Big majority of EU leaders demand EIB further ease defence spending rules

Good morning. Today, our finance correspondent reveals the latest, and biggest, push by EU capitals to significantly increase the scope of the European Investment Bank’s lending to the defence industry. And Laura asks whether Belgium will finally get a government after almost eight months of negotiations.

Have a great weekend.

Lock and load

A large majority of EU countries have called, through a joint letter signed by 19 leaders, for the European Investment Bank to do more on financing the defence industry, writes Paola Tamma.

Context: Russia’s war against Ukraine, and US demands for Europe to pay more for its own defence, have prompted a surge in military spending and calls to jointly rebuild the continent’s military capabilities. Ways to fund increased defence investment, including through the EIB, will be a key topic at a summit of EU leaders on Monday.

The EU’s development bank should “take an even stronger role in providing investment funding and leveraging private funding for the security and defence sector”, the leaders wrote in a letter sent to the European Commission, the European Council and Poland — which currently chairs the rotating council of the EU — and seen by the FT.

Signatories include the bank’s top three shareholders, Germany, France and Italy, as well as the Nordic and Baltic states, Belgium, the Netherlands, Spain, Luxembourg, Greece, Cyprus, Romania, Slovakia, the Czech Republic and Croatia. Poland is supportive, according to people involved in writing the letter.

They asked that the bank “re-evaluate” its lending policy, which allows investment in dual-use goods with both military and civilian applications, such as drones, but not weapons or military infrastructure. Specifically, the leaders want the list of barred activities to be “more precisely defined and as limited as possible in scope”.

They also said that lending to the sector should increase, and entertain the possibility of specific defence bonds issued by the EIB.

Some of the leaders believe that the EIB’s rules should be adjusted to allow it to fund the “traditional defence industry”, including ammunition factories, according to a person involved in the writing.

But other signatories interpret this more cautiously as a call to explore whether changing the mandate is necessary. “It is an important discussion to be had,” said another.

Any change to the bank’s lending policy needs a simple majority vote of its shareholders: the EU’s finance ministers.

EIB president Nadia Calviño told reporters yesterday: “We are currently doing market tests to see if there are adjustments needed to our current eligibility rules,” a process which should be over by the first half of 2025.

But EIB officials are sceptical about changing the mandate for fear of endangering its ratings.

“We are not a defence ministry, we are Europe’s investment bank,” Calviño said.

Chart du jour: Headwinds

The European Central Bank yesterday cut its benchmark interest rate by a quarter-point to 2.75 per cent, and warned of bleak times ahead for the EU economy.

How to build a government

After almost eight months of negotiations, Belgium could finally get a new government today, writes Laura Dubois.

Context: Belgium has a history of lengthy government formations, with parties from the French-speaking Wallonia region and Dutch-speaking Flanders trying to find common ground. In 2011, the country broke the record for the longest time without a government in peacetime, after almost 500 days of talks.

This time, another motley crew of parties has come together in what has come to be known as the Arizona coalition. The talks are led by Bart De Wever, the mayor of Antwerp who heads the New Flemish Alliance (NVA), a right-wing nationalist party advocating for more autonomy for Flanders.

NVA is joined by the Flemish Christian Democrats and left-wing party Vooruit, and on the francophone side by the liberal Mouvement Réformateur and centrists Les Engagés.

Talks have been particularly difficult because of divides over fiscal reforms and the budget, among other things. De Wever, whose party won the largest share of votes in the June elections, is advocating tax and spending cuts, which are hard to swallow for the leftist Vooruit.

The parties have been locked up at the castle of Val Duchesse on the outskirts of Brussels for the past two days to hammer out the last bits of compromise proposed by De Wever, who has given himself a deadline of today.

According to two people briefed on the negotiations, things are looking positive. “We expect it to land by tomorrow,” one person said yesterday.

Later today, De Wever has an appointment with Belgium’s King Philippe to present his project for government. That could either make him the next prime minister, or cause further delays in case of a last minute upset.

“In Belgium, you never know,” said the second person briefed on the talks.

What to watch today

1. Informal meeting of EU justice ministers in Warsaw.

2. Italy’s Prime Minister Giorgia Meloni visits Serbia.

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