EU leaders urged to put economies ‘on war footing’ at Ukraine negotiations

Brussels: EU leaders are to meet in Brussels to discuss ways to radically increase military and financial support for Ukraine amid calls for member states to put their economies “on a war footing”.

Fuelled by what one diplomat said was a new “sense of urgency and immediacy” over the war in Ukraine, rhetoric on Moscow has notably hardened in the past few days.

On Thursday prime ministers are also expected to examine contentious plans to confiscate billions of euros in interest from frozen Russian assets and send the vast majority of the money to Ukraine.

Charles Michel, the president of the European council, said in a pre-summit letter to leaders: “Now that we are facing the biggest security threat since the second world war, it is high time we take radical and concrete steps to be defence-ready and put the EU’s economy on a war footing.”
Such language reflects a growing awareness that the EU must step up its campaign to help Ukraine win the war and secure its long-term defence capability. But it is also aimed at preparing the European public for big financial defence demands including joint procurement of arms.

Warning that Europeans “face a pivotal moment”, Michel said the chief task facing EU leaders was “the swift provision of military aid to Ukraine” to build on a recent initiative by Czech Republic which has managed to procure 300,000 artillery shells on the foreign markets in just three weeks.

One high ranking source said these arms would be delivered “in weeks” but that, longer-term, Europe needed to develop a defence policy. “For the last five to 10 years it’s been all about cutting the defence budget. Every year; now that has changed,” said the person.

On Thursday leaders will discuss the idea of defence bonds, which have been floated by some, including the French president, Emmanuel Macron, as a means of funding an increase in defence investment.

Ukraine’s neighbours, such as Estonia, favour the use of defence bonds, while frugal states, including the Netherlands and Finland, are opposed to the idea of common EU debt which would leave taxpayers on the hook for decades to come.

The alternatives – raising taxes or cutting public services to fund defence – are unpalatable to most. But one diplomat raised the possibility of mandating each country to contribute 2% of their national GDP to EU defence. This would generate as much as €80bn, they claimed.

The other big – if controversial – idea on the table is the confiscation of billions of euros in interest on Russian assets, a move that proponents say could raise €27bn in profit generated over the next four years for Ukraine.

However diplomats say the proposals are still fraught with legal difficulty.

The Kremlin said on Wednesday that such a move would be an “unprecedented violation of international law”.

One source said some G7 members had already gone further than the EU and were looking at whether they could also use the capital of Russian assets, which includes gold, cash and bonds, frozen in their countries.

Chief among leaders’ concerns is the prospect of international courts ordering all the money to be returned to Russia, wrecking Europe’s reputation as a safe haven for investors in the process.

“It is a deeply complex proposal, because it is absolutely unique and the first time ever that this has been done, with all sorts of implications in terms of legal ramification, potentially systemic, in financial, economic risks,” said one diplomat.