EU creates fund for arms purchases to defend against Russia

The fund, called the "European Defense Mechanism," was proposed by the Bruegel think tank in a ministerial discussion paper as a way to address the problem of how highly indebted countries can pay for expensive military equipment.

This is part of a broader European effort to prepare for a potential attack by Russia, as EU governments realize they can no longer rely entirely on the United States for their security.

This is a good starting point for discussion,” said Portuguese Finance Minister Joaquim Miranda Sarmento.

Several other EU countries have also expressed initial support, noting that creating such a fund could be technically relatively simple, as it would be based on the model of the eurozone's bailout fund, the European Stability Mechanism.

"We will still have some questions about the mandate, the funding, the contributions, the market leverage. There are some questions about the funding, and also about the military aspect," Sarmento said.

The EU is already seeking to increase military spending by €800 billion over the next four years by relaxing its fiscal rules on defense investment and jointly borrowing for major defense projects from the EU budget.

The fund will be established under an intergovernmental agreement and will have significant paid-in capital, allowing it to borrow funds on the market.

The fund can be joined by members from non-EU countries, such as Britain, Ukraine or Norway. Since the fund will own the equipment it buys, the debts incurred to pay for it will remain in the fund's accounts, not in national accounts.

The Fund will also contribute to the creation of a single European market for defense equipment in order to reduce costs and pool resources.

The document on the fund notes that Europe has a chance to reduce its military dependence on the US by 2030 only if procurement is maximally pooled and a common European defense market is created with the participation of the UK as the main industrial defense player in order to strengthen competition.