Ursula von der Leyen: €150 billion in defense loans should be spent in Europe

European Union member states will not spend €150 billion in new defense funding on American weapons, as Brussels seeks to quickly boost the continent's security while developing its domestic military industry, the Financial Times reports.

The European Commission has proposed borrowing 150 billion euros through loans secured from the EU budget so that member states can buy weapons, as part of efforts by European capitals to strengthen their defenses in response to the return of Donald Trump to the US presidency.

"These loans should finance purchases from European manufacturers, in order to strengthen our own defense industry," Commission President Ursula von der Leyen told the European Parliament on Tuesday.

That means the money will be spent exclusively on weapons from EU states and other European countries such as the UK, Norway and Switzerland, officials familiar with its plans said.

The concept of arms loans received political backing from EU leaders last week. Von der Leyen said she would present a full legal proposal before the next summit of EU leaders, scheduled for Thursday next week.

Its implementation will require the support of a qualified majority of member states, i.e. 55 percent of the bloc's countries representing 65 percent of its population.

If an agreement is reached, it is still unclear how much the state will use this financing, which will most benefit those members whose borrowing costs are higher than those in the EU, writes the Financial Times.

Trump's threats to end US security protections for European NATO members, as well as his decisions to suspend military aid to Ukraine and reestablish ties with Russia, have shaken allies who fear they can no longer count on Washington.

Von der Leyen's decision to buy weapons from European manufacturers comes at a time when France and Germany are clashing over how money from the EU defense budget can be spent.

France, which has long advocated greater "strategic autonomy," is insisting on limiting spending outside the bloc, with a focus on reducing arms purchases from the United States.

A French official said there was "a broader consensus in favor of investing in the European Union."

"European funding should go to European industry. This is necessary not only to help our companies increase capacity, but also to maintain sovereignty over use and technological know-how. We cannot allow other actors to decide on our defense from afar," French Minister for European Affairs Benjamin Hadad said on Tuesday.

Adad added that Paris prefers that no European money be spent on American weapons, even if they are produced under license on the continent.

Germany, on the other hand, is seeking greater flexibility, partly due to the large number of large European defense companies that have deep supply chains or partnerships in countries like the UK.

Almost two-thirds of the weapons imported by European NATO members in the past five years were manufactured in the US, according to research published this week, according to the Financial Times.

Von der Leyen said the loans could be targeted at several strategic capacities, from air defense to drones, from strategic factors to cybersecurity, and could be spent on multi-year contracts "so that industry has the predictability it needs."

Member states should agree on joint contracts, modeled on previous initiatives to purchase weapons and ammunition for Ukraine, such as the Czech scheme that delivered more than 1,5 million large-caliber artillery shells to Kiev.

"One nation took the lead. Others joined in to place larger orders. Industry increased production and prices fell. It was both fast and efficient. And that's exactly what we need now: speed and scale," von der Leyen added.

Dutch Defense Minister Ruben Brekelmans on Tuesday also called for a rapid increase in production capacity in the bloc.

"We simply don't have time to wait years for deliveries, and we're already seeing some prices and delays in weapons deliveries rising."

He agreed with France that the "lion's share" of any investment funds should go to production in Europe, within the EU, adding that the UK and Norway should also remain "involved".

Brekelmans also said it was important to allow American weapons produced under license in Europe to be treated as European.

The Netherlands has relied on the American Patriot air defense system, which is manufactured under license in Germany. He also stressed that the Netherlands is open to purchasing weapons from outside Europe.

Under a separate proposal from Brussels, EU governments would be allowed to increase their defense budgets by up to 1,5 percent of GDP over the next four years, without violating EU deficit and debt rules. The plan would have no geographical restrictions on the origin of weapons, Commission officials said.

This relaxation of fiscal rules could lead to an additional total EU defense spending of around 650 billion euros, von der Leyen said.

EU finance ministers agreed on Tuesday to exempt certain defense spending from EU fiscal rules, including military salaries, which still make up the bulk of military budgets in many member states. However, the categorisation is more restrictive than requested by highly indebted countries such as Italy and Spain.

Spanish Finance Minister Carlos Cuerpo told the Financial Times that other areas, such as cybersecurity, critical infrastructure and border protection, should also be included.

"We should not limit the discussion to just weapons, ammunition and armaments. We need to go further."

Italian Prime Minister Giorgia Meloni last week also called for the inclusion of a broader range of spending that would cover not only defense, "but also competitiveness."

Italian Finance Minister Giancarlo Giordetti has proposed a €16,7 billion EU investment guarantee fund, which could mobilise up to €200 billion of private investment in sectors such as aeronautics, cybersecurity, advanced manufacturing, artificial intelligence and other defence sectors over the next five years.