In the face of rising geopolitical tensions and increased military spending, Pierre Gramegna proposed granting special credit lines to euro zone countries for defense purposes, without the need to implement rigorous economic reforms.
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A new role for the ESM in times of crisis
“In times of geopolitical turmoil that has increased defense spending and costs in all countries, we must fully exploit the potential of the ESM,” emphasized Pierre Gramegna.
According to him, the fund could be particularly useful for countries with a stable financial situation but limited budgets, such as smaller euro area countries. Gramegna noted that the instruments available under the EMN could be adapted to defense needs, which is in the broad interest of Europe.
Gramegni's proposal is part of the European Union's broader efforts to increase defense capabilities, especially in the context of tense relations with Russia and the changing approach of the United States.
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“Relations between Europe and the United States are becoming more and more turbulent,” noted the head of the ESM, referring to the policy of US President Donald Trump, who has openly criticized European allies in the past.
A new version of the crisis fund
ESM, Created at the height of the euro zone debt crisis, it was originally intended to save national economies and banks, as well as stabilize the common currency. However, since the end of the crisis, its role has significantly decreased.
Gramegna suggested that the fund could be “reinvented” as a defense support tool.
“You must guarantee that this instrument… must be devoted to defense expenditure” – he pointed out, adding that loans “they will not be subject to draconian conditions and their aim will not be to restructure the economy“.
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This proposal echoes previous ideas such as the “defense support line” proposed by former Italian Prime Minister Enrico Letta.
The new mechanism could operate similarly to the €240 billion ESM crisis support program launched during the COVID-19 pandemicwhich was intended to support healthcare spending but ultimately remained unused.
Who will benefit from the new loans?
If Gramegni's proposal is accepted, countries such as Lithuania, Latvia and Estonia could significantly benefit from new financing opportunities. Since Russia's invasion of Ukraine, the Baltic states have almost quadrupled their defense spending to about 5 percent. GDP, financing them mainly from loans.
ESM support could ease the burden on their budgets by offering low-interest loans for national security purposes.
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However, before the fund can be used in its new role, it will be necessary to obtain the consent of all 21 euro zone countries that support the ESM. The problem may be the opposition of militarily neutral countries, such as Austria, Cyprus, Malta or Ireland.
Additionally, loans from the ESM would only be available to euro zone countries, which excludes countries such as Poland.
