FT: EU considers redirecting €93 billion pandemic funds to strengthen defence sector

The European Union is considering channelling €93 billion in unspent pandemic recovery funds into its defence sector, a move aimed at boosting military spending amid growing concerns about US security commitments to the continent.

According to multiple sources familiar with the discussion, quoted by Financial Times, this potential shift in funding priorities was highlighted by European Commission President Ursula von der Leyen during a meeting with the centre-right European People's Party on February 19, per Caliber.Az.

The EU’s defence sector faces an estimated €500 billion funding gap over the next decade. To address this, von der Leyen proposed repurposing regional development funds and exploring the possibility of “common European financing” for defence, as part of ongoing discussions with European officials.

In recent months, European leaders have been weighing a proposal for an inter-governmental financing vehicle dedicated to defence, which could include participation from the UK and Norway. This approach would bypass the vetoes of neutral or Russia-friendly countries, who oppose using joint debt for defence purposes. The idea of pooling resources for defence has proven politically contentious, particularly in Germany, where the concept of EU-wide joint debt has sparked debate, especially ahead of federal elections on February 23.

As an alternative, experts in the UK have suggested creating a “rearmament bank” modelled after the European Bank for Reconstruction and Development. The proposed bank would be capitalized by participating governments, who would contribute 10 per cent upfront towards an initial €100 billion fund, with the remainder borrowed from the capital markets, supported by a strong credit rating.

Faced with a lack of agreement on new joint borrowing, EU capitals have pushed the European Commission to utilize the €93 billion in unspent recovery funds from its post-pandemic Recovery and Resilience Facility (RRF). This fund, part of the EU's €800 billion stimulus package, was originally intended to help member states recover from the pandemic, but several capitals, including Berlin, insisted that joint borrowing would only be a one-off.

However, tapping into the unused RRF funds would require amendments to its rules, which must be approved by a majority of EU countries and the European Parliament. If the plan goes ahead, the funds — distributed as loans — could be directed toward defence-related research and development or dual-use infrastructure, such as airports, that have both civilian and military applications.

Additionally, the Commission is considering repurposing cohesion funds, typically allocated to the EU’s least-developed regions, to support the defence sector. A proposal from the Commission’s regional funds department, seen by Financial Times, suggests that investments in military research, technology, and defence production could now be eligible under cohesion policy as part of the broader industrial landscape.

Von der Leyen also revealed that EU member states would be allowed to increase their national defence budgets without facing sanctions under the bloc’s fiscal rules, a measure intended to facilitate higher military spending across the region. This announcement was made during her address at the Munich Security Conference over the weekend.

By Tamilla Hasanova