EU to strengthen defence with billions redirected from regional funds

Brussels is set to overhaul its spending policies, potentially reallocating tens of billions of euros to defence and security, in response to the ongoing war in Ukraine and mounting pressure on the EU, especially with the return of Donald Trump to the White House.

This policy shift, according to a recent analysis by FT, will apply to approximately a third of the EU’s common budget, which amounts to €392 billion for the 2021-2027 period, initially intended to reduce economic inequality among member states, Caliber.Az reports.

As of now, only about 5% of these cohesion funds have been spent, with major recipients like Poland, Italy, and Spain spending even less. Under current regulations, these funds cannot be used for purchasing defence equipment or directly funding military operations. However, investment in dual-use products, such as drones, is permitted.

In a significant change, EU capitals will soon be informed that member states will have increased flexibility to use cohesion funds to support their defence industries and military mobility projects. These projects could include upgrading infrastructure, such as roads and bridges, to facilitate the safe passage of tanks and military convoys. While direct funding for the purchase of weapons and ammunition will still be prohibited, the new policy will allow funding to boost weapons production.

A European Commission spokesperson confirmed that the cohesion funds can now be allocated to the defence sector, provided they contribute to "overall regional development," including military mobility.

Germany, a key player in European military mobility due to its central location, faces a pressing need to modernize its infrastructure. In 2022, the Berlin economy ministry estimated that the country needed to invest €165 billion to repair its roads, rails, and bridges. Germany is set to receive €39 billion in cohesion funds through 2027.

The policy change is also a welcome development for EU countries on the eastern border, such as the Baltic states, which have sharply increased military spending since Russia’s full-scale invasion of Ukraine. These nations, however, have faced drops in foreign investment, adding to the urgency for more defence-related funding. Lithuania's finance minister, Gintarė Skaistė, emphasized the importance of costly military mobility projects, saying they benefit not only individual nations but the entire region.

Meanwhile, Poland has been particularly vocal in pressing the EU to boost its defence budget. Poland has exceeded NATO's defence spending target, dedicating 4.1% of its GDP to the military this year and planning to increase that figure to 4.7% by 2025.

Despite relatively low spending on cohesion funds to date — due to the prioritization of recovery funds following the COVID-19 pandemic — Poland has generally been one of the larger users of these funds. However, it faced delays in accessing funds that were frozen in 2022 due to concerns over the country’s adherence to the rule of law. These funds only began flowing again after the appointment of Prime Minister Donald Tusk last December.

The policy shift will also be welcomed by net contributors to the EU budget, such as Germany, the Netherlands, and Sweden, who prefer reallocating existing funds to issuing joint debt or increasing EU contributions. However, redirecting money from other priorities, such as green and digital infrastructure, to defence would require the European Commission's approval.

Piotr Serafin, the incoming EU budget commissioner, noted that while the focus on defence is important, it should not overshadow the green transition or regional cohesion goals. Local governments have expressed mixed reactions to this shift, fearing that it might centralize funding away from local authorities and regional development. However, some local leaders have supported the idea of defence projects that fail to attract private investment, such as connecting military training fields to airports, as long as regional input is involved.

This policy change is seen as a prelude to a stronger emphasis on defence spending in the next EU budget starting in 2028. A recent report by former Finnish President Sauli Niinistö recommended reserving 20% of the next budget for defence. Estonia's finance minister, Jürgen Ligi, emphasized the growing pressure on countries like his to increase military spending and called for the upcoming European budget to reflect that reality.

By Tamilla Hasanova