, thanks to a special clause. Should all Member States request its activation, they will be able to borrow a total of EUR 650 billion.

To this figure, the Commission adds EUR 150 billion from the Safe, Security for Action for Europe programme, which recently came into force. This instrument will finance loans to Member States for the procurement of certain made-in-Europe military products through joint procurements between several countries, at least one of which will receive assistance. The strategy aims at greater coordination in spending and aggregation of demand.

The financial scheme is the same as that of Sure, a programme that made it possible to pay for lay-offs during lockdowns and saved Italy EUR 5 billion through lower interest costs. To finance Safe, the EU will issue EU-bonds and EU-bills, guaranteed by its budget, bringing its total debt to about EUR 1 trillion. Enjoying a triple-A rating and having created a unified financing strategy, the EU will obtain the resources at good market conditions. Interested states will be able to borrow and this additional debt stock will be automatically exempted from the Stability Pact. It is evident that the new strategy is based on the experience gained during the pandemic. In fact, the country requesting the Safe loans will have to present a Defence Industrial Investment Plan, against whose realisation instalments will be paid, on the Pnrr model. In addition, the legal basis chosen for Safe is Article 122 TFEU, an emergency economic policy provision, on which the Pnrr is also partly based. It should be remembered that according to the principle of conferral, the EU can only intervene when the Treaties provide for it and must anchor its actions in special provisions.

It is precisely the choice of this legal basis that led the European Parliament to express its disagreement and threaten to take Safe to court. According to the European Parliament, Article 122 TFEU would not be suitable because the state of emergency, which justifies its exclusion from the legislative procedure, would be missing this time. According to 122 TFEU, measures appropriate to the economic situation can be taken in a spirit of solidarity when serious difficulties arise, but only the Council decides, with Parliament merely being informed. According to the Parliament, the correct basis would be Article 173(3) TFEU, already used for the European Defence Fund. Many interesting aspects thus emerge: on the one hand, the EU's increasing use of common debt to build strategic autonomy and help states enlarge their fiscal space. On the other, we see the expansion of the scope of certain legal bases that have long been dormant. In any case, we are facing an epochal change in the EU's financial architecture that leaves the austerity approach behind once and for all.