HANDELSBLATT EXCLUSIVE

Germany Disagrees with Italy, France over Defense Fund Financing

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Picture source: Reuters

The German government has rejected calls by France and Italy to finance a proposed €5-billion ($5.3 billion) E.U. defense fund through new debt, according to a government positioning paper obtained by Handelsblatt.

In the paper, Berlin says financing the fund with bonds would “contradict the fundamentals of good budget management and is therefore not a viable option for financing European defense efforts.”

The German government also says it is unacceptable to classify national contributions to the fund as “one-time measures” that would be exempt from the E.U. stability and growth pact, which requires member states to keep their budget deficits at or below three percent of economic output.

The European Commission proposed the defense fund in November as a way to increase cooperation, save money and streamline the procurement of arms and other defense systems within the European Union.

Under the two-part plan, Brussels would redirect €500 million annually from the E.U. budget to research defense technology, and the member states would contribute to a nearly €5-billion fund for the joint procurement of helicopters or drones.

The E.U. executive body had proposed that should spending on the fund increase national budget deficits, this spending would be viewed as a “one-time measure” that’s exempt from the bloc’s deficit rules.

Paris and Rome, which are struggling to meet the E.U. budget rules, are strongly in favor of this method of financing, according to E.U. diplomats, but Berlin could block the proposal with a veto.

 

Till Hoppe reports on politics for Handelsblatt, with a focus on defense, domestic policy and cyber issues. To contact the author: hoppe@handelsblatt.com

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