The United States Should Press the European Union to Act on Eurobonds for Ukraine

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Wars are incredibly stupid endeavors in part because they are so expensive. Fighting a war requires mobilizing enormous sums of money and producing vast quantities of weapons. That’s exactly what Ukraine needs and is what Europe is struggling with. The United States is now once again delivering, having passed a $60 billion supplemental budget for Ukraine. But where is Europe’s supplemental?

Progress was made at this year’s G7 summit when members agreed to deliver $50 billion for Ukraine by issuing a loan on frozen Russian assets. But how this money will be used by Ukraine remains to be seen. What is clear is that the European defense industry has not ramped up nearly enough. This is a potentially existential issue not just for Ukraine but also for European security.

Instead of focusing on the urgent task of mobilizing money for the war effort, the European debate has been consumed by secondary issues (whether trainers can be on the ground in Ukraine or whether Germany will provide a particular missile). While important, the core need is to ramp up defense production to match Russia in key areas like ammunition, air defense, and vehicles, requiring mobilizing vast sums of money. Europeans have boasted about their significant contributions to Ukraine, demonstrating that the continent can step up, but their military support has largely consisted of donations of old equipment. As a result, individual member states now have little equipment left to give. To support Ukraine now, Europe either needs to buy new equipment from industry or give away the advanced systems, such as Patriot missile systems, that are integral to NATO commitments and are expensive. Supporting Ukraine will cost a lot more.

To fund this effort, the European Union should borrow the money and give industry the contracts to ramp up. This is not some impossible task, as proven when the European Union borrowed €832 billion in response to the Covid-19 pandemic. If the European Union can borrow for a pandemic, it can borrow for war. The Estonians have proposed just this—for the European Union to issue €100 billion in “Eurobonds.”

The European Union will discuss joint borrowing for defense when its leaders meet at the European Council summit at the end of June. Unfortunately, the prospects for the European Union acting are slim, but this could change if there were a push from the United States to support the bloc’s efforts. The administration should be pressing Berlin specifically, as Germany is seen as the main obstacle to joint EU action. With French parliamentary elections potentially paralyzing Europe, the European Union should act now while it can.

Joint borrowing would allow the European Union to buy collectively for the bloc. The European Union has already used funding to support 155 millimeter (mm) shell producers, but for only paltry amounts. As a result, the European Union missed its goal of delivering 1 million shells to Ukraine; but that is largely because expected contributions from member states have not materialized.

With this funding, the European Union could put in large orders to dramatically ramp up production. Crucially, this money would not go to the next generation of systems but would expand production of weapons systems already being produced, which would dramatically simplify the procurement process. The funding could focus on systems desperately needed for Ukraine: 155mm ammunition, infantry fighting vehicles, tanks, and air defense systems.

The EU money would solve a number of problems.

First, it would finally enable a dramatic ramp up in European production, benefiting Ukraine and NATO. The European Union could give the defense industry the large, long-term contracts they need if the money is there. While European defense production has increased, companies are trying to squeeze more out of existing factories but are often resisting the investments needed to open new factories. Currently, European ministries of defense barely coordinate orders. While money won’t solve all issues, it will solve most of them. Critically, the European Union can aggregate demand and create significant economies of scale, lowering per unit costs and ultimately making supporting Ukraine a more sustainable and affordable undertaking.

Like the U.S. security assistance supplemental, the EU funding would be for Ukraine but would also serve a broader European purpose in both ramping up production and potentially (and hopefully) enabling Europe to restock its own military shelves. Most arms manufacturers are hesitant to ramp up production because they favor predictability. Ramping up industry during wartime requires significant investment, and if the fighting stops, industry runs the risk of having to close factories due to a decline in demand. But should the war end (hopefully on Ukraine’s terms), Europe would still need to restock its shelves. If there are any orders in excess of Ukrainian needs, they could go to rebuild a strategic reserve. After all, Germany still only has a few days’ worth of artillery. It is also clear that a Leopard II tank is better than its Russian equivalent, so instead of waiting 10 years for the next generation to roll out factories, Europe should rebuild its capacity now.

Second, this could help rationalize and streamline Ukraine aid. Instead of Ukraine continuing to receive a hodgepodge of random leftover equipment on a bilateral basis—causing major logistical and maintenance headaches—EU funding would focus on fewer European systems, setting Ukraine up for the longer term. The European Union could also let Ukraine drive the process, working with Ukraine to pick systems, and the European Union could put in the orders.

Third, it would spread the responsibility for supporting Ukraine across Europe. Germany and other frugals have this all wrong. Unlike the NextGenEU fund, borrowing for Ukraine would not be transferring money from rich northern Europeans to southern Europeans. It would mostly be the opposite. EU borrowing for defense investment would mean transferring money from Spain to Germany and Sweden to build Leopard tanks or Swedish CV-90 infantry fighting vehicles. Paying back the loans would come from the EU budget, the way NextGenEU is paid for. Since the EU budget is largely made up of equitable contributions from member states, Ukraine funding would not simply be on the shoulders of German taxpayers but on the shoulders of taxpayers across the European Union. As the Peterson Institute’s Jacob Funk Kirkergaard explains, the use of Eurobonds “spreads the cost of providing necessary European assistance to all EU members evenly.”

Presently, Ukraine aid is falling on the shoulders of those with the closest borders to Russia or those with the fiscal capacity to provide aid. Northern European states like Germany, Denmark, and Sweden have made major commitments, while many southern European states are lagging. This splits Europe, and it has led to northern Europeans in one breath, usually uttered by foreign and defense ministers, criticizing others for not spending more, and in the next breath criticizing them (finance ministers) for having high deficits. France, for instance, has a budget deficit of more than 5 percent, violating the just-reestablished 3 percent Stability and Growth Pact cap. Southern European countries have shown significant solidarity but are unlikely to massively increase aid, given budget deficits and the distance of the threat. Thus, if Ukraine is just aided bilaterally, it would resemble the tedious and divisive saga around NATO’s 2 percent of GDP defense spending target. With some meeting the goal but many others failing (but having safety in numbers), the end result would be that Ukraine would get far less than what it needs from Europe.

Individual member states must recognize that contributions to defense are not just for themselves, but for Europe collectively. The objections to issuing Eurobonds revolve mostly around vague concerns about precedent. Many northern European countries insist that the NextGenEU recovery fund was supposed to be a “one-off.” Countries also worry about Brussels-creep and insist that defense is a national responsibility. But either Ukraine losing is viewed as a threat to Europe or it is not. When Europe was under threat during the pandemic, economic and energy crises, and even challenges related to migration, the European Union acted. If the union doesn’t act now, then Berlin will need to spend about triple what it spends now, because it will be spending on behalf of European security.

There are also critics who throw out technical objections. Many argue that the European Union cannot buy arms based on a certain interpretation of the EU treaties. Nowhere in the treaties does it explicitly prohibit arms purchases. The European Union’s treaty merely says that the European Union can’t fund military “operations,” and procuring weapons is not an “operation.” Frontex, for instance, the European Union’s border service, purchases weapons and drones for its use. A more acute concern is that the European Union lacks the capacity to do the contracting. But this could be mitigated by only buying existing systems, relying on Ukraine to select systems and set any requirements, and relying on other procurement agencies, such as NATO or the Organisation for Joint Armament Cooperation, which exists to facilitate joint European procurements.

Instead of patting Berlin on the back, as the Biden administration did when German chancellor Olaf Scholz and defense minister Boris Pistorius came to town, the administration should be pushing Berlin to drop its opposition. U.S. leadership just pushed EU leaders at the G7 to use the profits from frozen Russian assets to issue a loan for Ukraine—a far more complicated endeavor. Now, the United States should use its influence to push Europe to pass an EU supplemental by just borrowing—a far more straightforward task.

Astonishingly, all Europe can talk about is what happens when Trump wins, yet little action is being taken to potentially fill any gap in support left by the United States in 2025. For Europe to be there for Ukraine in 2025, it needs to act now to ramp up defense production. Europeans are often quick to plead helplessness. That is nonsense. If Europe acts now, Ukraine’s fate won’t depend on the whims of U.S. voters and Joseph Biden remaining president in 2025. Europe has the wealth and capacity to turn the tide of the war, but it hasn’t realized it yet.

Max Bergmann is the director of the Europe, Russia, and Eurasia Program and the Stuart Center in Euro-Atlantic and Northern European Studies at the Center for Strategic and International Studies in Washington, D.C.

Max Bergmann
Director, Europe, Russia, and Eurasia Program and Stuart Center