Press

The Centre for European Reform said last month that bond issuance for defence was feasible and had many upsides. In particular, they noted that a 500 billion euro fund at current yields would generate an annual interest bill of less than 20 billion euros."Since everyone would be on the hook to repay the debt, it could also reduce countries free-riding on the defense capabilities of rapidly ramping-up peers like Poland," it said.

Sander Tordoir, at the Centre for European Reform, says Britain should now look to co-operate with key allies such as Germany, France and Italy who are in the same boat. Along with the EU they have pledged to unlock hundreds of billions of euros for domestic defence spending.

Recent analysis by Aslak Berg at the Centre for European Reform, suggested a 20% tariff on all EU exports would lead to a decline in exports to the US of $200bn a year. “Given the weakness of the European economy, this would certainly cause a recession,” he said.

“The defence and foreign policy wonks were already comfortable with a closer relationship with the UK,” said Ian Bond, another former UK diplomat, who is deputy director of the Centre for European Reform think-tank. “The problem is what happens in other parts.”He added: “The thing will be to keep as much as possible of the new relationship at the level of leaders. Macron gets it, I think that when Friedrich Merz becomes German chancellor he will get it.

Sander Tordoir, chief economist at the Centre for European Reform, views the need to increase defence spending as a potential boon to a Europe that is otherwise in danger of deindustrialising. “The EU remains a funny animal. From the outside, it looks like a rich bloc with a strong industrial base and lower debt than the US or China – surely capable of rearming quickly and cheaply if it just co-ordinated. Inside, leaders are too busy distrusting each other to act, squabbling while the house burns,” he said.

If that is kept in mind, there is a case for common borrowing (Sander Tordoir usefully sets out how to think about common defence bonds), if this is designed to encourage streamlining specifications and joint procurement across Europe.

“The markets are still digesting a seismic shift in Germany fiscal policy,” said Sander Tordoir, chief economist at the Centre for European Reform, adding that investors “seem to be pricing in” some relief from Donald Trump’s tariffs as well as upwardly revised growth projections.