Defence through Industrial Integration in the European Union: Evaluating the Emerging Role of the European Investment Bank in EU Defence Policy

The 20^th of June 2025 could be a pivotal date for the European Union (EU): for the first time, the European Investment Bank (EIB) – the principal EU tool for developmental projects in and out of the Union – approved a 450-million euro loan for the installation of a military campus in Rūdninkai, Lithuania. The involvement of the EIB in such a project, aimed at strengthening NATO’s Eastern flank, is a significant shift in EIB’s casual projects, and therefore a shift in EU priorities that needs to be discussed.

This project occurs in a period of re-consideration of defence and related fields by EU upper circles: on the same day, the EIB announced a new financial ceiling of 100 billion euros over different projects, with 3,5 billion being allocated to defence related programs. This announcement follows the unveiling in April 2024 of the EIB Group Security and Defence Industry Action Plan, aimed at accelerating the Bank’s support to the European defence industry. The case of Lithuania is particularly striking, as the Bank decided on August 20^th to launch a framework loan to co-finance Lithuania’s public defence expenditures, following a decision of Lithuania’s State Defence Council to raise its defence budget to 5-6% of total public spending to align with NATO’s requirements. The newly named “Ajax Project” is the application of the EIB board’s decision to open financing for mainly or exclusively defence-based projects, a decision dated from the 21^st of March 2025 and rubber-stamped by the document 25/049: "Strengthening EIB support to EU Security and Defence".

This article aims to discuss this shift, and to open the discussion about whether the traditional EIB channels can lead to a more optimized financing of European defence industry, and ultimately to its growth. It will also discuss some prerequisites of the latter, considering the EIB’s possible action.

Unlike other international financial institutions (IFI) such as the IMF, the EIB has a treaty-based obligation to align with the political priorities of the EU and to support them. Article 309 of the Treaty on the Functioning of the European Union (TFEU) states that “The task of the European Investment Bank shall be to contribute […] to the balanced and steady development of the internal market in the interest of the Union” and details the types of projects the EIB might support. But despite the obvious focus on internal market development, the paragraph c) of the aforementioned article states that “projects of common interest to several Member States” may also be supported by the EIB, with the only condition being the impossibility of being financed by one single Member State. Therefore, defence and military projects financing by the EIB might be grounded in law through this paragraph.

The EIB’s action was first thought of as a means to develop new Member States infrastructures, and to make them progressively integrate into the common market. Financing has since been extended to neighbouring countries, with Mediterranean states since 1978 and Eastern European ones since 2003. The role of the EIB as a “power multiplier” (Ujvari, 2017) has been theorized and addressed in the literature, joining a range of other measures taken to expand its power beyond its borders.

The EIB typically distinguishes 13 different categories among its 16966 ongoing or achieved projects, with some 76% (12 936 in total) of them being attached to one of the following: lines of credit (for financial intermediaries), transport, energy and industry. Climate change mitigation and adaptation projects have also been developed and supported in recent years. In other words, defence and military projects have historically been “excluded” from the scope of the EIB, despite its judicial and theoretical ability to pursue them. Such an assertion is supported by the treatment of dual-use projects by the Bank: before the EIB Action Plan of April 2024, the Bank required that supported dual-use projects earn more than 50% of their benefits from civilian use. Waiving such a threshold is a reliable indicator that the EIB, and therefore the EU, desires to be more actively involved in defence industry.

Given this shift, the following question comes to mind: can the EIB, through its structure and its functioning, have an impact on the future development of the European defence industry? If yes, how can it design and implement tools and mechanisms to do so?

The EIB funds its activities mainly by borrowing from international capital markets at highly favourable rates, thanks to its AAA rating and the backing of EU Member States. It then channels these resources into public and private projects aligned with EU policy priorities, generally offering loans at competitive rates that reflect its low funding costs rather than direct subsidies. The Bank relies on a range of instruments - project loans, credit lines, guarantees, equity - and operates chiefly within the EU while also supporting projects abroad. Its approach is grounded in project viability and, where appropriate, EU budget guarantees to mitigate risk.

This model requires careful consideration of a project’s expected return when co-financing, which can pose challenges for cooperative defence initiatives in Europe. Defence industries inherently encourage states to limit technology sharing with potential competitors, often resulting in heavy governmental involvement in design and production. Such dynamics can create duplication and hinder the coordination required for large-scale defence programmes. The repeated delays in the Airbus A400M programme illustrate how insufficient alignment between governments and industry, as well as underestimated challenges in shifting from civilian to military aircraft, can derail progress.

Given that the EIB applies a risk-based approach to project assessment, it must factor in the political sensitivities and structural complexities inherent in defence cooperation, which can easily disrupt expected timelines. This highlights a major challenge linked to a shift toward defence-related financing: the appraisal phase of each project. The characteristics often associated with defence projects complicate the type of due diligence traditionally undertaken by the Bank, especially given their strategic importance for national governments.

Beizsley (in Coppolaro, Kavvadia et al., 2022) outlines the difficulties typically encountered by IFIs during appraisal processes. He emphasizes that IFI-supported projects must strike a balance between the interests of economists, stakeholders, policymakers, and civil society—groups that often have diverging priorities. In the defence sector, several specific hurdles may therefore arise:

• An overemphasis on the economic rationale may exclude defence projects that are driven primarily by political, strategic, or sovereignty concerns rather than economic efficiency. Beizsley emphasizes that – as part of a Casual Cost-Benefits Approach (CBA) that is commonly used by IFIs – a significant part of the EIB appraisal process is to evaluate the potential sources of revenues, and the rate of return, of the submitted projects. This approach might fail to appreciate the externalities of a defence project, such as technological innovations. The renewed focus on dual-use projects undertaken by the EIB, as symbolized by the new definition of the term adopted by the Bank in 2024 and the larger openness of its loans for such projects might take steps against an overly restrictive CBA. In that regard, cybersecurity or AI-based projects might match EIB’s requirements. The EIB has indeed recently highlighted Europe’s investment shortfalls in AI and blockchain in its June 2021 report, “Artificial intelligence, blockchain and the future of Europe: How disruptive technologies create opportunities for a green and digital economy.” The report identifies an “investment gap” exceeding €10 billion in these technologies, largely stemming from the difficulty most companies face in securing late-stage funding, which hinders their ability to scale.

  
  

• Standard technical and feasibility checks - routine for infrastructure investments - may conflict with the confidentiality surrounding sensitive defence technologies, which are strategic assets for Member States. The re-orientation of the MUSIS (Multinational Spacebased Imaging System for surveillance, reconnaissance and observation) satellite project to a more French-based program with international partners on specific segments was typically caused by French reluctance to share technological assets with potential European competitors. Protecting industrial assets may also prompt Member States to develop their own solutions in order to promote national industrial “champions.” For example, France’s withdrawal from the Eurofighter Typhoon program was largely motivated by its desire to allow Safran—a key domestic firm—to supply the M88 engines for the future Rafale, thereby ensuring an almost entirely home-grown production process.

  
  

• The requirement to demonstrate EU added value implies that Member States must first agree on what constitutes a common European interest in the field of defence industrial development. Given the political sensitivities and national-industrial rivalries previously discussed, this may be the biggest barrier to meaningful EIB involvement in Europe’s defence industry. The delays surrounding the MALE RPAS – “Eurodrone” – program notably arose due to Franco-German divergences in the projected use of the drone, leading to different technical requirements on each side. The results of such friction appeared for example in the results of the joint FREMM multi-purpose frigate program in the 2000s, between France and Italy: both countries ended up constructing their own frigates, sharing only a handful of common features and achieving minimal economies of scale.

These points complicate the picture for a smooth appraisal phase for EIB-backed defence projects, and demonstrate the important level of economic, regulatory, technical and political alignment to make of the EIB a significant hard power multiplier for the EU. However, steps to define a fitter regulatory framework for the EIB to operate in such a field have been recently taken, as explained above with dual-use projects. The EIB has indeed begun extending its financing to projects with potential military applications. Its September 2025 venture loan of €38 million to Aerospacelab—a Belgian company specializing in satellites and Earth-observation technologies—illustrates this shift toward supporting dual-use initiatives by explicitly acknowledging the project’s “defence” dimension. This move also demonstrates the EIB’s commitment to helping SMEs scale up, rather than focusing solely on early-stage support or infrastructure development. Government-backed dual-use projects have also begun to draw the EIB’s attention. A notable example is the €300 million loan granted in May 2024 to Poland’s Ministry of Defence for the development of two Earth-observation satellites. This renewed focus on dual-use technologies is likely to encourage the EIB to support the upgrading of Europe’s technological security infrastructure and may lay the groundwork for a more integrated and comprehensive financing model for innovative defence-sector firms across Europe.

At this stage, there is insufficient empirical evidence to conclusively assess the EIB’s effectiveness as a driver of a European defence industrial base. However, its recent involvement in supporting Lithuania’s defence-related investments provides some early indications. In Lithuania, the Bank has begun to facilitate an increase in national defence spending by financing part of the required infrastructure and capability-related investments. Although not strictly a defence-industrial programme, this approach suggests that the EIB could play a meaningful role in developing defence-adjacent infrastructure and industrial capacity in underperforming or smaller Member States.

In this context, the EIB’s contribution — covering roughly half of the targeted increase in defence-related expenditure — would be complemented by other sources such as EU grants and domestic budget reallocations. Initiatives such as the European Defence Fund (EDF) are designed to complement this framework through a more subsidy-oriented approach. Its expanded budget compared with its predecessor, the EDIDP (European Defence Industrial Development Programme), signals a shift in the EU’s political stance toward defence financing. Private investment, by contrast, requires profitability and fluid asset circulation to operate effectively—conditions that imply a deeper level of economic integration, including the integration of defence markets, an objective that EIB, statutorily, will need to pursue if it starts intervening in European defence market. If this model proves successful, it might echo the Bank’s historical function as a catalyst for infrastructure modernisation in less-equipped regions, suggesting a possible blueprint for supporting defence-related development as well, provided earlier stages of the appraisal process can be met. It could also entail attracting private capital into defence financing, which becomes effective when markets are integrated and assets can circulate freely. This mirrors the trajectory followed by former Eastern bloc countries, where infrastructure development and modernization paved the way for economic liberalisation.

In the longer term, one could even imagine the EIB contributing to a gradual harmonisation of defence industrial standards across the EU by helping smaller states upgrade their industrial base and by incentivising cross-border cooperation and industrial alignment. Yet such a scenario presupposes a degree of political alignment among Member States that remains uncertain. Persistent competition over strategic technologies, intellectual property, and industrial leadership continues to limit deeper integration of the European defence market. The EIB could thus become a facilitator of this integration - but may equally depend on prior political convergence to fulfil this role effectively.