Alastair Crooke
European Commission proposing 81% increase in annual contributions to EU budget by member states for next year.
Configuring the European-wide hostility towards Russia has been the long-standing project for Europe since at least the 1990s. The U.S. security cadre long embraced the eastward expansion of Europe as a key post-war objective - firstly to combat communism in post-war Europe; and secondly, the expansion of NATO and then the EU served to lock EU states into a U.S.-led security architecture. This structural engineering caused the EU's foreign and security structures to become dysfunctional, caught as they were in the 'headlights' between the 'New European' takeover of "Old Europe" (as U.S. Secretary of Defence Rumsfeld taunted in 2003 at NATO headquarters in Brussels), effectively undercutting any attempt to have an autonomous EU foreign policy.
Enlargement to the east effectively also hollowed out the EU's political project - the idea had been that the EU could become a 'global geopolitical actor' as a counterweight to American unipolarity. The EU therefore was transformed into little more than a large regulatory trade zone with little policy cohesion and no clear supra-arching vision of what it meant to be European.
With the American-inspired flooding of the Union with new accession states, whose security and foreign policy loyalties lay more with Washington than with the interests of citizens of core European states, this loss of clear purpose ham-strung the evolution of any coherent European 'project'.
So, in the absence of any coherent European identity ("New Europe" or "Old Europe"), or of any value system taking-hold of public consciousness, defending 'liberal democracy' in Ukraine inevitably led to a fallback resort -'Ukraine' became the project around which European leaders imagined they could keep Europe's cohesion somewhat intact.
Maintaining the 'Ukraine project' became a life-jacket.
'Ukraine' thus was intended to inject purpose and direction - particularly after the 2003 Iraq split when France and Germany declined to support the U.S.-led invasion of Iraq. The atmospherics were toxic, (as I recall from working as an adviser to Javier Solana, then EU Foreign Policy Chief, between 1997-2023).
Now, however, 'Ukraine' has become a problem. Whereas the 'New Europe-Old Europe' division that it was supposed to paper-over is no longer so acute, a different schism has replaced it - the current schism lies between Europe's aloof ruling and oligarchic class, on one side, and on the other, its increasingly desperate citizenry. This new schism constitutes a different order of crisis - for it is existential for the EU.
No European leader/s of stature have any feasible plan how to end the Ukraine entanglement, nor any clear idea how to fund continuing the war without crashing the very financial architecture that underpins 'liberal' Europe. This would risk collapsing the EU's foundational myth guaranteeing citizens a prosperous standard of living.
The dilemma is plain: Supporting Ukraine as a symbol of 'liberal democracy' has become paradoxical as liberal modernity itself is collapsing. Europe's own claim to democracy is itself increasingly questioned - most recently by events in Poland, where EU stalwart PM Donald Tusk insists that EU law trumps Poland's constitution.
With Washington now insisting that Europe become its proxy for the continuance of the war of attrition against Russia, the dilemma has sharpened into a Hobson's Choice - the EU can attempt to save its existing financial architecture, or continue to finance Zelensky's war. But within the EU's own framework, it cannot do both:
Payments to Zelensky under the €90 billion Ukraine support loan facility for 2026-2027 continue to be disbursed by the EU; however this sum, Zelensky says, has already largely been spent, resulting in the need for another €70 billion 'urgently' -
"We need at least 70 billion euros more from you - for defense, for weapons, and for our resilience. This is a realistic amount. And I ask you to find this support".
Incredibly, the €90 billion EU loan facility did not appear as 'a line item' in the present EU budget. There were no €90 billion member-state cheques' written out to Brussels. What the budget provided was merely a guarantee that if Ukraine failed to repay this loan, the EU would itself honour the debt to bondholders. (A number of EU states nevertheless refused to participate in the EU guarantee and say that they will refuse again, if asked to guarantee another such loan facility).
In addition, the €90 billion never entered the EU budget specified as 'spending'. The Commission merely says that the loan was made under 'headroom' in its budget. (The EU defines this as the difference between the absolute cap that member states have agreed the Commission can call on them to pay, and the seven-year nominal budget appropriations). Until now, the 'Ukraine' subvention has been 'facilitated' by this 'smoke and mirrors' headroom procedure - but this cannot continue.
It cannot continue because any further such subventions must fall under the seven-year EU budget framework, which is now subject to heated debate.
The current budget proposal postulates that simply to maintain existing levels of EU spending requires a lot more money to be contributed by member states for each of the next seven years. The Commission proposes that total annual national contributions rise to €235 billion - an 81% increase at current prices. Even Berlin's ambassador called this "simply not affordable".
Without the seven-year EU budget being settled, there cannot be a financial solution to Ukraine's incremental demands from EU member states.
And the seven-year budget is far from being settled - a fiscally stressed Germany is being told by the Commission to increase its contributions from approximately €40 billion to €60 billion, and an even more fiscally-broken France is being told to increase its contribution over the next seven years from approximately €30 billion to €40 billion per annum. These are dire demands.
Long story short - the EU cannot afford to finance Ukraine without resorting to bloodletting austerity at home exacerbating European-wide social and political breakdown.
Walter Münchau points to a more serious wrinkle:
"I struggle to see how France can end up with a government that succeeds in doing all of the following: (1) bringing the budget deficit under control; (2) avoiding social unrest; (3) complying with European rules; and (4) staying in the eurozone. Something has to give here".
Marine Le Pen has rejected the notion of any increased contribution by France to the EU budget, should she succeed in becoming French President next year. On the contrary, she has said she would seek to reduce France's contribution from the proposed level (€30 billion) to €10 billion - and to halt all French contributions to Ukraine.
The end outcome, were she to assume the Presidency, would likely be France's resort to the ECB to request a bailout which, if refused, could lead to a default on payments to bondholders of French debt.
The situation is critical because, as Münchau suggests,
"France defaulting on its debt would likely lead to a French exit from the euro. Should we ever get to this point, the ensuing financial crisis would dwarf everything we have ever experienced. Financial institutions would fail all over the world. For its part, the eurozone might not survive, as other countries default on their debts and crash out in turn. Ironically, one of the European countries most affected in this scenario would be the UK. Despite not being a member of the EU, let alone the eurozone, Britain's capital market would be deeply vulnerable to chaos across the Channel".
(Münchau makes the point that he does not suggest this outcome would be Le Pen's preferred option)
However, when set against Le Pen's threat to drastically reduce France's contribution to the EU budget and to cut Ukraine loose, she doesn't sound committed to the EU (though she denies wanting to quit the Eurozone).
Nonetheless, were a debt default to become inevitable, France leaving the Eurozone through the door of default might come about by force majeure, rather than deliberate choice. That outcome - though highly consequential for Europe, as Münchau warns - would then allow France to adopt a more competitive exchange rate and to set for itself interest rates more suited to its circumstances.
Brussels has few options: Whether they continue to fund Kiev or not, the war is lost. And a more profound threat lies ahead -
Look at what's happened since the Ukraine and Iran wars began: Natural gas prices: +206%; Diesel prices: +39%; Petrol prices: +27%; Crude oil prices: +50%; Eurozone inflation: 1.9% → 3.8%.
Winter is truly coming. Everything will change, as Europe's ruling élites try to pretend nothing has.