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As NATO member states struggle to meet their defense spending targets and war rages on Europe’s eastern front, officials are struggling agree on a plan to shore up hundreds of billions of dollars to bolster defenses.
Eight NATO countries they failed to meet their 2% target for defense spending by 2024. And as many member states struggle with chronically stressed budgets, calls to meet these targets are not being heeded quickly.
The European Commission estimates that around €500 billion, the equivalent of $524 billion in investment, is needed over the next decade to defend Europe against evolving threats.
The EU budget cannot be used to finance defense directly, and some European officials and NATO experts are proposing a global defense bank to allocate funds for military modernization.
A Defense, Security and Resilience (DSR) bank would issue bonds backed by AAA ratings for financially distressed countries to upgrade their defenses and provide guarantees to commercial banks to provide credit to defense suppliers.
European officials are struggling to agree on a plan to shore up hundreds of billions of dollars to bolster defenses. (US Army photo by Spc. Ryan Parr)
“This is not a substitute for increased defense spending in each of these countries. I think it should be a supplementary tool,” Giedrimas Jeglinskas, chairman of the Lithuanian parliament’s national security committee, told Fox News Digital and former NATO official.
His remarks echo those of incoming President Trump, who has long threatened to pull the US out of NATO because of the number of nations failing to meet the 2 percent defense spending target.
“I think we have to see this as an opportunity for the United States as well,” Jeglinskas added. “I understand Donald Trump’s skepticism of the World Bank and then the IMF (International Monetary Fund) and IFC (International Finance Corporation) and other institutions. I think there has been a lot of capital deployed and a lot of investment that these banks or L ‘real impact is questionable at best, so I think we need to have KPIs (key performance indicators).
The US defense budget of $824 billion in 2023 was equivalent to half the total defense spending of all NATO member states combined at $1.47 trillion.
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Trump’s return to the White House, along with the U.S. push to refocus on China, has left Europeans wondering whether the U.S. will be less eager to defend Europe in the coming years.
More EU defense chiefs and foreign ministers have floated the idea of issuing joint debt through bonds to finance military projects.
But some countries like Germany have expressed concern about maintaining their own sovereignty and a disproportionate financial burden on some countries.
The idea of the DSR bank is explained at length in a new Atlantic Council report by fellow defender Rob Murray.
The EU budget cannot be used to finance defense directly. (Press service of the Ministry of Defense of Ukraine via AP, file)
“For allies in the Euro-Atlantic and Indo-Pacific regions, the bank could go beyond providing low-interest loans for defense modernization to facilitate equipment leasing, currency hedging and support for critical infrastructure and reconstruction efforts in conflict zones. like Ukraine”, Murray wrote.
“An additional critical function of the DSR bank would be to insure risk for commercial banks, allowing them to extend financing to defense companies throughout the supply chain.”
The aim would be to provide financing to small and medium-sized defense companies that often have difficulty accessing funds.
“By offering loans with extended maturities, the bank would provide predictable and sustainable financing for defense modernization. Its governance structures would align financing with collective security goals, such as improving arsenals and investing in technologies emerging,” Jeglinskas wrote in a recent op-ed. for the Financial Times.
A Defense, Security and Resilience (DSR) bank would issue bonds backed by AAA ratings for countries in financial difficulty to upgrade their defenses. (Alexandra Beier/Getty Images)
Asked how the DSR bank would get countries to agree on defense funding priorities, Jeglinskas compared the idea to the UK-led Joint Expeditionary Force, a military alliance that includes Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, the Netherlands, Norway and Sweden.
Jeglinskas pointed to the €33 trillion in European assets under management across the continent.
“There’s really no political will or appetite for risk to move them anywhere other than the kind of bond markets where they rest now,” he said. “But several nations have to build that initial capital and then, using the sovereign rating to hopefully go AAA in the capital markets, raise that money from the bond markets and start funding defense programs.”
The European Investment Bank has granted long-term loans and guarantees to projects in European nations that align with EU policy goals.
“But even they are struggling to change their mandate to more dual-use technologies is still not allowed in their funding package,” said Jeglinskas.
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“Of course, all the other banks in Europe are looking to the EIB for their signals. That signaling hasn’t been there yet. So that’s the point. We have to create some kind of mechanism, and that kind of global defense bank it would be one of the tools that we could use to bring capital together and really direct it toward defense. So it’s really creating another multilateral lending institution.”
