In a new twist, @table.media reports that Macron and Merz have discussed a large "defense fund" akin to the ESM that should have a bank license to hand out loans to finance defense projects. I remain sceptical because there is a fundamental misunderstanding here what "to finance" means. Thread: - ThreadSky

lucasguttenberg.bsky.social • 4 days ago

In a new twist, @table.media reports that Macron and Merz have discussed a large "defense fund" akin to the ESM that should have a bank license to hand out loans to finance defense projects.

I remain sceptical because there is a fundamental misunderstanding here what "to finance" means.

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rdarf.bsky.social•1 day ago

📌

jeffrathke.bsky.social•4 days ago

Worth reading this 🧵from @lucasguttenberg.bsky.social — he dissects the prevalent confusion in the EUR defense discussion between “how to pay for” defense versus “how to make lending more efficient”.

lucasguttenberg.bsky.social•4 days ago

"To finance" is used in the current defense spending debate almost completely interchangeably to mean both "to pay for" and "to lend to". But these are absolutely not the same. A defense company will not sell a tank in exchange for a loan it has to repay. It wants cash it can keep.

lucasguttenberg.bsky.social•4 days ago

The problem to solve at the moment is this: Defense spending by European governments has to increase. This means they need *to pay for* more defense goods and for more people to operate them. Such an increase can be funded in three ways: Increase taxes, reduce spending elsewhere, or go into debt.

lucasguttenberg.bsky.social•4 days ago

Solutions like a new rearmament bank that gives private defense companies access to cheaper credit than they get from markets are solving a completely different problem (private financing conditions) - a problem I strongly doubt will still exist once government place large-scale long-term orders.

lucasguttenberg.bsky.social•4 days ago

So back to the real problem and what the European level can help to solve it: The EU cannot increase taxes or order spending cuts at the national level (probably a good thing). It can do only two things: It can make it easier for member states to take on debt - or it can pay for some items itself.

lucasguttenberg.bsky.social•4 days ago

First, the EU can make it easier to increase debt to be able to increase defense spending. The straightforward and safest way to do so is to create an exemption for defense in EU fiscal rules, as @nilsredeker.bsky.social and I have proposed. This is the main EU-level legal constraint for more debt.

lucasguttenberg.bsky.social•4 days ago

This does not solve the problem that some member states already have very high debt and probably should not take on much more. To solve that conundrum is very difficult: Any ESM-like construction does not help here because whether loans come from the ESM or from markets, the debt still increases.

tilmane.bsky.social•3 days ago

what drives your scepticism?

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