Financing R&D for Europe’s Defence and Security

Terrorism, cyberattacks, war in Ukraine. In recent years there are crises all around us that pose a threat to Europe’s security. Trouble is, Europe has neglected investment in security and defence for more than two decades.

We must do more to respond to challenges that threaten the stability of our societies and the lives of our citizens. We believe Europe can contribute to global security and tackle new threats without undermining EU cohesion and solidarity.

Let’s start by addressing the investment gap in the security sector that has caused big backlogs in technology and development.

This shortfall will require hundreds of billions of euros to fix. This is where the European Investment Bank can be an important factor.

The Bank plans a big increase in investment for security projects that at once serve the civilian and defence sectors. These new investments will help Europe address its shortcomings, make the EU more autonomous, and complement the strengths of our NATO partners.

The ultimate aim is strategic autonomy, meaning that the EU would have the ability to act on its own and that its defence industry could produce everything the EU needs.

Strategic autonomy requires the EU to catch up with global technology leaders in many industries. In other words, it requires technological autonomy and a big increase in investment.

Low spending hurts research and development

Many years of reduced government spending have taken a big toll on European research Alexander STUBB Vice President of the European Investment Bank and development in security and defence technology.

Research and development investment needs are enormous an estimated additional 3 billion euros per year across 27 member states that will be left after the UK leaves the Union.

Public budgets are still constrained, so investment on this scale requires alternative financing. To finance security and defence R&D, we need the capacity and willingness to take risks beyond those that institutional investors generally accept. And, we need patience as research develops into new products.

A full set of offerings

For two decades, the European Investment Bank has been financing R&D and innovation, from technology development with large industrial groups to focused industrial innovation investments with suppliers.

We also invest in public research institutions. The EIB financial toolbox includes risk-sharing loans as well as new products, such as venture debt highly subordinated loans with profit-sharing elements.

With the European Commission, the EIB offers dedicated financing packages for particularly high-risk R&D to address investment needs in leading-edge technology that might not be commercialised for many years.

We have a full set of offerings to meet the needs of Europe’s security and defence. There are some limitations. The EIB’s policy framework, which has guided the Bank since its foundation in 1958, prohibits investment in fully fledged military projects.

The Bank cannot invest in weapons and ammunition. It does not invest in military or police equipment. The Bank can finance “dual use” projects for civilian and military purposes, such as lasers, computers, airplanes, helicopters, radars, rocket engines, vaccine research, airport and port security, digital communications, and telecommunications.

In December last year, the EIB Board of Directors approved a dedicated financing plan for security, the European Security Initiative. This initiative will focus on financing dual-use technologies and equipment beyond previous such projects in aerospace, defence and information technology sectors.

Now the Bank will provide even more support to dual-use technologies.

Dedicated effort to help defence

Our Security Initiative is a big step for the EIB. The Bank is making a dedicated effort to support EU defence, while strictly respecting the limits on its activity. Under the initiative, the Bank will provide €6 billion in financing to Europe’s security and defence sector over the next three years.

The initiative will help us extend financing in four areas:

› dual-use R&D

› cybersecurity

› civilian security

› dual-use investments in EU initiatives, such as the Cooperative Financial Mechanism, coordinated by the European Defence Agency; or the new European Defence Fund, created last year to coordinate countries’ investments in defence research How are we going to target this extra financing?

Discussions with EU member states and with companies across Europe confirm our expectations: The biggest financing needs are in areas that do not receive full government support.

Primarily that means dual-use R&D for future security and defence technologies and equipment. We have learned that there are very few technologies earmarked only for military applications.

Most R&D programmes mainly target civilian products. Examples include the wide range of digital technologies, artificial intelligence, 3D printing, or nanomaterials all relevant projects for civilian use and security and defence.

The Bank is ready to help Europe’s security and defence companies step up their investments in R&D with our proven financial expertise.

We will combine this expertise with the capacity to take on extra risk. And we are in it for the long haul. EIB financing will reach the front lines of technological development, so that those who defend our continent will have the tools they need.

Ambroise FAYOLLE, Vice President of the European Investment Bank

Alexander STUBB, Vice President of the European Investment Bank