The European Union is considering a massive boost to its defense spending, potentially mobilizing nearly €800 billion, as it grapples with concerns over the future of US security commitments under President Donald Trump, Bloomberg reports.
European Commission President Ursula von der Leyen announced plans to propose €150 billion in loans to bolster defense capabilities. Furthermore, the EU intends to activate a mechanism allowing member states to utilize their national budgets to spend an additional €650 billion on defense over four years without incurring budgetary penalties.
News of the proposed spending boost briefly lifted the euro, which rose as much as 0.3% to $1.0521, its highest level since Feb. 26. However, European bonds trimmed earlier gains.
Securing the backing of all 27 member states for the new EU borrowing will be a significant challenge. While Germany’s potential new leader, Friedrich Merz, has signaled openness to such plans, Hungarian Premier Viktor Orban has indicated he is likely to oppose them.
The move comes as Europe is seeking to maintain its support for Ukraine at a crucial moment, particularly following Trump’s order to pause all military aid to Kyiv. Von der Leyen has described the situation as a “once-in-a-generation moment,” previously stating that the EU faces defense investment needs of around €500 billion over the next decade.
Defense stocks have seen a surge, with investors anticipating increased military spending by European countries. Thales SA is up 11%, Dassault Aviation up 5% and Leonardo SpA up 2.3%. The sector is up nearly 20% so far this week.
The proposal is slated for discussion by EU leaders at an emergency meeting on Thursday. However, reaching an agreement on a proposed €20 billion military aid package for Ukraine is considered unlikely at this stage.
Leaders are expected to evaluate various ideas and task the European Commission to develop concrete proposals for their next gathering on March 21-22.
Many EU countries, including France and Italy, are grappling with challenging budgetary situations, according to the report.
Other options being considered include mobilizing private financing through capital markets, facilitating the use of existing EU funds for defense purposes, and expanding the lending practices of the European Investment Bank to encompass military projects currently excluded.
