As concerns over European security grow, the European Commission is preparing a sweeping plan to boost defence financing across the European Union, potentially unlocking €800 billion in new borrowing for military investments – a move welcomed by Lithuanian officials but tempered by realism about limited EU budget flexibility.
The proposal, part of a broader package under the Readiness 2030 initiative (formerly ReArm Europe), includes €150 billion in jointly guaranteed EU loans and up to €650 billion in additional borrowing by member states backed by European guarantees.
European Parliament member Virginijus Sinkevičius estimates that Lithuania could receive approximately €3 billion from the €150 billion joint borrowing pool, based on previous funding formulas.
Defence outside EU treaties
Despite the scale of the proposal, both Sinkevičius and fellow Lithuanian lawmaker Paulius Saudargas caution against expecting major allocations from the EU’s existing or next seven-year budgets. Defence remains outside the core scope of EU treaties, making it difficult to dedicate significant common funds.
“Defence is not included in the EU treaties,” Sinkevičius explained. Saudargas added, “I don’t think European funds will be able to cover a significant portion [of the costs].”
Instead, both agree Lithuania will need to rely primarily on its own tax revenue and borrowing, possibly facilitated through new EU loan mechanisms.
Lithuanian budget reform to bolster defence
Last week, the Lithuanian government approved a tax reform package aimed at raising an additional €345.7 million for defence in 2026 and €513.5 million in 2027. Parliament must approve the measures by the end of June.
This is part of a broader national goal, previously endorsed by the State Defence Council, to increase military spending by €12 billion between 2026 and 2030 – about €2.4 billion annually.
Saudargas emphasised the urgency of the moment: “It would be good if we could reach at least 1 to 1.5 percent of GDP through our national budget. Then we have European Commission President Ursula von der Leyen’s proposal for more borrowing, loosened fiscal rules, and the €150 billion in joint loans.”
He warned that Lithuania cannot afford to fall behind countries like Poland in military spending: “Everyone knows the Baltic states take security seriously, keep raising the Russian threat issue. If we don’t invest ourselves, we’ll look ridiculous.”
Uneven views across EU
However, support for aggressive defence spending is not uniform across the EU. “Southern countries don’t see the threat the same way,” Saudargas noted. “And some Central European countries are wealthy enough to borrow independently and may not see the need for joint EU measures.”
Nonetheless, he argued, Baltic countries and Poland must “take everything we can, invest as much as we can, fiscal discipline is no longer the top priority”.
EU budget limitations and industrial support
Talks last year about reallocating €392 billion from the EU’s Cohesion Fund for defence purposes made little progress. Instead, Sinkevičius recommends focusing on practical options being prepared by the Commission – such as allowing military expenditures up to 1.5% of GDP to be excluded from deficit calculations.
“This gives governments more room to borrow,” he said. “It’s an old idea that’s now surviving mainly thanks to Germany.”
He also pointed to the need to balance increased military spending with ongoing pressures in health care, social services, and slow economic growth: “It’s hard to sustainably grow defence spending and maintain funding for other public services.”
Lithuania’s Ministry of Finance has already submitted a request to the EU Council for greater flexibility in defence-related fiscal rules.
Loans, not grants
The Readiness 2030 plan would allow countries to borrow for defence with EU guarantees – €150 billion in joint borrowing and €650 billion in national borrowing with European-level backing.
“Southern countries want to include infrastructure projects, which will be debated,” Sinkevičius said. “But overall, this will move toward defence.”
Lithuania, with its “frontline” status, could be well-positioned to benefit. The final allocation formulas, however, remain unclear.
The EU is also launching the European Defence Industry Programme (EDIP), allocating €1.5 billion to support military manufacturing – a promising opportunity for Lithuania’s nascent defence sector.
“Our defence industry is still developing, which makes it dynamic and flexible. We have startups and new technologies – I believe they’ll benefit from these programmes,” said Saudargas.
Sinkevičius was more cautious about long-term defence funding from the regular EU budget. “Unless we replicate the pandemic-era facilitation hubs model for humanitarian aid, it’s unrealistic to expect a dedicated defence budget line in the 2028–2034 EU financial framework,” he said.
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