Euro zone crisis fund head says members should consider it for defence spend

The head of the euro zone countries' ESM joint bailout fund said on Thursday that it was open to discussing its use to help boost their defence spending.

Former Italian prime minister Enrico Letta suggested to EU leaders in April that the European Stability Mechanism could expand its role to provide loans of up to 2% of a country's GDP for defence and security spending at favourable rates.

"We as institutions are in the hands also of member states. If there is such an appetite, we are ready to discuss it," the ESM head Pierre Gramegna told a conference.

European defence spending is likely to return to the policy agenda as U.S. President-elect Donald Trump has in the past criticised NATO countries that failed to meet the alliance's 2% of GDP spending target for members.

The ESM was set up in 2012 in the wake of the euro zone's sovereign debt crisis to provide a financial firewall for members of the shared currency bloc.

In recent years as that crisis receded, the ESM has been searching for ways to remain relevant. It set up a dedicated precautionary credit line during the COVID-19 crisis to help finance health spending if needed.

Gramegna, a former finance minister for Luxembourg, said during the event at the French central bank that such a change would require unanimous backing from member states.

The ESM can currently offer precautionary credit lines to help members on a solid economic footing cope with shocks beyond their control by creating a financial safety net that allows them to keep tapping markets at low interest rates.