Rachel Reeves
Photo by Getty/Jeff Overs

UK Set to Rejoin EU Talks for Powerful New ‘Bank’ to Boost Defence Spending

The Government is set to join high-level discussions with the EU this week over a groundbreaking Europe-wide defence funding scheme, amid rising fears over waning US support. Chancellor Rachel Reeves will participate in talks with European finance ministers in South Africa at the G20 meeting, coinciding with the third anniversary of the Ukraine war. These negotiations come at a time when uncertainty over American involvement in European security has prompted urgent calls for a new financing mechanism.

Polish finance minister Andrzej Domanski revealed that discussions with the UK had been underway for months before Donald Trump’s recent comments on US engagement in European security surfaced. He explained,
“It could be a fund or a bank. For example, there is the concept of the Rearmament Bank, which we are also considering”, reported by the Express.

This concept, backed by former Chief of the Defence Staff Sir Nick Carter, envisages a rearmament bank capable of lending money to member nations for purchasing critical military hardware such as ammunition. In a recent letter to the Financial Times, Sir Nick suggested that member countries would pay a subscription fee to the fund, which could provide up to €100 billion in lending power.

Tonight the Treasury confirmed that Ms Reeves will “raise defence financing proposals with her European counterparts” during these discussions, emphasizing the UK’s commitment to bolstering its own and Europe’s defense capabilities. Meanwhile, on Sunday, incoming German Chancellor Friedrich Merz announced major changes to Germany’s security policy. He declared that Germany would begin to reduce its reliance on the United States, warning that Donald Trump is “largely indifferent to the fate of Europe.”

He further stated, “I never thought I would have to say something like this on a television program. But after Donald Trump’s statements last week at the latest, it is clear that the Americans, at least this part of the Americans, this administration, are largely indifferent to the fate of Europe.”

Merz continued, “I am very curious to see how we are heading toward the Nato summit at the end of June,” he said. “Whether we will still be talking about NATO in its current form or whether we will have to establish an independent European defense capability much more quickly.”

The UK Government is also formulating proposals to raise defense spending to 2.5% of GDP, costing at least £5 billion a year, to meet growing calls for NATO members to contribute more to their security. Experts have told the Financial Times that the proposed European defense fund could ease the financial burden on Ms Reeves. Former senior Ministry of Defence official Andy King explained, “That’s not a certain outcome: the detail would matter in terms of how the entity was structured and how it used its lending capacity.”

Earlier this month, the European Commission announced plans to partially lift EU fiscal rules, allowing countries to invest in defense through borrowing without facing sanctions. EU chief Ursula von der Leyen is expected to provide further details on European defense financing in March, signaling a significant shift in the continent’s approach to security.

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