Published by Global Banking and Finance Review
Posted on January 31, 2025
By Jan Strupczewski
BRUSSELS (Reuters) - Nineteen European Union countries, including France and Germany, are calling for the European Investment Bank to boost lending for the defence industry as the 27-nation EU seeks ways to improve its military against a possible future Russian attack.
The call in a joint letter comes before EU leaders' talks on Monday on the future of the EU defence sector, against the backdrop of Russia's invasion of Ukraine and demands by U.S. President Donald Trump that NATO members raise defence spending.
The EIB, owned by EU governments, is not allowed to finance the production of ammunition, weapons or military equipment. To remove the prohibition, a majority of governments have to agree and some countries have expressed misgivings.
The bank can, and does, lend for dual-use products with both civilian and military applications, such as satellites, drones or radar systems.
Finland, Belgium, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, France, Germany, Greece, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Romania, Slovakia, Spain and Sweden said in a letter to the European Council president and the head of the bank that the EIB should review its list of excluded activities and consider issuing defence bonds.
"This should, however, be considered in consultation with financial markets and rating agencies regarding the feasibility of this possibility with due attention to ... the possible impact on financing costs of current EIB bonds," the leaders said in the letter, seen by Reuters.
Some EU governments, especially neutral countries like Austria, Ireland or Malta, have concerns that financing defence could endanger the EIB's top credit rating and not address the problem, which they say is not a lack of funding, but of long-term contracts.
The EIB is also a key player in funding Europe's ambitious transition towards a net-zero-carbon and more digitised economy, and some countries are nervous that adding ammunition and weapons to its investment list could scare off investors.
The bank doubled financing for security projects to 1 billion euros ($1.04 billion) last year and plans an increase to 2 billion in 2025. The European Commission estimates the EU defence sector needs 500 billion euros over the next 10 years.
The call on the EIB was coordinated by Finland, which has a 1,340 km border with Russia and has joined NATO in 2023.
"For Finland, it would be important that it would be possible for (EIB) funding to be used directly for ammunition production, which is currently not possible," Finnish Prime Minister Petteri Orpo said in a statement.
The EIB is the world's biggest multilateral financial institution and lender, with a balance sheet of over 500 billion euros.
($1 = 0.9643 euros)
(Reporting by Jan Strupczewski; editing by Philip Blenkinsop and Philippa Fletcher)
