Eurobonds could finance EU air defence shield, leading think tank says

Ursula von der Leyen wants to protect Europe against Russian missile attacks, and building an Israel-style defence system could cost hundreds of billions. But new funding proposals from an influential Brussels think tank are likely to raise hackles in frugal EU members such as Germany.

Brussels should issue eurobonds to pay for a new European air defence shield, leading economics think tank Bruegel has recommended in a report issued today (17 September). 
Bruegel’s proposals meet a key electoral promise of Commission President Ursula von der Leyen – but could also set alarm bells ringing in Berlin, which has consistently opposed joint borrowing.  
Russia’s invasion of Ukraine may have highlighted Europe’s vulnerability – but an Israeli-style air defence shield could cost hundreds of billions of euros, potentially requiring creative thinking, the Brussels-based think tank said in its report.  
“You have to use debt funding to pay for the big upfront capital stock,” co-author Guntram Wolff told Euronews, adding: “You cannot really fund it with current budgets.” 
“Any individual country will not provide a sufficient amount of air defence; doing it together makes a lot of sense,” said Wolff, who is a senior fellow at the think tank.  
While Russia’s huge drone and missile capacity is the main threat, he says Europe also needs to be prepared for attacks from non-state actors or hybrid warfare, such as Houthi-style militias on its borders.  
In a July manifesto for her second term in office, von der Leyen said she’d make a European air shield, alongside  bolstering cyber defence, a project of common interest – implying they’d benefit from established EU funding. 
European Council President Charles Michel has also promoted the idea of EU defence bonds to raise funds for military capability – but the idea is controversial among hawks in Germany, who resent what they see as subsidies to weaker EU economies.  
Any EU system would have to choose among multiple options on the market, including the US-made Patriot system, Germany’s IRIS-T, or the Franco-Italian SAMP-T.  
The EU could start procuring immediately from existing producers while investing in research to make them work together, the Bruegel report suggests. 
Perhaps more worryingly, the Commission is forbidden from spending directly on military equipment – not least as EU members like Ireland and Austria don’t want to contribute to anything that breaches their neutrality.  
That issue can be circumvented by casting the plans as an investment in EU industry, Bruegel says – and indeed von der Leyen has pledged that the new systems should be “designed, built and deployed on European soil”. 
Such protectionism might provoke chagrin in the US – but Wolff is confident that Germany’s reservations can fade away. 
“In the next one or two years, there will be a lot of demand for beefing up our defence capabilities”, he said, adding that the German politicians – both those currently in government and the opposition – “will have to think about this, about how to fund major upfront investments. European debt is one way of doing it.”