“Seize opportunity” offered by new EU defence funding instrument, says PM

Portugal’s prime minister, Luís Montenegro, has argued that the country should “seize the opportunity” offered by the new European Union instrument for defence to contract loans and invest more in this area, with the easing of the EU’s usual tight budgetary rules.

“Of course, Portugal must seize the opportunity of being able to take out loans and have a flexibility mechanism to use without jeopardising its trajectory, in other words, to guarantee financing in good condition, and at the same time be able to continue to show a financial result that currently places it among the best performers on a European scale,” said Montenegro on Thursday evening in Brussels, on the sidelines of the extraordinary summit dedicated to European defence and support for Ukraine.

The prime minister answered in the affirmative a question about the possibility of resorting to a planned 150 billion euros European instrument for loans on favourable terms, taking advantage of the easing of the EU’s tight budgetary rules for the purposes of defence investment, by a maximum of 1.5% of gross domestic product per year, without countries incurring an excessive deficit procedure.

Emphasising that Portugal has a “very stable economic and financial situation” at the moment, the prime minister said that “the economic results are a basis” for the country to be able to resort to such EU measures.

“The door is not closed as of today; it is open with these instruments and will have to be complemented in the near future,” said Montenegro, who has been advocating a new joint debt issue for the defence sector.

EU leaders, meeting on Thursday at an extraordinary summit in Brussels, agreed to “accelerate the mobilisation” of the funding needed to strengthen European security, while asking the European Commission for “additional sources of funding” for defence.

The meeting came after the commission’s president, Ursula von der Leyen, announced on Tuesday that she wanted to mobilise 800 billion euros for investment in European defence.

The Rearm Europe plan, as it is called, has five strands: a new instrument at EU level for extraordinary circumstances (similar to the one created for financial assistance to countries borrowing at favourable conditions during the Covid-19 pandemic to avoid a sharp rise in unemployment), the activation of the national safeguard clause in the budgetary rules to avoid excessive deficit procedures (for increasing public spending on defence, by a maximum of 1.5% of GDP per year), the reallocation of funds from other pots (such as the EU’s Cohesion Policy), funds from the European Investment Bank, and even private capital.

During the pandemic, the mechanism for loans in extraordinary circumstances (then called SURE) totalled 100 billion euros; Portugal obtained 6.2 billion euros.

Between 2021 and 2024, EU member states’ total defence spending rose by more than 30% to an estimated 326 billion euros, equivalent to around 1.9% of the bloc’s GDP.

Portugal spent around 1.55% of its GDP on defence last year, well below the current official 2% target for members of the North Atlantic Treaty Organization.