Should the EIB be funding Europe’s defence industry?

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Good morning. Today our economy correspondent parses the defence investment debate inside the EU’s house bank, and we report on an interesting shift in Europe’s right-wing political factions.

Explosive returns

As EU leaders call for more investment in the continent’s defence and security, should that also apply to the bloc’s own bank? Now under new management, the discussion is under way, writes Paola Tamma.

Context: Russia’s war against Ukraine has recalibrated EU defence thinking, and sparked demands for major new investments in military capabilities. The EU’s European Investment Bank is the world’s biggest multilateral financial institution by assets.

Countries like France and Poland have been calling for the EIB, under new president Nadia Calviño, to invest in core defence projects. But to do so, it must change its exclusion policy, which bans it from financing things like weapons and ammunition, alongside tobacco, luxury, and most fossil fuels.

“Defence is a pillar for our European sovereignty, and we must act more quickly and decisively,” European Council president Charles Michel told the EIB’s annual forum in Luxembourg yesterday. 

The bank’s rank and file dislike that idea, afraid that it would hurt its stellar ESG ratings. But ultimately, the EIB implements what its board of governors tells it to do — and its governors are EU finance ministers. A simple majority of countries is needed to change the exclusion policy.

Later this month Calviño will start a discussion with them about the bank’s strategic direction, including what to do with defence and how to stretch its lending power.

Currently, EIB can lend up to €2.50 for every €1 of capital. To lend more, it would have to raise that ratio, or get a capital injection. Many are pushing for the former, arguing that the EIB is operating in an excessively safe way. 

It is capitalised at 34.4 per cent, more than double the average rate of commercial lenders, at 15.6 per cent, and its ratio of non-performing loans is just 0.5 per cent (the average for EU commercial banks is around 1.85 per cent).

A push is under way to ensure the EU’s lender gets more bang for its buck — and that it invests it in new priorities.

“We are discussing with leaders in the European Council in the framework of our strategic agenda that will set our priorities for the years to come, including the role of the EIB and the different EU institutions in supporting defence investment,” Michel said.

Chart du jour: Boiling point

The average global temperature has for the first time breached the critical benchmark of 1.5C above pre-industrial levels over a 12-month period, according to data from the European earth observation agency.

Teaming up

Far-right parties are attracting more public support ahead of June’s European elections but to convert that into power they are now learning to attract each other, write Leila Abboud and Andy Bounds.

Context: Marine Le Pen’s estranged niece Marion Maréchal pulled off a coup in Strasbourg yesterday, announcing her Reconquête party would join the European Conservatives and Reformists (ECR) group in the European parliament. Maréchal is set to head the election list for the party founded in 2022 by French far-right politician Éric Zemmour.

The Eurosceptic ECR, now the fifth biggest group in parliament, is home to Giorgia Meloni’s Brothers of Italy, Poland’s nationalist Law and Justice, Spain’s Vox and the Finns party, which has advocated for Finland to leave the EU.

Most support Ukraine’s war effort, which separates them from the smaller far-right Identity and Democracy Group, where Marine Le Pen’s MEPs sit. The Finns left that group over its pro-Russia stance in 2022. 

Zemmour seems a bad fit. He has expressed admiration for Russia and called for the war to end as soon as possible. Reconquête espouses even more radical positions against immigrants and the supposedly “woke” agenda than Le Pen’s National Rally party, suggesting the ECR might be stretching its tent wider to boost numbers, which gives it a greater say in legislation.

It’s also an eyebrow-raising move for Meloni, who has otherwise sought to tack more towards the centre on EU issues, and courted European Commission President Ursula von der Leyen, of the centre-right EPP.

Reconquête has just one seat but is polling around 7 per cent of the vote in France, which would translate into around 6 seats in June. Polls suggest ECR and ID are vying to be the third-largest group, replacing the liberal Renew Europe that includes French President Emmanuel Macron’s troops. 

Little wonder then that Valérie Hayer, Renew leader, attacked the ECR decision as “one more step towards radicalisation” and called on its more moderate factions to desert.

What to watch today

1. Spain’s Prime Minister Pedro Sánchez and Ursula von der Leyen visit Mauritania’s President Mohamed Ould El-Ghazouani in Nouakchott.

2. Informal meeting of EU competitiveness ministers, in Genk, Belgium.

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