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EU Security ـ Review lending rules, issue defence debt

Jan 31, 2025 | Studies & Reports

European Centre for Counterterrorism and Intelligence Studies, Germany & Netherlands – ECCI

EU leaders ask EIB to review lending rules, issue defence debt

euractiv – A letter signed by 19 EU countries means there appears a majority to allow more lending for defence projects – but that doesn’t mean it’s guaranteed.

19 EU countries have sent a letter to the EU’s lending arm in their strongest push yet to spur investment in a broader range of defence products and issue defence bonds.

In the letter, the leaders ask the European Investment Bank to play “an even stronger role in providing investment funding and leveraging private funding for the security and defence sector”.

The list of ideas for an EIB mandate overhaul comes as EU leaders prepare to meet in Brussels on Monday to discuss how to find cash for the production and purchase of defence equipment.

The EIB’s role has been at the centre of the questions. Last year, it already changed its policy on investing into dual-use products, to allow cash to flow into projects with predominantly military applications, as opposed to civilian applications.

Three ideas

Concretely, the leaders of the 19 EU countries have three demands:
First, they want the EIB to re-evaluate their list of excluded activities – projects they will not fund – which currently includes “ammunition and weapons, including explosives and sporting weapons, as well as equipment or infrastructure dedicated to military/police use”. An adjusted list could permit the bank to lend money for new factories, for instance.

Second, they ask the bank to “adjust the lending policy to increase the volume of available funding in the field of security and defence” – essentially, to make more money available. The EIB’s chief, Nadia Calviño, said on Thursday that €2 billion would be made available for such products in 2025 – double the 2024 figure.

But that idea clashes with the EIB’s assessment that the money available for defence is currently underused, and officials have expressed concerns it will remain as such. More money would likely only make sense if the exclusion list were to be revised, so that more activities could be funded.

Lastly, they ask the EIB to look into issuing debt for defence – or ‘defence bonds’. However, they ask that this be considered in consultation with financial markets and rating agencies. These bodies might assess the idea’s feasibility amid potential impacts on the EIB’s credit rating.

Next steps

The initiative, led by Finland, also involved Belgium, Croatia, Cyprus, Czechia, Denmark, Estonia, France, Germany, Greece, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Romania, Slovakia, Spain, and Sweden. 14 of them had already called for change last spring, leading to the dual-use criteria overhaul.
Together, they represent a majority of EU countries, but that is no guarantee that the EIB’s mandate will be overhauled.

Even though the member states themselves govern the Bank, its president has remained cautious in changing its role, to safeguard its stellar AAA credit rating that underpins the cheaper loans it is able to offer.

Calviño said yesterday the Bank is currently assessing the market to see if there is interest in reform – particularly among commercial banks, Euractiv understands.

Banks have stuck to the current European sustainable investing criteria – known as ESG – which often disincentivises banks from investing in defence products. An eventual revision of the criteria by the European Commission could change this.

Without banks’ support, insiders worry that the EIB would become a market pariah, left alone to bear the burden of funding defence when others remain reluctant to do so.

 

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