With Russia’s full-scale invasion of Ukraine, war in the Middle East and uncertainties about the future of the Western alliance, the EU finds itself in a precarious security situation, calling for a significant ramp up in defence spending.
Much of the additional funding will need to take place in the private sector and particularly at the national level. But there is also a need to adopt a common approach and increase joint European funding into the EU’s security which is a European Public Good. However, while further leveraging of existing funds should be aimed for, larger shifts in the Multiannual Financial Framework (MFF) towards more defence spending are difficult to achieve due to the unanimity requirement and a bias for the status quo.
Therefore, new solutions outside of the MFF should be explored. A supranational avantgarde of willing EU and non-EU states such as the UK and Norway could pool funds for a financially leveraged European Security Funding Facility (ESeFF). To kick things off, the ESM could provide initial financing using some of its unused borrowing capacity and act as the institutional nucleus for ESeFF.
To support Ukraine more effectively, willing EU and non-EU countries could provide guarantees for Ukraine Resilience Bonds (URBs) issued by the Ukrainian state as long-term public borrowing dedicated to defence and reconstruction.
Such instruments based on coalitions of the willing are suboptimal, but in the absence of viable alternatives the risks involved are worth taking in face of existential security threats.
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