First glance

European Union debt to boost European air defence

European Union borrowing could help fund air defence for the continent, while taking pressure off national defence budgets

Publishing date
29 May 2024
missile radar technology

Ukraine is not the only part of Europe vulnerable to missiles and air attacks. Existing capabilities, in particular NATO’s integrated air and missile defence systems, are not sufficient to comprehensively protect European territory. According to Germany’s highest-ranked soldier, General Breuer, there is “no alternative” to the construction in the next five to eight years of missile defence against a more aggressive Russia. Experience in both Ukraine and Israel shows that effective missile defence is actually feasible. 

Given this, it would be irresponsible if a European sky shield is not built quickly, especially for countries without their own nuclear deterrents. But such a project would face two major problems: cost and a trade-off between speed of deployment and industrial policy objectives in the defence industry. Issuing European Union debt could overcome these issues. Additional EU debt outside of national fiscal rules and budget consolidations would free national budgetary resources and provide long-term funding stability.

Air-defence systems such as the US-made Patriot are expensive – one reason why European governments have invested insufficiently. The struggles of the German-led attempt in spring 2024 to provide Ukraine with more air-defence capabilities showed how scarce such systems are, how governments are reluctant to provide them for Ukraine while increasing their own vulnerabilities, and that cost is an issue.

A large-scale EU debt issue would provide EU countries with the funds to order and buy air-defence systems immediately. In the short term, EU debt could fund purchases of readily available equipment from US and Israeli producers. The European Sky Shield Initiative, proposed by Chancellor Scholz in August 2022, currently has 21 participating states, with Poland also set to join. The initiative, however, has been criticised by France and others, in part because of its focus on US and Israeli companies. Rapidly expanding this initiative would enable Europe’s central and eastern countries to prioritise air defence investment more credibly while freeing national budgetary resources for other defence spending.

Since EU debt would be additional, increased spending in the short term would not come at the expense of defence industrial policy objectives. Germany, for example, bought Patriot systems in 2023 and 2024 for several billion euros. These purchases absorbed a significant part of a special €100 billion German defence fund (Sondervermögen). If EU funding were made available, freed-up fiscal resources could be focused on domestic and European military purchases – for example drones – including from European high-tech defence companies. If EU debt were additional, purchases from US companies would not crowd out European industrial development. Since current defence spending is insufficient to quickly built up the necessary capacities, the additional European debt would be helpful.  

European debt issuance would also provide long-term funding that would provide the necessary stability for effective industrial policy. President Macron has highlighted that Europe has some of the best companies producing air defence system. EU debt would provide the planning horizon to task these companies with a major industrial-policy project to make their air-defence systems fit to fully protect European airspace. Part of the answer could be to complement and integrate the existing Patriot and Iron Dome systems.

Finally, the new EU funding initiative should also be open to other European allies, including the United Kingdom and Norway, which are part of the same airspace that needs to be defended, and which also have cutting-edge defence companies from which purchases could be sourced. A European public good requires European funding. The EU could quickly place EU debt in the market at low cost, as the EU’s debt initiative in response to the COVID-19 pandemic showed.

In the short term, EU debt will help build-up air defence more rapidly, and the freed-up national resources could be used to advance other cutting-edge military technology. Meanwhile, long-term commitment through EU debt would help move beyond the perennial problem of short-term political-industrial vested interests and push for air-defence systems made in Europe that will protect the continent against a threat that may remain acute for decades.

About the authors

  • Guntram B. Wolff

    Guntram Wolff is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

    An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. From 2012-16, he was a member of the French prime minister’s Conseil d’Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and  advisory board of Elcano.

    Guntram joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media. 

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