How Europe cripples its defenses

Start with the European Investment Bank, which finances investments to meet European Union policy goals. The bank long refused to finance dual-use projects like drones unless more than half of the expected revenue derived from civilian uses. It took more than two years after the Ukraine war began for the bank to waive that dual-use threshold. Yet the bank still refuses to finance the manufacture of weapons or ammunition.

Several of Europe’s top private banks’ sustainability policies state they won’t provide financial services or loans to companies that produce “controversial weapons" or components. That broad category typically includes anti-personnel mines and cluster munitions, both used by Ukraine for legitimate defensive purposes.

Financial institutions are responding to pressure from leftist nonprofits that believe peace flows from disarmament, not deterrence. The influential Berlin-based Facing Finance rails that “the European arms industry tries to portray itself as the guarantor of European security and freedom" and argues that “the arms industry is definitely not a sustainable investment." You won’t be surprised to learn that sustainability, whatever that means, isn’t a priority for Russia, Iran, China and North Korea.

Europe’s defense companies need private investment to expand the Continent’s industrial base, conduct research and development, and train and maintain a skilled workforce. The lack of private investment constrains small and medium-size defense companies in particular, including producers of critical components.

A European Commission report this year found that about 40% of small and medium-size defense companies struggled to gain financing, compared to 30% of all small and medium enterprises. More than half of British companies of this size that sought banking services in the past 12 to 24 months said access was a barrier to growth, according to a survey by ADS, a trade association representing U.K. defense and security businesses.

“The exclusion of the defence industry from private funding opportunities could undermine European defence efforts and threatens to put European companies at a competitive disadvantage while posing a security risk for the EU and its Member States, especially in areas like cybersecurity, artificial intelligence, and space," the European Commission report warned.

Europe is slowly waking up to global perils. Twenty-three of NATO’s 32 members are now on track to meet the defense-spending standard of 2% of GDP, and some are talking about targets of 3% or more. Yet they’ll need the help of Europe’s private sector, which is indulging in sustainable fantasies at the expense of the continent’s security.