EU leaders to make room for more spending on Ukraine, no new common debt seen

VERSAILLES, France, March 10 (Reuters) – European Union leaders will set the stage on Friday for possible unexpected war-related spending in Ukraine, but refrain from mentioning any new joint EU debt issuance , according to draft conclusions of the summit.

Leaders of the 27 EU countries meet in Versailles, near Paris, to discuss rising defense spending after Moscow invaded Ukraine, Kiev’s bid to become a member of the EU and ways to make Europe strategically independent from global suppliers of energy, microchips and food.

Coming out of the COVID-19 pandemic, which has increased public debt across the EU, governments had planned to phase out the emergency budget support that had been needed to keep economies going during lockdowns.

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But Russia’s invasion of Ukraine has forced the EU to rethink this approach due to an expected surge in defense spending and investment in renewable energy sources to facilitate the move away from gas, Russian oil and coal.

“Our national fiscal policies will need to take into account overall investment needs and reflect the new geopolitical situation,” the draft summit conclusions say.

“We will pursue sound fiscal policies, which guarantee the sustainability of the debt of each Member State, in particular by encouraging investments that promote growth and are essential for our 2030 objectives,” the conclusions state.

COMMON DEBT

Some countries like France want new European debt issued jointly to help cushion the displacement of Russian energy imports, the impact of Moscow sanctions on Ukraine and the push for more independence from suppliers world of food products and microchips.

But Germany, the Netherlands and others strongly oppose such a move, saying there is still a lot of unused money in the 800 billion euro EU recovery fund that the bloc is already borrowing jointly to fund many challenges.

Only 74 billion euros of total EU funds have so far been disbursed, as national governments have to prepare projects that will be financed by grants and ultra-cheap loans.

“We have other instruments (than the new common debt), let’s use them first,” said a eurozone official.

The draft conclusions showed that EU leaders want to find the money to meet the challenges ahead by mobilizing public funds to attract private capital and facilitating innovative projects.

“We will use the European Investment Bank Group’s budget and potential to catalyze private investment, including higher-risk financing for entrepreneurship and innovation,” they said.

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Reporting by Jan Strupczewski Editing by Gareth Jones

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