The European Union has finally realized the full extent of the danger posed by Russia and has feverishly begun to prepare its defenses. This is especially true given that the US is increasingly distancing itself from European affairs.
Europe has already recognized this.
Defense spending across the EU as a whole has increased by 30% since Russia’s full-scale invasion of Ukraine, but this is catastrophically insufficient.
The countries on NATO’s eastern flank (Poland, Lithuania, Latvia, Estonia), which feel the threat more acutely, have increased their defense spending to 4% of GDP and have no intention of stopping there. But overall, the situation in the European Union does not look so rosy.
The EU Council forecasts that military spending will continue to grow to 2.1% of GDP by 2025, although the European Commission is more cautious, expecting it to stabilize at 1.6%.
The main contributors to the European economy, France and Germany, have struggled to bring this figure to around 2.1% of GDP and plan to increase it to only 2.4% of GDP in 2025. The reason is simple: there is no money.
During the “golden” 30 years after the collapse of the USSR and the end of the Cold War, the European Union was busy drastically reducing its armies and defense production.
It generously poured the freed-up financial resources into the social sphere, handing out benefits, subsidies, and privileges left and right. In 2024, social payments alone in Germany reached a record level of around €47 billion. In France, around 30% of GDP is spent on the social sphere, one of the highest figures in the world. In Germany, this figure is approximately 28.8% of GDP, the second highest in the EU after France. Compare this with defense spending.
Social spending, even with the security situation worsening in 2022, continued to be a “sacred cow.”
Europe’s political elite continued to live by electoral cycles and did not touch this area, fearing a negative reaction from voters. But life made its own adjustments. France’s GDP growth slowed from 2.5% in 2022 to 0.7% in 2023, then accelerated to 1.6% in 2024 and continues to show a weak upward trend (1.8% forecast in 2025).
In Germany, the situation is even worse: the country experienced an economic contraction of 0.3% in 2023 and 0.2% in 2024. At the same time, the economy still remains below pre-pandemic 2019 levels. The outlook for 2025 remains unclear. The European Commission is optimistically counting on stagnation, expecting that Germany’s GDP will at least not fall.
It is not surprising that the leaders of both countries have started talking about “tightening their belts” and the impossibility of maintaining the current level of social spending in the current economic reality.
“The welfare state as it exists today can no longer be financed by our economic capabilities,” said German Chancellor Friedrich Merz at the CDU party conference in Osnabrück on Aug. 23.
Back in March, President Emmanuel Macron voiced the idea of a “war economy” and cutting social spending. And the French government was the first to be hit by the predicted political crisis. François Bayrou’s government tried to combat at least the growth of public debt. To this end, it included a sharp reduction in spending of €43.8 billion ($50.5 billion) in the budget for the following year. Immediately afterwards, it was dismissed by the National Assembly. The Merz government is one step away from this. Satisfaction with its work has fallen to 29% – the lowest level since the chancellor took office.
The obvious solution
At the same time, the way out of this difficult situation is obvious. Europe has frozen $246 billion (€210 billion) of Russian assets (a total of $300 billion worldwide). At the same time, €183 billion of these assets are held in Belgium’s Euroclear depository. This massive financial reserve is being put to very poor use. Ukraine receives financial support in the form of interest on their use. But this maximum of €4-4.5 billion per year cannot be called aid. It is more like patching up budget holes.
The issue of confiscating Russian assets is periodically raised in European politics, but without much success. Belgian Foreign Minister Maxime Prévot recently stated once again that Belgium is against confiscation and does not plan to do so.
But this will not be necessary.
There is a more rational and, at the same time, profitable way, in the short term, to use frozen Russian reserves without crossing the red lines that European partners are so afraid of. To strengthen macro-financial support and military aid to Ukraine, the European Commission should launch a project called “confiscation without confiscation.”
To implement this idea, EU countries need to agree that frozen Russian assets will be transferred to a Special Defense Fund, which will issue reliable financial instruments for their value. For example, long-term EU defense bonds. The funds obtained in this way, as part of a unified strategy to strengthen the European military-industrial complex, could be distributed on a repayable basis among the states that have agreed to participate in the program.
Arms manufacturers in France, Germany, Poland, other EU countries, and even Ukraine (in areas far from the front line) will be able to receive this money to expand their production capacities and manufacture the weapons needed to defeat the common enemy.
The special fund could be supervised by the European Commission and managed by representatives of EU member states on a rotational basis. After Ukraine’s victory, the conclusion of a long-term peace agreement, and the lifting of sanctions on frozen assets, the owners would be transferred full rights to the bonds, which could be sold on the financial market.
In this model, everyone wins. EU leaders strengthen the defense industry of their own countries without drastically cutting social spending and, at the same time, creating new jobs. The European economy does not go into recession and shows growth. Ukraine receives resources to continue the war and develop its own military-industrial complex.
If Europe shows the way, other holders of confiscated Russian assets will be able to follow suit: the United Kingdom, Australia, and Japan. And perhaps even the United States. After all, you can always count on Americans doing the right thing – after they’ve tried everything else.
The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.