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How UK and EU could find more money for defence without spooking the markets
- Rachel Reeves, constrained by fiscal rules, may need to make budget cuts alongside increased defence spending in the UK.
- A crisis in major European countries could provide an opportunity to suspend budget rules for boosting economic growth through higher defence funding.
- Ed Balls suggests allowing extra borrowing for defence spending outside fiscal rules to avoid immense tax hikes or public spending cuts.
- The idea of implementing a defence and security levy as a form of tax increase is being considered by the UK government to support the defence budget.
- The EU may consider breaching stability and growth pact rules to enable higher borrowing for defence investments, drawing parallels from actions taken during the pandemic.
- Proposals for the EU to introduce defence bonds have gained traction among member states, with France, Estonia, Italy, Spain, and Poland showing interest.
- Europe is urged to access frozen Russian assets to procure arms for supporting Ukraine, potentially through a significant arms procurement program.
- The debt brake in Germany limits annual budget deficit, but discussions on potentially exempting defence spending may arise after the formation of a new coalition government.
- Friedrich Merz, expected to lead in Germany, emphasizes the need to restructure the budget before considering reforms to increase defence spending.
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