Estonia puts forward €100 billion funding plan for Ukraine

Borrowing from the financial markets or taking from national budgets are the best ways to give Ukraine what it needs to win the war, according to Estonia, which is looking for more than €100 billion to achieve that goal.

Allocating €120 billion a year to military aid to Ukraine “is a ballpark figure for what should be enough for Ukraine to win the war,” said Kusti Salm, Permanent Secretary of the Estonian defence ministry.

Talking to Euractiv, Salm suggested that part of that figure could be funded with Eurobonds, where the European Commission could raise funds from the financial markets and use the group of 27 EU member states as a guarantee.

For the past several months, Estonian politicians and officials have repeatedly said what is needed for Ukraine to win the war, is for its Western allies invest 0,25% of their GDP in military aid to the country, based on a strategy drafted by Estonia’s defence ministry.

The strategy details where the money would be spent, which is mainly on defence equipment and ammunition.

If the 50-plus countries in the US-led ‘Ramstein’ coalition supporting Ukraine militarily spent that percentage, it would amount to “more than €120 billion a year,” said  Salm. 

“With this money, by 2025, Ukraine will get to a point where they can impose attrition to Russia,” he said.

Even if that amount of money started flowing now into the budgets, its impact would take almost a year, Salm cautioned.

“It will take another [around nine months] to get the supplies to the level needed for Ukraine to credibly get to this attrition level,” he said.

Asked what €120 billion a year was worth against the €130 billion spent by Russia, according to the SIPRI, Salm said that the Estonian figure “does not include other figures such as Ukraine’s own expenditure, Western military training, civilian aid, etc… so the actual amount required is higher than this,” suggesting it already matches the Russians.

He pointed out that Western allies spend half of what Russia does on the war at the moment: “$5.5 billion from the West, $10 billion from Russia.”

For the Estonians, ring-fencing 0.25% of GDP for Ukraine is “affordable”, sending a message that the Westerners are not surpassing their capacities, “which helps take off a bit of that defeatist attitude, and shows it actually requires very little effort from us so Ukraine wins the war,” even without the US on board.

The figure amounts to 1/8 of Ramstein’s countries’ expenditures for Ukraine, according to the country’s analysis.

Eurobonds would be a means to get access to the money as early as possible, the Estonian official said.

“A few countries have said that it would be unaffordable, and this is where the Eurobond discussion comes into play, which has an element of solidarity,” Salm suggested where all 27 EU member states would together task the EU executive to find the money on the financial markets and be bound by interest rates.

Using the European Commission to issue debt to fund the defence of Ukraine or the expansion of defence production in Europe, has been seen as an option to increase the amount of funds available, as the bloc is looking to revamp its military-industrial complex to shore up production of defence equipment.

This goal of the European Defence Industry Programme (EDIP) regulation the European Commission proposed last week will need a large budget to meet the requirements, the executive has said. Several other countries also echoed this point.

According to early draft conclusions, seen by Euractiv, EU leaders at the summit next week may call for “including options to mobilise funding from additional sources”.

Using Eurobonds to raise money as the European Commission did to fund the post-pandemic economic recovery, has been floated around by several EU countries for the past few months, including the Belgians, Estonians, and French,  as well as the president of the European Council Charles Michel.

It has also gathered support in Lithuania, Latvia, Poland and some Mediterranean countries, according to Euractiv’s information.

“Support is accumulating quite fast,” Salm assured, adding that the Eurobond idea “is clearly much more attractive than finding €120 billion in our national budgets”.

The EU can start with raising €100 billion as a one-off or do it again later.

Asked why that specific figure was raised and discussed, Salm said that among other reasons, it is “perfect to exemplify the price tag of defence readiness and the collective nature of that”.

“€100 billion buys you ten days of land warfare for the existing capabilities in NATO, and if we take into account all needs we speak in trillions,” said Salm.

“It sounds like high figures but it is still an order of magnitude smaller than the potential of the risk.”

[Edited by Alexandra Brzozowski/Rajnish Singh]

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