(Bloomberg) -- The European Union should consider issuing defense bonds to boost financing of the defense industry as Russia’s war in Ukraine drags on, according to Charles Michel, the head of the European Council.
“Financing European defense is in our common interest and it involves both public and private money,” Michel, who chairs summits of EU leaders, said in a speech Thursday. “These EU bonds could emerge as a new asset class, including for retail investors.”
Michel’s proposal, at the annual conference of the European Defense Agency, comes as EU countries struggle to strengthen the defense sector and boost arms production as Russia’s war in Ukraine drags on. While it may be difficult to get some member states behind the idea of more joint borrowing after the Covid-19 pandemic, others may be in favor.
At the same conference Ursula von der Leyen, head of the European Commission, said that “it is time to finally move ahead” to enhance backing for the defense sector from the European Investment Bank, the bloc’s own lending arm, despite concerns of some investors about such a step.
“We are looking at how the defense industry’s contribution to the security of the Union can be better recognised by sustainable financial investors,” von der Leyen said.
The EU’s executive and member states including France have called for the EIB to play a bigger role in supporting the defense sector. But the bank has been reluctant given a potential impact on its top credit rating among investors and its environmental, social, and governance label.
The EIB currently invests in systems with dual civilian and security uses, but doesn’t offer loans to finance weaponry, ammunition and explosives. Changing this would need the backing of the EU’s 27 member states.
“Russia is now reinforcing its positions” in Ukraine, von der Leyen said. “Trying to retake the initiative. And this means that the situation on the battlefield remains very difficult. But this is not an argument against support. It is an argument for more support.”
--With assistance from Katharina Rosskopf.
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