This Tuesday, European Commission President Ursula von der Leyen announced plans to relax the EU's budgetary rules so that member states could increase their defense spending. Estonia plans to seize this opportunity and increase its own debt load.

"It's very likely we'll need to take out a loan," acknowledged Minister of Defense Hanno Pevkur (Reform). "Just the question is, what loan must we take out here in Estonia for additional defense spending, and what can we possibly get from, for example, the European Commission?"

According to Pevkur, these extra funds will provide Estonia with the opportunity to acquire additional capabilities as well as make some investments sooner than originally planned.

"This primarily concerns acquiring additional ammunition," he explained. "It certainly concerns our deep strike capability — how far and how much we can affect the enemy. It definitely concerns our naval fleet. It also certainly concerns targeting and target designation, for example."

The minister noted that what can primarily be moved forward are areas where the defense industry has expedited its own processes.

"It's certainly evident in ammunition production that various European and global producers have made various investments," he said. "For example, new investments have been made in the development of air defense systems, such as in drone production. Where production has increased, there are certain items that can be obtained and brought to Estonia."

Minister of Finance Jürgen Ligi (Reform) also considers borrowing inevitable, but not as a long-term solution.

"You can't permanently allow such a deficit, but right now this is a matter of the next few years of procurement," he admitted. "The procurements themselves will take several years, so we can't claim that relaxing the budget will save us from budget problems. No — simply for the sake of that priority, the focus is on this. But in the future, we'll also naturally have to either cut other expenses or raise taxes."

Even so, Ligi does not consider the full investment need proposed by Pevkur to be realistic.

"All ministers can lay out their needs, and when it's discussed within the government, they'll ultimately be brought together," the finance minister said. "It's not the case that everything that can possibly be bought eventually will be. No one will ever get everything they want."

Bank of Estonia: Effective use of money is crucial

Under von der Leyen's proposal, the European Commission is set to invest €150 billion in EU member states. However, if all member states were to increase their defense spending by 1.5 percent GDP, this would mean an additional €800 billion over the next four years.

"In the short term, if it's necessary to significantly increase spending, as is the case with defense spending right now, taking out loans in the short term is a reasonable option," confirmed Martti Randveer, director of the Economics and Research Department at the Bank of Estonia.

"At the same time, in the long term, we must take into account that even if the national debt is low, the more we take on government debt, the more we borrow, the higher the interest costs will grow," he warned.

"If all countries, or a large number of European countries, want to increase defense spending, then that means there is a high demand for new weapons," Randveer explained. "This will drive up prices too. So in the current situation, how effectively we use this money is crucial. If we can coordinate with other European partners, that's great. If a joint opportunity to procure weapons should also arise, that should definitely be seriously considered."

The minister of defense is expected to present a plan for Estonia's investment needs to the government in the coming weeks.

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