(Bloomberg) -- The European Union will propose extending €150 billion ($158 billion) in loans to boost defense spending as the bloc tries to adjust to US President Donald Trump’s abrupt pullback of American security on the continent.
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After decades of underinvestment, European Commission President Ursula von der Leyen said that the EU also plans to activate a mechanism that would allow countries to use their national budgets to spend an additional €650 billion on defense over four years without triggering budgetary penalties.
Combined with the new defense spending loans, von der Leyen said the package could mobilize nearly €800 billion — if governments take full advantage of the new leeway.
“We are in an era of rearmament,” she told reporters in Brussels Tuesday. “Europe is ready to massively boost its defense spending.”
The euro rose as much as 0.3% to $1.0521, its highest level since Feb. 26, after von der Leyen’s announcements. European bonds trimmed earlier gains, with the yield on 10-year German debt trading around 2.46% compared to about 2.43% before the news.
The new loan instrument would be similar to one set up during the Covid pandemic to support member states’ short-time work schemes and similar measures. The legal basis cited by the commission indicates that it won’t require the unanimous support of all member states, which means it could avoid potential vetoes by countries like Hungary, according to people familiar with the matter, who were granted anonymity to discuss sensitive talks.
Any broader push for new EU borrowing to provide non-refundable grants, however, would have to win the backing of the 27 member states, a significant hurdle. Germany’s election winner, Friedrich Merz, has signaled he may be open to such plans, but Hungarian Premier Viktor Orban has indicated he’s likely to block efforts aimed at aiding Ukraine.
The EU has previously managed to get around Orban’s opposition to sustain support for Ukraine over the past months, but the Hungarian leader’s stance has hardened since Trump’s victory.
Europe is looking to mobilize hundreds of billions of euros in additional financing as it seeks to continue support for Ukraine at a critical moment, particularly after Trump ordered a pause in all military aid to Kyiv. Von der Leyen has called this a “once-in-a-generation moment’ and previously said the EU faces defense investment needs of around €500 billion over the next decade.