military might EU development bank to fund European war machine

The European Investment Bank, more used to supporting infrastructure and health care projects, has bowed to political pressure and will start to increase its funding of the defense industry.
Dual use: Airbus's A330 aircraft can be used as a tanker or airliner.

The European Investment Bank is well-known for its support of infrastructure projects, health and environmental initiatives and support of small businesses across the EU. Recent loans from the bloc’s development bank will, for example, help to finance the redevelopment of Iceland’s main international airport, sewerage systems in Rwanda and small businesses in Britain’s industrial heartland. Overall in 2016, it spent almost €80 billion ($97.5 billion) helping to make the world a better place.

So it may come as a surprise to hear that it will soon start bankrolling Europe’s war machine. Under pressure from the EU Commission, the bloc’s executive arm, and member states, the Luxembourg-based institution intends to provide €6 billion over three years to companies active in the defense industry. It had previously voiced concerns about financing weapons development, saying that it would lose investors' confidence in the capital markets, thereby endangering its business model.

"But we are opening the door and looking at certain things more openly than before," said Alexander Stubb, the EIB's vice president. He added that the bank would not support the development of weapons or ammunition, focusing instead on cybersecurity, civil defense and so-called dual-use technology, where a new product has both civilian and military uses.

The line between civilian and military is becoming increasingly blurred. Alexander Stubb, vice president of the European Investment Bank

EU leaders called on the development bank to finance more investments in defense research last year. After years of stagnation, they want to cooperate more closely on military areas to better guarantee Europe's security in the face of Russian aggression, increasing US isolation and tighter budgets. A European defense force has even been mooted, but with many EU countries also members of NATO and fearful of losing their military independence, the idea remains a contentious one.

In December, 25 EU member states launched the Permanent Structured Cooperation program among their armed forces. The European Commission also proposed a multi-billion-euro defense fund, which is expected to be signed off by EU leaders and the European Parliament soon. The fund is intended to support research and development for new weapons technology starting in 2019. Beginning with the new budget period in 2021, the European Commission wants a total of €1.5 billion from the EU budget and around €4 billion from the budgets of the participating countries to be made available for this purpose.

As part of the initiatives, the EIB was also asked what it could contribute. "And our answer is: We will participate," said Mr. Stubb. For some time now, the bank has been promoting investment projects in the sector that are compatible with its principles and standards. "The area wasn't taboo for us, but we haven't been very involved in it so far."

As such, the EIB identified the three areas in which it intends to support companies with low-interest loans or quasi-equity financing. Dual-use goods such as aircraft and satellites will feature strongly. For example, Airbus could apply for funding to develop a new aircraft platform that could be used to build both passenger and military jets. This was the case with the firm’s A330 airliner, for example, which has also been converted for use as a tanker for several European air forces.

Cybersecurity and civil defense projects are also eligible. According to Mr. Stubb, the line between civilian and military is becoming increasingly blurred. A case in point is when the energy supply is attacked via the Internet or trolls controlled by foreign governments wreak havoc on social networks.

The move could help to dispel fears over the new European Defense Fund.

In order to identify eligible projects, the EIB intends to step up its cooperation with the European Defense Agency, an EU body that promotes defense and security cooperation within the bloc. Both institutions signed a declaration of intent to this effect on Wednesday. "The EDA is like a midwife, supporting us with its expertise," said Mr. Stubb.

The agreement is targeted at small and medium-sized businesses, which supply major defense companies and sometimes have trouble financing development projects via the capital markets. It will also support joint development projects by member states.

In addition, the move could help to dispel fears over the new European Defense Fund, established last year to improve military research funding and interoperability between forces. Smaller member states fear that Germany and France will use it to finance military projects that have already been approved, such as a new fighter jet, awarding contracts to domestic companies in the process. Because of this, the German parliament wants at least three companies from three member states to participate in a project for it to be eligible for EDF funding.

"We want to combat the impression that the project primarily serves the interests of Germany and France," said Michael Gahler, a member of the European Parliament from Angela Merkel’s Christian Democrat party.

Till Hoppe is a Handelsblatt correspondent in Brussels, covering the European Union. To contact the author: [email protected]