European Chaos Is Back: EU Leaders Fail To Agree On Aid To Ukraine As German Debt Bonanza Blows Up PIGS Yields

For a brief moment there, it seemed that the performative threat of an „imminent invasion” by Putin would make the European Union less dysfunctional than it always is (and indeed, when it comes to agreeing to have German debt fund everyone’s prosperity for a few years, if it meant agreeing that „Putin man bad”, with hundreds of billions in new debt issuance, there was shocking agreement across Europe). It didn’t last however, and on Thursday EU leaders tussled over weapons deliveries to Kyiv and who would represent them in US-led diplomacy as the bloc struggled to formulate a strategy on Ukraine.

As Bloomberg reports, an EU summit in Brussels was unable to agree on delivering €5 billion ($5.4 billion) to secure ammunition for Ukraine this year, as members including France and Italy balked at committing to specific financial volumes. A number of European leaders will meet again in Paris on March 27 to try to drive the process forward, but they too will fail to agree (unless Germany agrees to foot the entire bill).

“The objective for me on Thursday is first of all for there to be a renewed and explicit commitment, and perhaps one that is a little more specific, on short-term support for Ukraine,” French President Emmanuel Macron said late Thursday as leaders filed out, and Macron failed to achieve his objective.

Leaders have become increasingly alarmed about being kept out of Trump’s dealing with the Kremlin, and the risk of being unable to agree on how to help Ukraine defend itself. During the summit, they pored over the sequence of Trump’s phone diplomacy this week, which yielded an agreement to halt attacks on energy infrastructure, but fell well short of a ceasefire aimed at ending the three-year war.

EU leaders also sparred over the failure so far to put forward a senior figure as part of a bid to gain entry into the process and represent the 27-member bloc. Spanish Prime Minister Pedro Sanchez said the EU needed a “negotiating team and a representative” to be at the table.

Because nobody has accused a bunch of socialists to be able to agree. On anything. Ever.

It got funnier: so enamored is Europe with its performative „stand” against an imminent Russian invasion that people don’t even remember what their roles are, and instead rising tensions led to a heated exchange between Sanchez and the EU’s foreign policy chief and rabid Russophobe, Kaja Kallas.

When the Spanish leader repeated his call for a special envoy in the closed-door meeting, Kallas took offense.

“What am I here for?” she said, according to accounts of multiple people briefed on the discussion. Insert anti-feminist joke here.

Ukrainian President Volodymyr Zelenskiy meanwhile did what he always does, and begged for another €5 billion for a few more villas in Dubai to purchase ammunition “as soon as possible,” making reference to a massive overnight drone strike over Ukraine (while ignoring the drone strike he ordered in Sudzha to make sure the war keeps going).

“It’s crucial that your support for Ukraine doesn’t decrease but instead continues and grows,” Zelenskiy said, according to a text of the speech. “And this is especially true for air defense, military aid, and our overall resilience.”

Of course he would say that.

Here, courtesy of Goldman’s Alberto Bacis, is a snapshot of all that happend, if not all that was agreed, since nothing was:

1. Strange summit. EU ReArm was created after the Munich conference and Trump-Zelensky fallout. Now the situation is completely different and that shifted the priorities.
2. Council was supposed to last 2 days. It was wrapped up tonight and tomorrow is free.
3. EU council struggled to formulate a single strategy on delivering military help to Ukraine and how to be represented in Us-led peace talks.
4. Kallas’ proposal of up to ¢5 bln for immediate help to Ukraine was stalled by France and Italy, who were reluctant to commit to a specific sum
5. Meloni (Italy): stressed the need to mobilize private capital and have real common funding for defense so as not to rely on countries’ national debt; Commission’s plan for defense funding is not enough as it’s based mainly on using national fiscal space that Italy does not have.
6. Fico (Slovakia): “We cannot stubbornly insist on sanctions at all costs. There may come a moment when we say that we disagree, because we believe it goes against the peace efforts that are currently being made. If we perceive an attempt for further sanctions as something that could undermine the peace process, we are ready to veto it,” He added that it would be “dangerous” for the image of the EU if the bloc remains “the only one that wants to fight.”
7. EPP. Open to debate EU Defense bonds if needed.
8. PES. published a long doc supporting Defense bonds but also widening the definition of Miliary investments: The progressive approach to European security is not just about arms – it is also about stability, welfare, cooperation and European cohesion.
9. Spain, Italy, Greece, Poland and the Baltic states are among those calling for grants, as the bloc did during the COVID-19 pandemic.
10. Lagarde: EU single financial market can attract investors searching for alternatives to the U.S. dollar. the central banker is eyeing an opportunity for the single currency and the bloc’s financial markets to gain ground, as investors are less keen to re-put their money on Treasury bonds when they reach maturity.
11. Next meeting: March 27, in Paris, “Coalition of the willing” will meet under Macro leadership.
12. Dinner menu: Salsify with mousseline sauce, Turbot with carrot reduction, Avocado with mango and lime, Moretti or Peroni to drink.

But just because yesterday was a disaster, it doesn’t mean that EU bureaucrats and socialists can’t meet again to enjoy some more fine taxpayer-funded dining: next week’s Paris meeting will address Europe’s position and demands on the peace process, according to people familiar with the plans. Germany, Italy and Poland will be some of the EU countries involved, as well as non-EU nations such as the UK and Canada. Yes… that Canada.

Kallas put forward a proposal earlier this year for EU members to deliver as much as €40 billion in military aid in 2025, stepping up after €20 billion flowed to Kyiv in 2024. Assistance would be voluntary, but participants would be encouraged to make contributions in cash or equipment in proportion to their respective economies.

That proposal went nowhere after it was revealed that the US isn’t actually footing the bill this time, and several countries demurred, at which point the debate was narrowed to focus on just the „much cheaper” ammunition component.

Italy and other nations are asking for more technical and financial details, and said the initiative was still being worked on, Italian diplomats said. French diplomats said that while they share the objectives of the effort, the priority is to implement the EU’s €18 billion portion of a Group of Seven loan package for Kyiv.

A spokesperson for the EU said the bloc doesn’t comment on closed meetings. A Spanish official said Madrid wasn’t ruling Kallas out and declined to comment on the summit discussions.

Finnish Prime Minister Petteri Orpo threw his weight behind the initiative, and lamented the headwinds it faced from some EU capitals. Many countries are not “performing adequately” when it comes to arms deliveries to Ukraine, he said. Still, others faulted the sequence of prematurely quantifying member states’ commitments before first securing backing.

Lithuanian President Gitanas Nauseda said setting numbers first “was done backwards.”

“It may create an impression that someone doesn’t do enough — but readiness to support Ukraine is there, even if it is difficult to quantify it now,” Nauseda told reporters.

The EU and its member states have dispatched €50 billion in military support to Ukraine since the full-scale invasion began in February 2022. The US has committed $66.5 billion — or about €11 billion more — in that time frame.

Hungary under Prime Minister Viktor Orban maintained its resistance to helping Ukraine. But efforts to win over Orban for an agreement of all 27 states, a familiar set piece for summits. were dropped. For the second straight meeting, leaders were resigned to move ahead without Budapest.

At the end of the day, in hopes of deflecting from the return of glorious European dysfunction, Macron turned attention to the common enemy and said that “Russia does not sincerely want peace at this stage,” lamenting Putin’s refusal to agree to a ceasefire, one that he hopes is a “temporary refusal.”

And as always, everything Europe says is a projection, because while lamenting that Russia „does not want a ceasefire”, Europe is bracing for not one but two five-year plans in which to milk German debt capacity to the hilt, but not to steal and embezzle the funds, nooooo. It will all be used to fund „defense”. the only thing is Europe will need at least 5-10 years of solid German debt milking before it is content. And that very belligerent Vladimir Putin, who will not agree to a ceasefire and just can’t wait to invade Europe, will supposedly wait 5 to 10 years before he does invade Europe… just to give the ECB enough time to monetize the €1 trillion in debt that Germany is about to issue.

*EUROPE WORKS ON 5-10 YR PLAN FOR US REPLACEMENT IN NATO: FT

Good news is that Russia, which according to neocons can’t wait to invade Europe, will wait 11 years to do so

— zerohedge (@zerohedge) March 20, 2025

And speaking of German’s debt machine about to go into overdrive so its can print money that will be embezzled and grifted by corrupt „progressive” politicians be used to halt Putin, the party here is now over, and after German stocks soared in recent weeks on hopes the coming €1 trillion in debt proceeds will rise all boats, the hanogver has arrived, and as Bloomberg reports, Germany’s new era of big spending is pulling up borrowing costs across Europe, and reigniting jitters around fiscal stability on the continent’s periphery.

Yields on benchmark Italian, Greek, Spanish and Portuguese bonds are over 30 basis points higher compared to the start of the month. The four countries, also known as PIGS, which were bundled together during Europe’s sovereign debt crisis more than a decade ago, still have the highest debt loads on the continent, making them vulnerable to higher interest rates.

That’s understandable: after all, Germany had for long been the voice of fiscal discipline in the European Union, pushing for countries like Italy and Spain to tighten their purse strings and opposing the issuance of joint debt. But now that the formerly austere Germany is preparing to spend like a drunked Sturmtruppen, it no longer has any moral ground over the PIIGS. And indeed, Berlin’s new, far more relaxed approach to spending will certainly have negative implications of its own for Europe’s most indebted countries, and the market is starting to sniff it out.

“If Germany embraces deficit spending, other nations may follow suit, leading to a more relaxed approach to debt across Europe,” said Robert Burrows, a portfolio manager at M&G Investments, who says he has reduced his holdings of periphery debt. “This could weaken confidence in European government bonds, raising borrowing costs for highly indebted nations.”

In short, European sovereign debt crisis part deux, and the obligatory QE from the ECB, is just around the corner.

More (defense) spending coming -> more debt issuance -> higher yields -> more QE.

Rinse repeat https://t.co/wWQofr1Ogb

— zerohedge (@zerohedge) February 23, 2025

While German yields have also jumped since the start of the month, market consensus is that Europe’s biggest economy can easily ramp up spending after years of austerity. Its plan to unlock hundreds of billions of euros in debt-financed defense and infrastructure spending got approval from lawmakers on Friday.

The problem – and risk – is that the move will have repercussions beyond Germany’s borders, especially when European leaders are supporting a plan to loosen budget rules.

“Germany is one of the world’s strongest credits, it’s got so much fiscal headroom,” said Colin Finlayson, a fund manager at Aegon Asset Management. “If some of the other European countries attempt to try and follow Germany’s lead, I don’t think it would be as universally well accepted.”

But it’s not just the periphery that’s at risk. Indeed, one can now add F and B to the PIGS as debt levels in France and Belgium have ballooned in recent years, putting both countries ahead of Spain and Portugal in terms of debt-to-GDP. A blowout in French bonds last year showed just how quickly bond vigilantes can resurface when highly indebted countries announce plans to increase spending.

Recent analysis by Eurizon SLJ Capital Chief Executive Stephen Jen found that of the major 27 EU member countries, only Germany, the Netherlands, Sweden and Ireland have fiscal space to meaningfully increase fiscal spending. He argues that a rise in bund yields could lead to a widening of interest-rate spreads and greater financing burdens for other parts of Europe, with France, Spain and Greece amongst the most vulnerable.

“Germany stepping on the gas pedal will elevate the entire interest-rate spectrum in Europe,” Jen said in an interview. “We’ve witnessed what the bond vigilantes can do.”

EU finance ministers have also expressed concern that bond investors will be reluctant to finance more defense outlays and officials in Brussels said they fear a broader ramp up in spending would deepen the bond market selloff.

It’s so bad, some countries are going back to where Greece was, when it tried to cover up its massive debt load with various FX swaps before everything blew up and sparked the first European sovereign debt crisis. According to Bloomberg, countries are trying „creative” ways for more defense spending without irking investors. Belgium is reported to be considering the sale of a portion of its gold reserves to bolster its defense budget, while Italy presented a proposal to leverage private capital via a multi-layered structure of state and EU guarantees. The EU has also issued a proposal to extend €150 billion ($158 billion) in loans.

“Debt levels are extremely high and we spent most of last year talking about how to reduce them,” said Alex Everett, a fund manager at aberdeen group plc. “If we can avoid a situation where France, Italy and everyone else are being pushed that bit harder to borrow on their own, that would be preferable.”

In short, now that the giddy spending euphoria is over and it’s time to figure out where the money actually comes from, suddenly we right back at square one, where only the US – and its reserve currency – can pretend it can fund any extended military effort to contain Russia.

* * *

You can support ZeroHedge by picking up a waxed canvas hat!

Click hat… add to cart… check out… receive awesome hat…