European joint debt options for Ukraine defense

Instruments for EU defense bonds, eurobonds without need of unanimous vote, without PM Orban and others – joint borrowing scheme to support Estonian plan together

In the article, we are describing european possible sources for military defense spending. for arms, weapons deliveries for Ukraine, which is being brutally attacked by Russia.

Estonian plan (see our campaign for strategy proposed by Estonia 120 billion plan) proposed every year to add over 100 billion eur for defense of Ukraine and therefore start imposing attrition and economically unbearable barrier to russian aggression.

Estonia, France and others (as described in our analysis of Estonian plan) are proposing joint debt scheme.

Short-term commitments for military equipment for Ukraine should be financed with additional debt. That’s the way wars have historically been funded,

Gunther Wolff, a senior fellow at the Brussels-based think tank Bruegel, told DW in article Ukraine war: The trillion-dollar cost to the West

How to make Estonian plan happen by EU joint debt for defense of Ukraine 

But the question is, how to realise strategy of eurobonds or other tools for defense of Europe, for Ukraine. Two options were considered in the backup plan B drafted in January 2024 after blockage of 50 billion EU Ukraine assistance (budget assistance, not for defense) by Viktor Orbán.

These tools are described by Euronews article – EU will approve 50 billion for Ukraine with our without Hungary.

And detail is described by Financial times: EU readies €20bn plan B to fund Ukraine. Debt-based scheme would sidestep Hungary to quickly release money for Kyiv. Main thesis from the article and other research are following:

First option – joint debt by EU with guarantees by majority of EU countries

• The debt will be guaranteed by a group of EU countries, it is enough to be approved by the countries with the highest credit rating.
• This was proposed for EU joint debt (so asked by EU Commission, with the most favourable conditions) in the budget. And for some countries giving such guarantee (Germany, the Netherlands) it would need to be approved by their parliaments.
• This solution would be limited to loans for Ukraine and not include grants. 
• Weapons cannot be purchased directly from the EU budget (according to current interpretation of bloc treaties – see the next link below), so it must be a fund outside the budget – such as the European peace facility (and Ukraine assistance fund inside the EPF).
• But there is exploration of that legal ban in Financial times article EU looks to bypass treaty ban on buying arms to support Ukraine – in short, there is a possibility that the wording in EU treaties is only banning buying weapons for the bloc but not banning support outside of it. If that would be confirmed, it would have significant impact but such outcome is far from granted.
  
• So currently the most viable instrument is the mentioned EPF fund. And it is also the one supposed to be increased by income from Russian frozen assets windfall profits and unanimity is sought there. It is decided that 10% should go elsewhere than on weapons, so that a few countries can say that they do not spend it on weapons (Hungary, Austria) as described: https://apnews.com/article/russia-eu-frozen-assets-ukraine-windfall-profits-59ee5d2d7d3a99b383b16796097c7ed9 
• The main question – would it be possible to increase the EPF with loans guaranteed by majority of EU countries, without need of unanimity? Or create another fund without the need of complete EU27 agreement? Certainly there are ways how to proceed but details are beyond the scope of this small research.

More about EPF european peace facility UAF Ukraine assistance fund please find in following links:

• https://www.consilium.europa.eu/en/press/press-releases/2024/03/18/ukraine-assistance-fund-council-allocates-5-billion-under-the-european-peace-facility-to-support-ukraine-militarily/#:~:text=Today%20the%20Council%20decided%20to,living%20up%20to%20its%20commitments. 
• https://www.ejiltalk.org/understanding-the-new-ukraine-assistance-fund-a-game-changer-in-eu-support-to-ukraine/ 

Related topic, more about talks regarding joint debt you can find in the following news link: https://www.euractiv.com/section/politics/news/macron-in-favour-of-new-eu-joint-debt-defence-bonds/

Second option: cheap loans by EU for Ukraine

Another option would be extension of cheap loans instruments. This option would need agreement of weighted majority of countries.

More about this option to be analysed, some details about cheap loans so far can be found here: https://apnews.com/article/europe-business-european-union-commission-valdis-dombrovskis-780579c33eda814bfbac284dada149d0 

Another option – European stability mechanism (422 billion euro) to be used for defense cheap loans for Europe

Update: Politico informed about discussions for using eurozone European stability mechanism (ESM) for european defense.

This fund was created at the peak of debt crisis and long term not used. Now, there are discussions to repurpose it for cheap loans for defense. Agreement for that would need to be reached among 20 eurozone leaders.

European – US – G7 option to use russian frozen assets to back joint debt for Ukraine

Update: another option is currently (May 2024) being talked: group of G7 countries talk using frozen 300B assetts and its windfall profits in EU to back around 75 billion USD new loans for Ukraine to support war effort (not clear yet what part directly military or if th. USA would provide liquidity. There are numerous challenges but also some optimism. Information was brought by Politico: Russia should pay for Ukraine — but using frozen assets won’t be easy

Other information regarding this joint effort by G7 regarding fresh funding for Ukraine was provided by The Guardinan article: Hopes grow of G7 deal to support Ukraine with $300bn in frozen Russian assets

Related topic – NATO 100 billion defense fund – proposed military fund by Jens Stoltenberg – for Ukraine

This would be 100 billion euro for several years.

NATO allies agreed on Wednesday to initiate planning on long-term military support for Ukraine, but a proposal by NATO Secretary General Jens Stoltenberg to do so via a 100 billion-euro ($107 billion) five-year fund drew mixed responses.

https://www.reuters.com/world/europe/nato-ministers-mull-100-billion-euro-military-fund-ukraine-2024-04-02/

Conclusion for eurobonds and other options for defense of Ukraine/Europe

There are ways to efficiently increase military aid for Ukraine – by sending every year tens of billions euro extra. All this is possible with bypassing some blocking countries when using some alternative options described – although it is beyond this small open source research to explore exactly how such plan can be executed. European commission was tasked to prepare main options for June european councíl summit ( https://www.politico.eu/article/russia-doubles-down-ukraine-war-while-eu-leaders-divided-how-finance-weapons/ ). If decided, that would be major contribution to Estonian plan (120B eur extra for defense of Ukraine to impose attrition and stop the russian war).

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