BRUSSELS - The European Commission proposed on Tuesday to borrow up to 150 billion euros ($157.76 billion) to lend to EU governments under a rearmament plan.

"We are living in the most momentous and dangerous of times," European Commission President Ursula von der Leyen said. "We are in an era of rearmament. And Europe is ready to massively boost its defense spending."

The announcement came the day after US President Donald Trump paused military aid to Ukraine, highlighting a growing divergence between European leaders and Washington over the continent's security.

Von der Leyen put forward the 150 billion euro fund for pan-European defense priorities such as air defense, missiles and drones as part of a broader package of proposals that she said could mobilize up to 800 billion euros for European defense.

LSO READ: Europe launches plan to bolster clean tech sector, aid ailing industries

EU leaders will hold initial discussions on the proposals at a special summit devoted to defense and Ukraine on Thursday. Some elements of the package will require the approval of EU governments.

Trump has accused European countries of failing to spend enough on their own defense and relying instead on the United States for protection through the NATO alliance. European leaders insist they are now rapidly boosting defense spending.

Much of the Commission package focuses on encouraging the EU's member states to spend more on defense and repurposing existing funds rather than providing new EU money.

It did not include a proposal for joint borrowing for grants - rather than loans - for defense projects, which countries such as the Baltic states and France have advocated but Germany and The Netherlands have opposed.

READ MORE: EU ditches plans to regulate tech patents, AI liability, online privac

Polish Defence Minister Wladyslaw Kosiniak-Kamysz said grants would be a better option. "I believe that would be more effective," he told reporters.

German Foreign Minister Annalena Baerbock welcomed the package as an "important first step".

As part of the plan, the European Investment Bank - the bank of EU governments - said it would lift limits on financing for defense projects and broaden the scope of what is eligible, though a ban on financing weapons and ammunition would remain.

As it has previously signaled, the Commission also proposed that defense spending be exempt from limits imposed by EU rules on government debt.

"If Member States would increase their defense spending by 1.5 percent of GDP on average this could create fiscal space of close to 650 billion euros over four years," von der Leyen said.

Under pressure

European leaders are under huge pressure to increase defense spending as Trump's return to power has convinced many of them that they cannot be sure they can rely on US protection through NATO, as they have done for decades.

EU members spent 326 billion euros on defence in 2024 - about 1.9 percent of GDP, according to the EU's European Defence Agency. European leaders have declared spending should rise much further in the years ahead.

French Finance Minister Eric Lombard said on Tuesday that Paris "must go faster and harder" on defense spending.

ALSO READ: EU pledges 200b euros for new AI investment initiative

The Commission also proposed that money countries receive from the EU's so-called cohesion funds - designed to equalize standards of living across Europe - could also be used for defense purposes.

The Stoxx Europe Aerospace and Defence index rose on news of the package.

Lucas Guttenberg, a European economics expert at the Bertelsmann Stiftung think tank, said the Commission was "trying to make sure that fiscal policy does not stand in the way of defense policy".

"It however does so in a pretty short-termish way that will have only small effects on the actual problem, namely the availability of long-term funding," he said on social media platform BlueSky.