Defense Eurobonds: the solution to financing military autonomy?

Defense euro bonds

This article explores Kaja Kallas’s proposal for Defense Eurobonds to finance the modernization of EU armies and foster European industry.

The issue of European military procurement

Estonian Prime Minister Kaja Kallas’s recent initiative to implement defense Eurobonds aims to overcome the budgetary constraints that limit the modernization of Europe’s armies. Currently, only 22% of EU armies’ procurement is from European industry, with the remainder going mainly to the USA and other non-European countries. This low percentage highlights a marked dependence on external equipment, despite competitive local alternatives. For example, the American F-35 dominates purchases, eclipsing European alternatives such as the Typhoon.

This preference for non-European products is not limited to aeronautics, but also extends to air defense systems, where solutions such as the European SAMP/T Mamba are neglected in favor of the American Patriot system, despite comparable effectiveness and lower cost.

Objective and operation of defense Eurobonds

Defense Eurobonds, inspired by the coronabonds used during the COVID-19 crisis, could be used to finance a €100 billion European fund to modernize the EU’s armed forces. This measure is intended not only to increase military budgets, but also to encourage the purchase of EU-produced equipment. Kaja Kallas underlined this proposal at the Munich Security Conference in 2024, putting forward a vision for greater strategic autonomy in the defense field.

However, the implementation of such obligations must navigate between the pressures of international lobbying and the procurement habits of member countries, which often have a preference for foreign equipment, due in part to political and operational considerations.

Defense euro bonds

Budgetary return for the European defense industry

The proposed approach to financing these Eurobonds includes the use of budgetary returns generated by the European defense industry. This industry, although powerful, is under-utilized in EU procurement. The model envisaged suggests that investments in the defense industry could be partially self-financed by the tax and social returns they generate, estimated at between 35% and 45% in Europe. This strategy could reduce the burden of sovereign debt and promote a more equitable distribution of defense spending within the Union.

Challenges to overcome in adopting Eurobonds for defense

Despite the apparent advantages, the introduction of Euro-defense bonds faces significant challenges. Member states’ adherence to such a program would require a major cultural shift in military procurement practices, usually influenced by political and economic alliances outside Europe. What’s more, the perception of such bonds as favoring certain countries, notably France, could create political tensions and damage the image of the initiative.

Although Kaja Kallas’s proposal for Euro-defense bonds offers a promising way of strengthening Europe’s strategic autonomy and boosting its defense industry, its success will depend on the EU’s ability to overcome internal political, economic and cultural challenges. If realized, this initiative could not only modernize Europe’s armies, but also contribute to greater economic and political integration within the Union.

War Wings Daily is an independant magazine.