Defense Eurobonds to modernize European armies, proposed by Kaja Kallas

On the occasion of the Munich Security Conference, the Estonian Prime Minister, Kaja Kallas, proposed the creation of Eurobonds Defense, for the creation of an investment fund of €100 billion, intended to finance modernization European armies.

Without the idea being particularly original, since it is modeled on the Covid crisis, or even recent, it emerges, this time, in a context which could well allow it to take shape, while the joint action of the rise in power of Russian armies, and the fear of seeing Donald Trump return to the Oval Office, is at the heart of the concerns of European chancelleries.

However, the economic reality that allowed Corona-bonds to emerge four years ago is now very different. Many challenges will also have to be addressed so that Defense Eurobonds can materialize into a powerful tool to respond to the security challenges that threaten Europe today.

Kaja Kallas, the Estonian PM, recommends the creation of a European fund to modernize the armies, supplied by Defense Eurobonds

Very active in the face of the Russian threat, since her election as President of Estonia in 2018, then as Prime Minister three years later, Kaja Kallas has, once again, supported the essential strengthening of European armies and European support in Kyiv, while she spoke at the Munich Security Conference 2024.

For the Estonian Head of State, the current situation has an existential dimension for the whole of Europe, as was the case during the Covid crisis, and would therefore require support measures similar to those taken then, in particular through a European fund intended for the modernization of European armies, supplied by mutualized debt, in the form of Eurobonds.

According to Kaja Kallas, the European Union would have the possibility, through this process, of creating a fund of €100 billion, like of the NextGenerationEU and SURE programs, implemented during the Covid crisis to the tune of €723,8 billion and €100 billion respectively, to finance the European recovery plan and the emergency measures of European states. At that time, Eurobonds were also called Corona-bonds.

The use of Eurobonds by the European Commission during the Covid crisis: Corona-bonds

The idea is seductive. Indeed, many European countries find themselves, today, handicapped by the level of their public deficits, their sovereign debt, or even both, in their efforts to modernize their armies.

However, faced with the growing Russian threat on the one hand, that represented by the possible election of Donald Trump on the other, and the essential increase in military aid to Ukraine, adds to the need for modernization of the armies following 20 years of critical underinvestment in defense, an emergency criterion not satisfying the cautious management expected by European authorities.

It is in this context that Eurobonds would provide an effective and rapid solution, but not without consequences. Thus, it would be the European Commission, and not the States themselves, which would take out the preferential rate loan from the European Central Bank, as was the case during the Covid crisis, to then redistribute the funds in the form of loans and direct aid from states.

This approach would simultaneously make it possible to borrow at rates often much lower than those at which states can finance themselves on the markets, taking advantage, it is true, of the confidence shown by the most “frugal” European countries in public management. the healthiest. In addition, part of the aid is direct, and would therefore not increase sovereign debts, while neither would be taken into account in public deficits.

75% of this article remains to read,
Subscribe to access it!

The Classic subscriptions provide access to
articles in their full version, and without advertising,
from 6,90 €.

Newsletter subscription