(Bloomberg) — Spain proposed setting up a new defense fund to provide non-refundable grants to beef up Europe’s defense lines and provide support for Ukraine using Russia’s immobilized central bank assets.
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Economy Minister Carlos Cuerpo urged his European Union counterparts Saturday to create such a temporary instrument to finance large-scale European-wide projects.
“This is the time for European solidarity to support Ukraine and Eastern frontline countries,” he said on the sidelines of a meeting with his EU peers in Warsaw. “We need to invest together in defense, which is a genuinely European public good that benefits our citizens and bolsters our economic security.”
EU financial chiefs explored ways to finance the region’s rearming efforts over the weekend as doubts about the US commitment to NATO’s mutual defense clause and the growing threat posed by Russia push the bloc to accelerate its preparedness.
The cash-strapped state of some member countries means that the EU needs to find additional options to finance years of underinvestment and the creation of new pan-European instruments was among topics discussed.
In contrast with options put forward so far based only on soft loans, Spain wants to provide also EU grants to countries — in particular the East, which is more exposed to the Russian threat.
Spain’s proposed tool, designed as a special purpose vehicle, would be financed by contributions from member states, join EU debt, and the European Stability Mechanism rescue fund.
In addition, Madrid said part of the immobilized €200 billion ($227 billion) Russian central bank assets held in Europe could also be used to finance military projects to benefit Ukraine.
This would represent a bolder and more controversial step as some countries, including Germany and Belgium, still resist using the underlying assets fearing consequences for the financial stability of the region and the role of the euro.
EU economy chief Valdis Dombrovskis told reporters after the meeting that the commission “is ready to explore new ways and options” and Spain’s focus on supporting the region’s East “fits well in the discussion we are having.”
Speaking alongside the commissioner, Polish Finance Minister Andrzej Domanski — who chaired the meeting — said that a large majority of ministers considered that additional defense financing tools may be needed. And he described as “encouraging” the solidarity expressed by some Southern members of the bloc.
