European crisis fund could be used for defence, ESM chief says

The head of the European Stability Mechanism said the ESM's more than €430 billion reserve could provide credit lines for defence to euro-area members, and that any loans would need approval by the euro-zone nations backing the fund.

Pierre Gramegna, managing director of the European Stability Mechanism, told Reuters the ESM's more than €430 billion (about US$514 billion) reserve could be made available as credit lines for defence spending. He said such lines would target euro-zone countries in sound financial health whose budgets are stretched and that they would not come with strict economic-restructuring conditions. The suggestion repurposes a fund created during the euro debt crisis and echoes past emergency schemes, such as pandemic support. The proposal responds to rising concern about European defence needs and the wider geopolitical environment. Key facts: - The ESM holds more than €430 billion of lending capacity, cited as roughly US$514 billion. - Gramegna said the fund could offer precautionary credit lines specifically for defence and that such support would avoid draconian economic terms. - Any loans would be available only to euro-zone members and require sign-off by the euro-area nations that back the ESM. - The idea recalls a past ESM pandemic support scheme and a separate proposal by former Italian prime minister Enrico Letta for a defence support line of up to 2% of a country's output. - Baltic states such as Estonia, Latvia and Lithuania were mentioned as potential beneficiaries after large increases in defence spending and previous borrowing for defence projects. Summary: Allowing ESM credit lines for defence would broaden the fund's role beyond its original crisis-lending remit and could help euro-area governments with stretched budgets. Member states must agree to any change in use, and loans would need formal approval from the euro-zone countries that back the ESM.