Why EU leaders reached a stalemate on joint defence bonds

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Good morning. Could the EU treaties, long understood to ban the use of the EU budget for military purposes, actually be interpreted in a way that would allow it to purchase lethal weapons? That’s what the European Commission has asked its in-house lawyers to find out.

Today, I bring you the details of an initial debate on a proposal to raise fresh EU joint debt to invest in defence, and our Iberia correspondent reports on Portugal’s changing of the guard.

Have a great weekend.

Bonding

For EU member states in favour of a fresh round of joint borrowing to raise defence bonds for Europe’s military ramp-up, yesterday’s summit of leaders was an opening salvo. The lesson? This will require a war of attrition.

Context: Russia’s war against Ukraine and the implied threat to the European continent has provoked an overhaul of the EU’s defence and security policies. Capitals have committed to the largest rearmament campaign since the cold war, but are divided over how to fund it at a time of intensely strained national budgets.

French President Emmanuel Macron has championed replicating the EU’s joint pandemic recovery fund with one focused on defence spending. But a group of richer states are opposed to more shared borrowing, saying existing finance mechanisms are adequate.

Dutch Prime Minister Mark Rutte squashed the proposal at the outset. He used an early intervention at the leaders’ summit to voice his country’s opposition to the idea. “We are against . . . because it will lead to a shift in power to Brussels,” he said afterwards. He is backed by Germany, Denmark, Austria and others.

In response, other countries spoke in favour, stressing that rapidly ramping up Europe’s defence industry and maintaining support for Ukraine required ambitious approaches.

Those in favour have been here before. A similar coalition of countries initially said pandemic bonds were impossible, before bowing in the face of sustained lobbying from proponents and a deteriorating economic situation during Covid-19.

And there are signals that some traditional opponents to the concept could be swayed. Finland, the Czech Republic and Luxembourg are all understood to be open to a discussion on new euro bonds if the proceeds are strictly linked to defence spending.

“We had a very constructive debate on that issue,” said European Commission president Ursula von der Leyen. “The debate is at its beginning, not at its end.”

Formally, EU leaders agreed “to explore all options for mobilising funding and report back by June”, in effect kicking the can down the road until the bond battle recommences.

Chart du jour: Trigger (un) happy

The US has urged Ukraine to halt attacks on Russia’s energy infrastructure, warning the drone strikes risk increasing oil prices and provoking retaliation, people familiar with the discussions told the Financial Times.

Power transition

Portugal’s changing of the guard played out in real time in Brussels yesterday, writes Barney Jopson.

Context: Luís Montenegro, freshly nominated to be the country’s centre-right prime minister, came to Brussels just as his leftwing predecessor was bidding farewell. António Costa attended his last EU leaders’ summit, after stepping down following a corruption scandal.

Just a few hours after Montenegro was picked by Portugal’s president, the longtime lawmaker — who shunned a potential pact with the far-right — appeared in the Belgian capital to attend a summit of the European People’s party, which now counts 13 heads of government.

Montenegro, head of the centre-right Democratic Alliance, exchanged greetings with Costa, the Socialist leader stepping down after more than eight years. His exit cuts the number of socialist governments around the European Council table to five.

Montenegro did not (yet) attend the EU leaders’ summit, but he met European Commission president Ursula von der Leyen as well as EPP allies at their separate gathering.

His main challenge is being nominated amid warnings about the fragility of his impending minority government.

“There is no reason to question the stability of the country,” Montenegro told Portuguese journalists, or “the stability of a government solution which, although it doesn’t have an absolute majority in parliament, has the confidence of the voters”.

Exactly how many voters, however, is open to question.

Montenegro could have reached a comfortable majority — and burnt through a much discussed cordon sanitaire — by striking a deal to govern with the far-right Chega party, which came third in the election. But he said on election night that doing so would be “evil”.

The absolute majority that Costa won in early 2022 seems a long way off. Now, Costa is yesterday’s man in the EU. But if he can shake off the stink of corruption that triggered his resignation, do not rule him out for another Brussels job.

What to watch today

1. Second day of EU leaders’ summit.

2. French defence minister Sébastien Lecornu visits his German counterpart Boris Pistorius in Berlin.

Now read these

• Non au hot dog: Michelin-starred chefs are taking a gamble with plant-based menus to feed the 15,000 athletes at this year’s Olympic Games in Paris.

• Not the economy, stupid: America’s hyper-partisan voters express economic sentiments that mirror their politics, but that’s not true in Europe.

• New Taoiseach: Simon Harris is poised to become Ireland’s next prime minister after the 37-year-old emerged as the sole candidate to succeed Leo Varadkar.