HOW TO FINANCE AN INDUSTRY

OF EUROPEAN DEFENSE ?

Find 100 billion euros

The heads of state and government meeting on Thursday for the first day of their summit are unanimous on the principle: additional resources must be allocated to the defense industry. The European Defense Industry Program (EDIP) is seen as an appropriate starting point in this regard.

However, current EDIP funding is estimated at only €1.5 billion, which some consider insufficient. According to the European Commissioner for the Internal Market, Thierry Breton, as well as Estonia, the European Union would need around 100 billion euros to have a significant impact. Finnish Prime Minister Petteri Orpo, known for his budgetary orthodoxy, stressed the need to finance defense to strengthen European industry and support Ukraine.

Discussions focus on finding new sources of financing outside the EU budget, with the exploration of innovative solutions, such as a European loan on financial markets, encouraging large banks to finance defense production, or even the use of Russian assets frozen in Europe. The European Investment Bank's (EIB) increased involvement in the defense sector is also gaining popularity.

What sources of financing ?

Currently, the Bank can only finance dual-use equipment and products — applicable to both civilian and military sectors — for which the majority of revenue comes from the civilian sector and not the military sector. And while 14 leaders have called for the Bank to go beyond its current mandate, not all EU member states share this view. The European Investment Bank could expand its defense lending criteria EIB could start easing its lending criteria as early as Thursday, if it receives the final green light from all 27 member states to unlock more direct investment in defense.

Some member states are considering using profits from frozen Russian assets to support Ukrainian defense, in line with the EDIP program, and possibly to provide direct military assistance to Ukraine, as proposed by the European Commission. At the start of the war, the EU blocked around 210 billion euros in assets of the Russian Central Bank. The interest on these products would make it possible to provide financial aid to Ukraine of 3 billion euros per year.
The idea of ​​issuing Eurobonds for joint financing faces resistance, notably from fiscally cautious member states such as Germany, Denmark, Sweden and others. They highlight legal uncertainties and prefer to exploit already existing financial instruments, such as the EIB or the EU budget.

The Finnish Prime Minister was therefore quite cautious: “We have to find ways to use the instruments we already have, such as the EIB or the EU budget,” declared Mr Orpo, after stated that “we have not yet decided on the use of Eurobonds”.

Discussions on security financing encompass not only defense but also other aspects of the continent's security, with a desire to strengthen crisis preparedness and response at EU level.