Worries about the disengagement of the Trump administration from European security over the past few weeks have created significant political momentum in Europe for increasing armaments funding. We welcome the two recent proposals by the UK Treasury on the creation of a European “rearmament bank” (Report, February 28) and a European “weapons stockpile” fund (Report, April 3). Although the Treasury did not specify the intended size of the latter, the proposed rearmament bank would be able to mobilise up to €100bn and could thereby contribute significantly to meeting Europe’s estimated defence investment needs of €500bn over the coming decade.
The rearmament bank proposal drew explicitly on the precedent of the European Bank for Reconstruction and Development. We agree that the EBRD offers an attractive template with clear financial and political advantages. The EBRD was created in 1991 with the mandate to finance the transition of central and eastern Europe to market economies and to support democratic development. Within less than a year, the EBRD disbursed its first loans — a development of astonishing speed by the standards of multilateral institutions, something the Treasury aspires to achieve. The political advantages of this blueprint are compelling. The Treasury is proposing financing vehicles that would remain under the control of national governments and outside the EU’s institutional framework. In the EBRD’s case, this approach ensured wider participation.
The Treasury’s proposals of an intergovernmental structure would allow neutral and Russia-friendly EU member states to opt out while enabling non-EU Nato members, not least the UK and Norway, to participate. Yet the EBRD’s experience also offers cautionary tales. Despite its rapid creation, the EBRD struggled to overtake legacy institutions — throughout the 1990s, the European Investment Bank lent more to central and eastern Europe than did the EBRD.
No matter the political will, building an investor base and project pipeline takes time. Further, the creation of a new multilateral public bank, especially one outside the EU framework, would increase fragmentation and co-ordination problems among EU public lenders. In the longer run, the creation of a rearmament bank therefore risks further undermining coherence in the European public financial landscape.
Dr. Lukas Spielberger, Vrije Universiteit, Brussels, Belgium
Prof. David Howarth, University of Luxembourg
This blog post was originally published as a letter in the Financial Times, found here.
The views expressed in this blog reflect the position of the author and not necessarily that of the PROSPER network.
