Consensus builds for EU bank to finance shells and tanks

By Hans Von Der Burchard, BERLIN Germany

Germany is warming to a French plan that would expand the powers of the European Investment Bank to allow it to finance defense projects such as the buying of weapons and military supplies.

Chancellor Olaf Scholz is coming around to an idea that the French government and France’s EU commissioner have been advocating for months, according to four officials and diplomats in Berlin and Brussels, who were granted anonymity to enable them to speak freely. 

If approved, the proposal would widen the mandate of the EU's lending arm to allow it to bankroll joint defense projects, such as for the purchase of arms, military equipment and ammunition. The Luxembourg-based body, owned by EU countries, currently provides loans in other sectors, like climate, sustainable energy and digitalization — but is prohibited from investing in defense.

The shift underscores the growing importance of the EIB, which has grown rapidly in recent years as financially strapped EU countries have tapped it to fund investments. The race to become the bank's president has become highly political, with several candidates — including the EU’s competition commissioner Margrethe Vestager, who is currently on leave, and Spanish Finance Minister Nadia Calviño — competing for the post, open from next year.

Germany has in the past been cautious about giving the EIB the authority to invest in defense. But Russia's invasion of Ukraine has changed the thinking in Berlin — not only out of political necessity but also because investment in the military is now seen as more morally acceptable.

Scholz last year announced his "Zeitenwende" shift in German foreign and security policy, moving Berlin toward a leading role in European security. EIB investment could support the EU in boosting defense capabilities and production capacity to help Ukraine, the officials and diplomats said.

Although changing the EIB's mandate is not an agreed German government position yet — a spokesperson for Finance Minister Christian Lindner declined to comment on whether he backs the plan — Scholz's sympathy for the plan is significant: If Germany were to officially support the French push, it would increase the likelihood of other countries throwing their weight behind the idea.

That would be key to reaching a majority of the EIB's board of directors, which consists of finance or economy ministers from the 27 EU countries. They are the ones who could change the EIB's mandate to include defense. A mandate change would require support by at least 14 EU countries representing 50 percent of the bank's subscribed capital. Here, Germany is key as it is one of the EIB's biggest shareholders besides France and Italy, which all hold almost 19 percent of the bank.

Support for more defense spending among institutions like the EIB is evident not only in Paris, but also in other capitals such as Tallinn, which is on the front line of Russian borders, a senior EU diplomat said.

“Defense spending has been viewed as a taboo by financial institutions for too long, due to reputational risks. That’s where the EIB can make a difference, and that’s why some member states are making a push now,” said the diplomat, who was granted anonymity to discuss the ongoing discussions. 

Earlier this year, Dutch Defense Minister Kajsa Ollongren expressed support for such a mandate change, saying “we need to have a highly capable defense industry in the European Union ... For that you have to invest ... [and] if it’s not coming from big pension funds or banks, then there is a real issue.”

EU countries and the European Parliament already indicated a first strong sign of support for the concept when they voted in favor of the Act in Support of Ammunition Production, a law to boost shell production for Ukraine, which included the line that the EIB "should enhance its support to the European defense industry and joint procurement beyond its ongoing support for dual use.”

The EIB's outgoing president Werner Hoyer last week warned against allowing the bank to invest in defense projects, saying that this would put the bank on the "wrong track." People close to the bank’s outgoing president said that within the bank, there were also strong reservations. A major concern is that the EIB could lose certain investors such as pension funds, from whom the bank borrows money and who may have rules against investing in defense projects. 

An EIB spokesperson said it was "fully committed to supporting investment in the technologies that Europe needs for its security and long-term defense," but that it sought to do this via so-called dual-use technologies such as investing in cybersecurity or satellites, which can be used for military purposes but are not military technologies per se.

The spokesperson added that the EIB decided in June to increase funding for such security infrastructure "to the highest level to date, earmarking €8 billion in funding until 2027."