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This is why Italy and 13 other EU countries are pressing the EIB for loans to the military industry

This is why Italy and 13 other EU countries are pressing the EIB for loans to the military industry

Fourteen nations have sent a letter to officials at the European Investment Bank (EIB) calling for increased investment in security and defense. All the details with the interested companies

The European Investment Bank's (EIB) lending policy for military projects needs to be reviewed.

“Finland, Bulgaria, the Czech Republic, Denmark, Estonia, France, Germany, Italy, Latvia, Lithuania, the Netherlands, Poland, Romania and Sweden share the view that European Investment Bank (EIB) financing for security and defense must be strengthened in line with the new EU priorities”.

This is what we read in a letter, drawn up on the initiative of Finland, signed by the leaders of the 14 countries, including the Italian Prime Minister Giorgia Meloni and published by the press office of the Finnish Prime Minister Petteri Orpo. The letter is addressed not only to the president of the EIB, Nadia Calvino, but also to the president of the EU Council Charles Michel, and to Alexander de Croo, prime minister of Belgium, rotating president of the Council of the European Union, asking for a new financing strategy, according to a copy of the letter seen by Bloomberg.

“The EIB's European Strategic Security Initiative and the recent EIF Defense Equity Fund are welcomed initiatives, but constitute only a very small share of the EIB's current activities,” explains the letter from the fourteen European leaders.

The letter follows the presentation of the first European strategy for the defense sector unveiled by the EU Commission on 5 March . The program mobilizes 1.5 billion euros from the EU budget for the years 2025-2027.

Furthermore, last week it became known that the European Commission has called on the EIB to change its lending policy, which now explicitly excludes loans for purely military projects, to help Europe increase defense production in light of the Russian aggression of Ukraine.

All the details.

THE EIB AND DEFENSE

With a balance sheet total of €544.6 billion, the European Investment Bank (EIB), jointly owned by EU countries, is the world's largest multilateral financial institution by assets and the largest multilateral lender, with loans disbursed and promised for 562 billion euros in 2022 compared to 171 billion dollars from the World Bank, Reuters recalled at the beginning of the month.

Military and defense projects are explicitly excluded from the list of activities that can be financed by the EIB and the 27 EU governments should agree to change this. The bank can already provide loans for dual-use civil-military projects, such as transportation infrastructure or drones. The definition of what qualifies as “dual use” should be further modified, the Commission told Reuters .

This is the framework in which the black and white invitation of the fourteen countries addressed directly to the EIB, the President of the EU Council and the rotating President of the Council of the European Union is inserted.

THE SCENERY

“Russia's illegal war of aggression against Ukraine – is the premise of the document – ​​has brought rapid, profound and lasting changes to the European security context. We must continue to provide strong political, economic and military support to Ukraine for as long as necessary and the EU must increase its strength and capabilities in the field of security and defense. In the coming months we will define the EU's future strategic priorities, among which the security and defense sector will be one of the main issues". As regards the financing of investments in Europe – the letter continues – the EIB plays a key role and also functions as the lending arm of the EU”.

THE APPEAL TO THE EIB REGARDING FUNDING FOR SECURITY AND DEFENSE

“In this context, among other things, the EIB's lending power is urgently needed. At present, EIB financing for security and defense is, however, limited to dual-use projects. The EIB's European Strategic Security Initiative (ESSI) and the recent EIF Defense Equity Fund are welcomed initiatives, but constitute only a very small share of the EIB's current activities. We need to explore different possibilities, which would allow the EIB to invest in defense-related activities beyond existing dual-use projects. This would mean discussing and re-evaluating the current definitions of dual-use projects and the list of excluded activities, as well as reconsidering defense industry lending policy and other restrictive elements.”

Therefore “We underline the importance of discussing this issue in a way that takes into account the impact on the EIB's risk profile and safeguards the Bank's funding base”.

THE SIGNATOR COUNTRIES

The leaders of Finland, Bulgaria, the Czech Republic, Denmark, Estonia, France, Germany, Italy, Latvia, Lithuania, the Netherlands, Poland, Romania and Sweden signed the letter.

THE INDUSTRIAL BASES

Some of the main defense companies of the Old Continent reside precisely in these countries: the Italian Leonardo and Fincantieri; the French-German Airbus; the Finnish Patria; the German Rheinmetall, Hensoldt, Diehl and MTU Aero Engines AG; the French Dassault, Naval Group, Safran; the Swedish Saab; the Dutch Knds, the Polish Polish Armaments Group and Romarm, the Romanian national defense company.

IT IS NOT THE FIRST TIME THAT A SIMILAR APPEAL HAS BEEN LAUNCHED…

It is not the first time that similar appeals have been made to the EIB. Two years ago, the then CEO of Leonardo and president of the European Association of Aerospace and Defense Industries (ASD), Alessandro Profumo , had urged the EIB for a reform of loans in the defense sector in an interview given to Financial Times . For Profumo, such a move “in light of the Russian invasion of Ukraine” would have sent “an important signal that the bloc is strengthening its defense”.

THE FIRST COMMENTS

But some European countries, especially neutral ones, have been reluctant, worried that defense financing could damage the EIB's credit rating and not address the problem, which they say is not a lack of financing, but of long-term contracts. , Reuters reported last week.

Also speaking to Reuters, Guntram Wolff, senior member of the Bruegel think tank, said that the EIB's rating was unlikely to be damaged by defense financing.

Wolff explained that the EIB's gearing ratio, which compares equity and debt issued to raise funds for loans, is very conservative at 2.5 times and could easily be increased to 4 or 5 times without any impact on the credit rating. “Moreover, it is a bank owned by EU governments, so it still has implicit state guarantees,” the Bruegel expert added.

“In some cases, if actors like the EIB became more active in financing munitions and similar facilities, it would be beneficial for a large number of EU countries,” a Brussels official commented to Reuters .

THE TIMINGS

All that remains is to wait for 21 and 22 March, when European leaders will meet in Brussels for the European Council on Security and Defence, where the role of the EIB in the sector will also be discussed.


This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/italia-paesi-ue-industria-militare-difesa/ on Mon, 18 Mar 2024 15:04:23 +0000.