Defence main topic on table at EIB annual forum

European countries called for a ramp-up in defence and military spending, with the European Council President Charles Michel asking for a real defence union at the European Investment Bank’s (EIB) annual forum in Luxembourg on Wednesday and Thursday (7-8 February), marking a shift from historically more climate-focussed approaches.

The EIB, the Luxembourg-based lending arm of the EU, is at the forefront of new political debates as calls to increase defence spending amid Russia’s aggression in Ukraine ramp up.

It is the biggest multilateral institution in the world, signing over €75 billion in financing in 2023, and has vowed to become the ‘EU’s climate bank’. In 2019, it announced it would divest from oil, gas and coal projects – and is the European Commission’s number-one partner to help finance the Green Deal.

Ever since the war in Ukraine, however, there has been a growing push for more financing of defence and military projects.

“Peace within our EU borders is not enough to guarantee peace beyond our borders,” Charles Michel, European Council chief, told the forum in a keynote, hoping to develop a full-fledged “Defence Union”.

EU leaders have actively asked the EIB to be more involved in defence investments since the beginning of the Ukraine war in the spring of 2022 and repeatedly since.

Michel’s comments follow demands by himself and leaders from France and Estonia to put together defence ‘Eurobonds’. Luxembourg’s prime minister Luc Frieden said on Wednesday he was in favour.

“Europe can do much more. New EU bonds [can be] a project of the future, [and] we must do it together as Europeans,” he explained.

Western military alliance NATO members have also committed to spending at least 2% of their GDP on defence.

Even for non-NATO members, it’s high time they invest actively in defence, according to Pierre Gramegna, Managing Director of the European Stability Mechanism (ESM), which provides immediate financial assistance for eurozone countries facing economic difficulties.

If it stands below the 2% watermark, then “[EU] defence is not credible”, Pierre Gramegna told a panel.

Meanwhile, Poland, which borders Ukraine, is set to spend 4.1% of GDP on defence and “we will work with the EIB to maximise the impact,” Polish Finance Minister Andrzej Domanski told Euractiv.

EIB ready to work more with defence but remains cautious, vice-president says

The European Investment Bank is open to financing defence industries but is still reluctant to go beyond dual-use technology, a top EIB official told Euractiv, warning also that the idea of using eurobonds to finance military industry must be carefully weighed as they may not attract investors.

‘Be careful’

Ultimately, the forum, titled ‘European competitiveness in a polarised global context’, saw talks of defence bubbling in the background throughout.

In June 2023, the EIB announced it would dedicate an €8 billion pot to ‘the EU’s security and defence agenda’ for projects in Research & Development (R&D), cutting-edge technology, civilian security infrastructure and dual-use – whose application applies equally for civilian and military purposes.

“The EIB President [Nadia Calviño] has never hidden the fact that this is something she wants to keep working on,” Ambroise Fayolle, EIB’s Vice president in charge of the climate, told Euractiv, who suggested announcements be mad could e at the informal Council of economy and finance ministers in Ghent on 21-23 February, which Calviño will be attending.

However, moving beyond dual-use to finance military-only initiatives is very risky. “The feedback we get from our investors is: ‘Be careful. Financing defence projects is not in your mission statement,” he added.

Technically, nothing stops the bank from investing in military-only initiatives. The shareholders are member states – and a simple majority could change the bank’s investment decisions.

Veering too military may, however, put investors’ trust to the test, and there are concerns the bank could lose its stellar AAA rating, through which it can borrow money on financial markets with very favourable rates.

“The war in Ukraine is not convincing funds and pension funds to invest more in defence and security,” EIB’s VP for security and defence, Kris Peeters, told Euractiv in an interview in January, suggesting there is, therefore, no reason for the EU’s bank to take that risk.

Calviño, appointed President after her mediatic face-off with Danish contender Margrethe Vestager, gave the nomination a political turn and said nothing of either defence or security in her forum’s keynote speech.

But others, least of whom Michel, were keen to express the need for more significant funding with the help from the EIB.

“I am convinced that a genuine single market for defence should underpin this new era of European security,” he said.

In December, the European Council conclusions mentioned “an enhanced role of the European Investment Bank Group in support of European security and defence”.

In a press conference in January, EU Internal Market Commissioner Thierry Breton, in charge of defence, called on the financial industry to support European efforts to ramp up defence investments.

[Edited by Aurélie Pugnet/Alice Taylor]

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