BRUSSELS — Southern European states are pushing back against a European Commission initiative aimed at accelerating defense spending through affordable loans, expressing concerns that this could exacerbate their existing debt burdens.
This resistance, spearheaded by France, Italy, and Spain, represents a significant obstacle to Commission President Ursula von der Leyen’s efforts to enhance Europe’s military autonomy.
Von der Leyen’s proposal, which encompasses a €150 billion loan package and an emergency provision to relax EU fiscal regulations, was designed to facilitate substantial new investments in defense and diminish the bloc’s dependence on U.S. military support.
However, the current deadlock threatens to undermine Brussels’ strategy to supply more weapons from Europe to Ukraine.
“Some countries harbor serious reservations about the feasibility or even the potential for incurring this level of debt,” noted a senior EU diplomat.
The diplomat, like others mentioned in this report, was granted anonymity to discuss the plan and its implications candidly.
Heavily indebted nations in Southern Europe are instead intensifying their calls for defense bonds—grants funded through collective EU borrowing in capital markets, which require unanimous approval from all 27 countries within the bloc.
“There’s a risk of a fiasco that could open the door for defense bonds,” warned a non-Southern EU diplomat.
So far, von der Leyen has refrained from endorsing the concept due to anticipated opposition from fiscally conservative northern states such as Germany and the Netherlands, which are concerned it may set a precedent for debt mutualization.
“No Eurobonds,” Dutch Prime Minister Dick Schoof reiterated following a recent gathering of EU leaders.
A third EU diplomat indicated that the perception of Southern countries rejecting loans could weaken support for defense bonds among fiscally prudent nations.
“If they claim that defense constitutes an existential challenge justifying joint debt, then they must first take the loans,” remarked the diplomat from the fiscally conservative bloc.
Club Med Wants More
In light of Donald Trump’s threats to withdraw U.S. support for Ukraine and his reproaches regarding Europe’s military reliance on Washington, von der Leyen acted swiftly after the U.S. president’s inauguration on January 20 to formulate a strategy aimed at bolstering the EU’s defense capabilities.
The resulting plan included provisions that allow member states to temporarily increase defense spending by 1.5 percent of GDP over four years and borrow €150 billion on behalf of the EU to support joint weapons procurement and aid to Ukraine.
The Commission anticipated that this loan-based structure would be favored, particularly by larger Southern economies like Italy and Spain, which fall short of NATO’s 2-percent-of-GDP defense spending requirement.
As recently as last week, Economy Commissioner Valdis Dombrovskis predicted a substantial number of states would activate this escape clause.
However, the Commission underestimated a crucial hurdle: While it can borrow more affordably than most member states, the loans it provides still contribute to national debt levels—a significant concern for highly indebted nations wary of alarming markets or incurring fiscal penalties.
“Von der Leyen’s plan is almost exclusively reliant on national debt from states,” asserted Italian Prime Minister Giorgia Meloni during a recent address to lawmakers.
The Commission has acknowledged that national budgets will need adjustments elsewhere to accommodate the rising costs of defense—a politically challenging proposition in nations where citizens are more focused on migration and climate change than military expenditures.
Italy and Spain have specifically called for a broader interpretation of defense spending that could be exempted from EU fiscal regulations, with Madrid suggesting that border security, cybersecurity, and infrastructure resilience be included.
So far, however, neither Rome nor Madrid has confirmed their intention to invoke the emergency clause. Some EU officials speculate they are hesitating in hopes that von der Leyen will reconsider her position on defense bonds ahead of the upcoming leaders’ summit in June.
“We should be given more time to decide,” Meloni remarked to reporters last week, asserting that the proposed April timeframe for activating the mechanism was “somewhat premature.”
Meanwhile, France has indicated it does not intend to activate the clause, according to two EU diplomats. With a debt-to-GDP ratio exceeding 110 percent, Paris is cautious about alarming markets or jeopardizing its credit rating — a crucial factor in determining its borrowing costs.
Conversely, Germany is expected to activate the clause to help finance its substantial €500 billion defense upgrade. However, similar to other triple-A rated nations such as Denmark and the Netherlands, Berlin is unlikely to accept Commission loans when it can secure funds more affordably on its own.
This situation has heightened concerns among more vulnerable member states, which fear that by being the first to request EU loans, they might signal financial weakness to the markets—thereby increasing their borrowing costs.
Fragmentation among the EU’s 27 countries “affects market perception, which could be detrimental,” noted the senior EU diplomat.
“If not everyone submits the request simultaneously, the market will dictate the limits on expenditures,” they added.
However, fiscally conservative nations are skeptical of this argument, with the third EU diplomat accusing Southern countries of “playing politics.”
