How Europe’s common defence can tap 500 bln euros

Hugo Dixon

February 23, 202612:00 AM EST Updated February 23, 2026

LONDON, Feb 23 (Reuters Breakingviews) – Europe can no longer rely on the United States to defend it against potential Russian aggression. So it needs its own satellite communications and air defences, as well as a homegrown nuclear umbrella that covers the whole region and much else besides.

The problem is how to fund these must-haves. The obvious way of financing projects whose cost would run into hundreds of billions of euros is through joint borrowing by the European Union. But Germany is reluctant to greenlight eurobonds. The bloc’s largest economy is anxious that its own taxpayers may ultimately have to repay them. Europe’s geostrategic needs are so great that it has to find solutions. Fortunately, there are already two pots of money that, with some creative adjustment, could raise 500 billion euros.

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The starting point is to define those vital defence capabilities that Europe does not have and which it makes sense to provide on a common basis. If Berlin is to back joint funding, it will first need to be convinced that the money will be used for things it cannot do on its own.

Germany already knows it cannot obtain its own nuclear weapons because of its treaty obligations. That is why Friedrich Merz is talking to France and the United Kingdom about getting access to their atomic arsenals. The German chancellor must also know that Berlin will have to share the cost. France, for example, spends about 5.6 billion euros a year on its nuclear programme. And since Merz does not want “zones of differing security to emerge in Europe”, it would make sense to get other countries to chip in too.

Meanwhile, Russia’s invasion of Ukraine has shown the importance of satellite communications and air defences. Europe has struggled to provide Kyiv with meaningful support. A series of national solutions would be far more costly than a European one. The region would also end up with a patchwork quilt full of holes.

Military research and development is another area where a common European push makes sense. The EU spends only a tenth of the $145 billion, opens new tab that the United States deployed in 2023. That does not just impede the bloc’s military capability. It is missing a chance to crowd in, opens new tab private-sector R&D and spur civilian technologies.

The European pillar of NATO also needs a rapid-reaction armed force, opens new tab now that the United States wants to cut its troop levels in the region. Such a force could rush to any hot spot at short notice — which, in turn, could deter Russian aggression.

TWO POTS OF MONEY

There are knotty questions over how such common capabilities should be created — and who should manage them. For example, would it make sense to beef up the European leg of NATO, use the EU itself or come up with some third approach? But once these questions are answered, there will still be a massive funding gap.

One solution could be to redeploy the European Stability Mechanism, which was set up during the euro crisis to provide emergency finance to members of the single currency. It has 81 billion euros, opens new tab of paid-in capital and a total funding capacity of 432 billion euros, opens new tab. Hardly any of this is needed for its core role as, in a financial crisis, the European Central Bank could, opens new tab ride to the rescue.

Although the ESM says it could lend for defence purposes, it can only provide funds to euro zone countries. They might then continue to favour national approaches rather than European solutions. The answer is to change the ESM treaty so it can lend to institutions such as the European Commission, or even fund its own defence subsidiary.

Another potential source of cash is linked to Russia’s sovereign assets, 210 billion euros of which have been frozen by the EU. While this money could not finance Europe’s own military spending, it could fund Ukraine’s defences — as Russia’s illegal invasion has caused over $500 billion, opens new tab of damage for which it should pay reparations.

The EU failed to provide such a “reparations loan” to Ukraine in December because Russia intimidated Belgium, where most of the assets are housed. Instead, it decided to borrow 90 billion euros itself to lend to Kyiv – although Hungary said last week it would block the loan until Ukraine resumes Russian oil shipments via a pipeline crossing the country.

But the bloc could revive the reparations idea if it first moved the entire Russian account from Belgium to the EU. After all, Moscow would find it hard to threaten the entire bloc with repercussions. The EU would then not need to lend 90 billion euros of its own cash to Kyiv and could divert that money to its own defence. The end result would be Russian cash for Ukraine and European money for Europe. That should appeal to Merz, who was a prime advocate of the reparations loan.

BEYOND THE EU

When it comes to defence, Europe is not just the EU. The United Kingdom is critical because it and France have the region’s strongest military forces. It too needs satellite communications, air defence shields and the like. Meanwhile, Canada wants to align itself more closely with Europe. The question is how to pay for their participation given that Britain’s sovereign debt was 103%, opens new tab of output last year while Canada’s was 114%.

British premier Keir Starmer told, opens new tab the Munich Security Conference that Britain was looking at “innovative” solutions as it worked with allies on collective financing approaches. Mark Carney, his Canadian counterpart, last week proposed, opens new tab to Starmer one such idea, opens new tab: a multilateral defence, resilience and security bank. The idea is to unlock private capital to supercharge countries’ defence investments. It may even be possible to push some of the borrowing off national balance sheets.

Some such initiative could, in turn, dovetail with an ESM defence scheme. Because the Luxembourg-based body is an international organisation separate from the EU, it could be more flexible in cooperating with countries from outside the bloc.

Europe has clear and pressing defence needs. Merz recognises this. He now needs to persuade his fellow Germans that there should be a collective European approach to fund these capabilities. Creative financing may help.

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Editing by Peter Thal Larsen; Production by Streisand Neto

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