Defense boss calls for overhaul of European Investment Bank loans

The head of Italy’s defense champion has called for an overhaul of the European Investment Bank’s lending policy to allow it to finance military projects after Russia’s invasion of Ukraine.

Alessandro Profumo, chief executive of Leonardo and chairman of European trade federation ASD, said the move would send an important signal as the bloc aims to strengthen its defense base.

“A change in EIB rules on how to finance the defense sector would be very relevant as a trendsetter for the financial sector,” he told the Financial Times in an interview.

The EIB, the lending arm of the EU owned by member states, is used to finance projects that promote the bloc’s objectives, but it is not allowed to invest in essential defense activities or assets such as ammunition and weapons.

The bank declined to comment specifically on Profumo’s remarks, but stressed that it plays a role in supporting the wider industry, including on research and development projects that have a dual-use approach.

It is also one of the world’s largest providers of climate finance, while other priorities include lending to infrastructure projects and small and medium enterprises.

In March, the bank agreed to support the financing of a European Strategic Security Initiative strengthen investments in dual-use research and development in areas such as civil security infrastructure and technology.

Prior to the war in Ukraine, industry concerns over access to finance had increased as some national banks and investment funds turned their backs on the sector.

The surge in environmental, social and governance investments has also prompted some funds to exclude defense companies on sustainability grounds.

Jan Pie, general secretary of the ASD, said some national banks had used the EIB’s failure to lend to the sector as an argument for not intervening.

“One of the arguments they use is that if defense is seen as difficult to manage, why should we do it at national level if the European Investment Bank is not doing it at European level?” he told the FT in the same interview.

Alessandro Profumo, CEO of Italian Leonardo © Miguel Medina/AFP/Getty Images

Leonardo’s Profumo said the conflict in Ukraine had “significantly changed the position of many European countries. . . towards the defense sector”, and supported the idea that “there is no sustainability without security”.

EU proposals last year on what constitutes socially sustainable finance that would have labeled the defense industry as socially harmful have since been dropped.

The final report was “better than it was”, Profumo said, but stressed that it was “not on the table yet”. Access to finance is particularly critical for small businesses in the sector’s supply chain, which are crucial for innovation.

The war prompted European governments, notably Germany, to announce steep increases in defense spending and prompted Brussels to present a series of proposals for greater collaboration and rationalization of weapons manufacturing within the bloc. .

Profumo said the industry also wanted to see an increase in the European Defense Fund budget in light of operational needs following the war in Ukraine.

The fund, launched last year to co-finance collaborative defense research and development projects across the bloc, was originally set to have a budget of 13 billion euros, but this has been reduced to 7, 9 billion euros, partly due to the economic impact of the coronavirus pandemic. .

“Clearly, we think it is important, at this very moment, to re-discuss the EDF budget and find an additional amount in order to be sure that European countries are really working properly on research and development on the one hand , and on the other recreation of the operational base on the other,” Profumo said.

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