The ongoing conflict between Russia and Ukraine is rekindling a longstanding discussion in Brussels regarding financial obligations.

• For many years, some EU nations that were traditionally more conservative in their spending habits resisted the idea of pooling their capital markets with the rest of the bloc.
• Other nations with looser spending ideas could jeopardize their fiscal prudence, they feared.
• EU officials are suggesting that their actions during the pandemic can serve as a model for financing their new defense strategies.

Should we collectively borrow from global markets and take on new debt as a unified entity?

As Russia continues its assault in Ukraine, EU officials are faced with the question of how much more they should spend on defense.

This debate is not new — and it is historically complex.

EU nations that traditionally had more conservative spending habits resisted tapping into capital markets with the rest of the bloc, fearing that their fiscal prudence would be compromised by other nations with more relaxed spending ideas.

In 2020, the European Union's 27 members agreed to jointly increase debt to address the financial and extraordinary effects of the Covid-19 pandemic.

Some EU officials are now saying that their actions during the pandemic can serve as a model for funding their new defense plans.

But others disagree.

Alexander de Croo, Prime Minister of Belgium, stated on CNBC Friday at the Munich Security Conference that raising new debt to fund Europe's defense plans may not be the "magic solution," but it could potentially speed up and expand industrial capacity. He emphasized that this is crucial for the future of Europe.

In an interview with Bloomberg, Estonian Prime Minister Kaja Kallas stated that joint bonds could enhance the EU's defense capabilities.

During a panel discussion at the Munich Security Conference, Germany's finance minister, Christian Lindner, stated that in Brussels, there is a tendency to focus on identifying problems and presenting the same solution, which involves mutualized debt.

Lindner proposed that the EU should establish a unified market for defense products, encourage mergers in the industry, and pursue joint procurement of military goods.

Mark Rutte, the Dutch Prime Minister, made it clear that he would not back joint debt at the EU level.

To fund new defense spending, either you increase it at the national level or you do it through the EU's own resources, which have political and structural disadvantages.

At the MSC, he suggested that taxation should be used to obtain funds from the people at the national level.

Amid security threats from Russia and an uncertain outcome from the upcoming U.S. election, EU leaders are under pressure to increase region-wide defense spending.

Earlier this month, former U.S. President Donald Trump sparked controversy in European capitals by stating that he would not defend NATO allies who did not meet the 2% of GDP defense spending target in the event of an attack by Russia.

His comments suggested that the U.S. might not be a dependable ally in upholding NATO's Article 5, which states that an attack on one member is an attack on all of them.

Despite financial crises and historical reasons, many European NATO countries have missed their spending target for years. However, according to NATO data, 18 out of the 31 members of the defense alliance are now on track to meet that pledge this year.

European leaders are reallocating their resources towards defense due to the potential security threat from Russia, even though it is not immediate.

Officials from Denmark and Germany have both stated that Russia may launch an attack on a NATO country within the next three to five years.

In a CNBC-moderated panel in Munich, Germany's Defense Minister Boris Pistorius stated, "2% is just the beginning. We may need more in the coming years."