PARIS — The United Kingdom, the Netherlands and Finland, together with several other countries, are in talks to set up a financial institution that would provide funding for joint multi-year defense projects, similar to the European Investment Bank but focused on defense.
The participating countries would provide capital to the institution that could serve as a guarantee for issuing bonds, the Dutch Ministry of Finance told Defense News in an emailed reply to questions. The NATO allies involved are exploring setting up the new mechanism by 2027, the U.K. Treasury said on Tuesday.
The mechanism would complement existing NATO and European Union initiatives, the countries said. The European Union’s €150 billion Security Action for Europe defense loan program doesn’t cover non-EU countries such as the U.K. and Turkey, while NATO’s procurement agency and Europe’s OCCAR armament cooperation organization coordinate purchasing but don’t raise funds on capital markets or issue debt.
The multilateral defense mechanism being discussed “at its core functions as a bank,” the Dutch finance ministry said. “Based on paid-in capital and committed capital, it can issue bonds that can be purchased by investors, thereby acting as a lever. Funds can be used to finance joint projects, tenders, and procurement.”
While the financial institution has yet to be established, the goal is for more efficient cooperation through multiyear joint defense projects, scaling up defense industries and joint buying of defense equipment, the Dutch finance ministry said.
If such an institution materializes, it could potentially reduce European countries’ reliance on national budgets for defense financing, create defense bonds as an asset class, and ease the need for EU-wide consensus that has hobbled the discussion around defense financing.
The scale of the defense investment challenge for Europe is such that there is “significant headroom” between current spending and NATO targets, and multiple instruments are needed to close the gap, Finland’s Ministry of Finance told Defense News, saying the aim is for “clear complementarity” with existing EU and NATO initiatives.
The multilateral mechanism would link funding to joint procurement, and can help accelerate cooperation and achieve economies of scale, including with non-EU partners such as the U.K., according to the ministry. It would provide a single platform for finance and defense ministries to cooperate, the Netherlands said.
The mechanism “can provide financing in areas of the supply chain where scaling up is often difficult due to lack of financing, such as small and medium-sized companies,” as well as provide long-term support to Ukraine, according to the Dutch ministry.
Finland said it’s in talks to “lay the groundwork” for the defense financing mechanism, and commitments to the process will require political decisions at a national level. Participating from the beginning will give Finland an opportunity to influence what such a mechanism could look like, Finnish Defense Minister Antti Häkkänen said.
The mechanism will offer a new way of defense cooperation between European partners, and is open to “like-minded Western partners” both inside the European Union as well as outside, Dutch Finance Minister Eelco Heinen said in a statement.
“By joining forces, we get more security with the same resources and we strengthen our alliances as well,” he said.
The initiative would drive joint defense buying through multinational financing, Finland said, with the U.K. Treasury saying that “challenging times for global security call for creative solutions.”
The idea of the mechanism is to generate a return that would flow back into the financial institution, increasing capital and thus expanding lending capacity, the Dutch ministry said. The institution would work in a similar way to the EIB or the European Bank for Reconstruction and Development, “but with a specific focus on defense.”
The multilateral defense mechanism is open to other countries, and “we specifically extend the invitation to Western allies to join,” the Netherlands Ministry of Finance said.
Rudy Ruitenberg is a Europe correspondent for Defense News. He started his career at Bloomberg News and has experience reporting on technology, commodity markets and politics.
