(Bloomberg) -- The European Union will explore new ways to finance massive investments in its militaries and in the development of clean technologies as Donald Trump’s return to the White House has accelerated efforts to boost the bloc’s own defense capabilities and to make its industries more competitive.
The EU “will explore the development of new instruments” to raise funding for future needs, according to the latest draft declaration EU leaders are expected to adopt on Friday during their meeting in Budapest. But the conclusions fell short of identifying fresh funds to cover the bloc’s massive investment gap.
Trump campaigned on pledges to impose tariffs on a broad array of countries and has threatened to dial back security relationships with Europe. This has led the EU to formulate a more independent defense strategy and make sure its industries are better prepared to compete with American companies.
The summit discussion was preceded by a report drafted by former European Central Bank president Mario Draghi, who warned of the risk of a “slow agony” if member states failed to act quickly to boost the region’s productivity with additional investments of up to €800 billion ($861 billion) annually.
Trump’s victory in the US elections this week added urgency to act as his trade and economic agenda could widen the gap with the American economy in terms of competitiveness if the bloc fails to bring down internal barriers in telecom, financial or energy sectors or doesn’t beef up its joint financial resources.
National governments shared the sense of urgency and warned “business as usual is no longer an option,” according to the draft declaration. But the level of ambition required to match the US and Chinese rivalry could fall short, some officials warned.
Fiscally conservative nations, including Germany and the Netherlands, have long opposed additional funding measures as they consider that there are enough resources available and prefer to wait for negotiations to begin next summer on the next EU long-term budget that starts in 2028, according to people familiar with the matter.
“In a combination of learned helplessness, fiscal pressures and distrust in joint financing, competing national interests and the ever-present intellectual trap of pitting the EU and NATO against each other, Europe is hardly any more capable of guaranteeing its own security today than it was in 2016,” Nicolai von Ondarza, head of research at the German Institute for International and Security Affairs, said in remarks posted on the Carnegie Endowment’s website.
But some Eastern and Southern nations are pushing for new revenue streams before that date, in particular to boost Europe’s defense autonomy, said the people, who spoke on the condition of anonymity because the discussions are private.
In spite of the opposition voiced by some capitals, the latest draft including the reference to the new instruments is expected to be adopted by the leaders on Friday without changes, diplomats said.
Trump’s victory should push Europe to be more serious on defense as his return should not be underestimated in terms of Europe’s security and prosperity, senior EU diplomats said.
If his return does not force Europe to take decisive decisions on defense, then there is no hope at all, one of them said.
Early disagreements, however, led negotiators to scrap a 2027 deadline to build an energy union as a matter of priority that could boost the region’s autonomy and reduce costs of clean energy for firms and households, according to prior drafts.
A reference to the possibility of setting up a sovereignty fund for equity investment to secure EU competitiveness in critical technologies was also eliminated.
©2024 Bloomberg L.P.