Photographer: Jasper Juinen/Bloomberg

Military Maneuvers Prompt EU Tug of War Over Development Bank

Updated on
  • EIB is caught in a struggle over European defense prowess
  • France leads a group seeking to beef up lending for security

As the European Union pushes for a new role in military matters, the bloc has thrust its development bank into the center of a policy struggle that reveals an old fissure over the very nature of the EU project.

The European Investment Bank is getting prodded to be bolder about lending to defense companies by a France-led group that faces resistance from some other EU nations including in Scandinavia, according to officials who spoke on the condition of anonymity because the deliberations are confidential.

Alexander Stubb

Photographer: Henrik Kettunen/Bloomberg

The standoff has forced the EIB, which is owned by EU governments, into a balancing act meant to boost support for security initiatives while stopping short of adding weapons and military equipment to the list of projects eligible for financing by the lender.

“You have member states who are adamantly against changing the list and then you have member states who are adamantly for changing the list,” Alexander Stubb, a vice president of the EIB and former Finnish prime minister, said in an interview in Brussels this month. “We have had to be quite prudent. It’s an area which is obviously at the core of national sovereignty.”

The EIB does in Europe what the World Bank does around the globe: It funds small companies, infrastructure, environmental projects and innovation, to the tune of 78 billion euros ($97 billion) last year, in a bid to help stimulate economic growth.

Policy Pillars

European Investment Bank lending breakdown in 2017

Source: EIB

SMEs are small and medium-sized enterprises

Now, faced with Russian aggression, Islamic terrorism and U.S. calls for stronger European defense capabilities, the bloc is also looking to the 60-year-old EIB to do more in the security field, where the lender’s support is limited to technologies with both civilian and military uses -- so-called dual-use goods such as radars and satellites. The push echoes attempts in the 1950s to establish a European Defense Community, which faltered and gave way to economic and monetary integration in Europe.

France has an ally in the European Commission, the EU’s executive arm, which proposed in 2016 to loosen the rules so the EIB can also lend for actual defense projects. It is this initiative that has left EU governments deadlocked and the EIB searching for ways to squeeze more out its current lending remit for security.

Since the commission proposal, the Luxembourg-based lender has made a 40 million-euro loan to Avio SpA in Italy for the development of rocket motors. The EIB is also evaluating lending 25 million euros to 30 million euros for apartment blocks in France that house the families of soldiers and a similar amount for a French military-civilian hospital.

Another area where brainstormers at the EIB believe it can further exploit the scope for supporting dual-use technologies is cyber security, which has moved rapidly up the western political agenda because of a sharp rise in hacker attacks on computer systems.

Modern Warfare

“The line between war and peace has been blurred,” Stubb said. “Cyber security, whether it’s linked to energy or banking or what have you, is a form of modern warfare and that can be addressed. So we shouldn’t be old-fashioned.”

As the EIB ventures into such new lending territory, European governments are pressing ahead with 17 projects that mark the first use of EU-treaty provisions on enhanced security and defense cooperation among member countries. The EIB is assessing whether support would be merited for any of these initiatives, which range from a “European Medical Command” to common armored vehicles.

With a wide investor base and triple-A credit rating, the EIB may have a bottom-line reason to avoid touching the lending criteria themselves: the risk that institutional investors, many of which have ethical codes, would stop buying the bank’s bonds. Its lending activities are funded mainly by bond sales, which are slated to total 60 billion euros this year.

“We are staying outside of purely military affairs because we’re still a bank which has clear ethical standards and codes,” Stubb said. “We have the full trust of our institutional investors.”

The body that oversees the ethical guidelines of Norway’s wealth fund, which held $2.1 billion of EIB bonds at the end of 2016, declined to comment on possible changes to the bank’s lending criteria. In an emailed response to questions this month, the Council on Ethics said its code of conduct “is intended only to prevent investments in companies producing certain types of weapons, not in all forms of weapons/defense industry.”

For those pressing for military projects to be added to the EIB’s eligibility list, Stubb has a clear message: “We’re serious about security and defense” but “I don’t foresee the list being changed anytime soon.”

— With assistance by Alexander Weber, and Sveinung Sleire

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