European Union leaders endorsed ambitious plans to ramp up defence spending and reaffirmed their commitment to Ukraine at an emergency summit on March 6, as concerns mount over the implications of US policy shifts under President Donald Trump.

At the summit, the 27 EU heads of state backed a European Commission proposal to allow greater fiscal flexibility for military expenditures and to jointly borrow up to €150bn for defence projects.

"The European Council stresses that Europe must become more sovereign, more responsible for its own defence and better equipped to act and deal autonomously with immediate and future challenges and threats with a 360° approach," the statement read. "Russia’s war of aggression against Ukraine and its repercussions for European and global security in a changing environment constitute an existential challenge for the European Union."

The statement called on the European Commission to "explore further measures, taking into account the views of the Council, while ensuring debt sustainability, to facilitate significant defence spending at national level in all member states”. 

Earlier this week, European Commission President Ursula von der Leyen proposed unlocking up to €800bn in military spending over the coming years, including a €150bn EU loan programme and relaxed budget constraints to enable member states to raise military expenditure by 1.5% of GDP over four years.

EU foreign policy chief Kaja Kallas commented on the issue on her arrival at the March 6 summit. “First we’re going to discuss what we can do to really boost our own defence,” she said, adding that “all options are on table when it comes to financing”. 

EU Council President Antonio Costa, in a statement after the summit, expanded on how the plans would be financed, which appeared to be in line with the original concept outlined by von der Leyen. 

Costa said that on the basis of the proposal made by von der Leyen, EU leaders “have taken concrete decisions to provide new resources, new tools, new instruments for our defence capabilities”. 

“First, we have decided to invest in priority areas already defined by the European Defence Agency, reflecting the lessons learnt from the war in Ukraine, and in full coherence with NATO: air and missile defence, artillery systems, missiles and ammunition, drones and anti-drone systems, strategic enablers, military mobility, artificial intelligence, cyber and electronic warfare,” Costa said, according to an EU Council statement. 

“Second, we have decided to mobilise additional public and private funds for our defence. We will create a new European instrument, up to €150bn, to support member states in boosting the defence capabilities that are urgently needed. Another key funding channel will be the European Investment Bank (EIB), which has broadened its mandate to support defence-sector loans. The move aims to enhance access to private financing and incentivise private banks to support military-related investments.”

Costa added: “On top of that, leaders were today clear that we need flexibility within the Stability and Growth Pact. Because member states will invest much more in defence – and our common fiscal rules need to allow them to do so. In a sustained and sustainable way. Flexibility in channelling existing European funds to defence will also be important – for those member states that choose to do so.” 

The summit takes place shortly after US President Donald Trump indicated the US would no longer continue to act as a security backstop for Europe. It also follows the abrupt withdrawal of US military support for Ukraine announced after the dramatic row at a White House press conference between Trump and Ukraine’s President Volodymyr Zelenskiy. This prompted the rethink of European defence policy. 

Germany, which is traditionally cautious where debt is concerned, unexpectedly pushed for the exemption defence expenditures from EU budget constraints, according to media reports ahead of the conference. 

Elsewhere in the EU, Bulgaria plans will ask the European Commission to allow it to use funds under its Recovery and Resilience Programme (RRP) that have not been invested in other projects to modernise its defence industry, Prime Minister Rossen Zhelyazkov said on March 6 ahead of the summit.

In February, Deputy Prime Minister Tomislav Donchev said that the country would lose its second tranche of €653mn under the RRP, as it has failed to complete the necessary reforms. Zhelyazkov will propose to use these funds for the defence industry instead, the government said in a statement.

Slovenian Prime Minister Robert Golob announced before the summit that Ljubljana will have to raise its defence spending to 2% of GDP earlier than previously planned, before 2030.

However, decisions by EU members to prioritise military funding has sparked concerns over potential cuts to other budget areas, including development aid. 

Bloomberg has reported that Germany intends to reduce development financing by nearly $1bn, while the Netherlands is preparing €2.4bn in budget cuts. The UK, no longer an EU member, is following a similar path, with Prime Minister Sir Keir Starmer planning to slash aid spending by GBP6bn (€7.2bn) to make room for heavier military outlays.

Gareth Redmond-King, head of international programs at the Energy and Climate Intelligence Unit, warned in an interview with Bloomberg that reducing development finance could have geopolitical consequences, by reducing Western soft power.

Ahead of the abrupt change to the security landscape after Trump’s return to power in the US, Emerging European countries had already stepped up defence spending. According to a recent European Bank for Reconstruction and Development (EBRD) report, defence budgets in the region have nearly doubled over the past decade, rising from an average of 1.8% of GDP in 2014 to 3.5% in 2023.

“This comes at a time when government budgets are already stretched by servicing debts inherited from the COVID-19 period and under pressure from defence spending,” EBRD chief economist Beata Javorcik told bne IntelliNews ahead of the report’s release.

Ukraine now allocates 37% of its GDP to defence, while Nato’s eastern flank countries – including Poland, Latvia, Estonia and Romania – are significantly increasing their military budgets. Elsewhere in the region Armenia, Azerbaijan and Serbia also ramping up defence expenditures amid regional military buildups in the South Caucasus and Western Balkans.

However, the EBRD report warns that with governments shifting resources towards defence, spending to support long-term economic growth may be at risk. Javorcik commented: “If defence spending is seen as a must, and if cutting social spending is very hard politically, what’s going to be crowded out is investment into education, R&D, and infrastructure  –  meaning all the spending that builds the foundation for future growth.”