Jean-Claude Juncker, the EU’s president, struck a more gung-ho attitude than usual in his "State of the Union" address on September 14, saying that the Union must “toughen up”, particularly in its defence policy. Juncker wants a military headquarters and a European Defence Fund to “turbo-boost research and innovation”.
But “toughening up” and turbo-boosters are not going to come cheap.
A couple of European Commissioners have dropped some hints on how the EU intends to finance its enhanced military commitments. Jyrki Katainen, a vice-president of the European Commission, dropped the B-word on September 15, suggesting that the EU could issue European Defence Bonds, to finance defence assets like “drones or ships, space capacities or cyber-defence technologies”.
In the short term, the EIB appears to be the chosen vehicle for EU military financing.
The fact that its mandate explicitly prohibits military infrastructure funding does not appear to have deterred Katainen, who said expanding the mandate was a “short term deliverable” that could come in 2016.
Such ambitions smack of sabre-rattling and international machismo but it's a laudable aspiration that the EU take its defence seriously and not continue to rely so heavily on the United States. The bloc’s eastern border is, at best, uneasily calm, with the Baltic states keen for overt displays of defensive commitment, and turbulence and civil wars to the south which threaten to spill over into Europe.
Even so, there are formidable political obstacles to a sizeable EU military, and certainly no clear consensus that it would be worth having. It wouldn't be the first time the Commission's centralising ambitions had run ahead of the European electorate.
But even the more modest "short term deliverable" of expanding the EIB’s mandate could have immediate and far-reaching consequences for the institution.
The EIB is the largest issuer of green bonds in the world. How would green bond investors respond to the institution’s mandate being expanded to include drone funding?
Most green bond investors tend to take an ‘assets, not entities’ approach, and are willing to buy green paper from issuers with decidedly brown activities. But there is a sizeable and growing minority that expects green borrowers to commit fully to ethical behaviour.
A supranational with a green bond programme beginning to engage in military activities is uncharted territory for the market, but if such investors took a dim view of the EIB raising funds for military use, this could put a crimp in the largest green bond programme in the world.
Development banks, with their often vast flows of private capital, must seem like an appetising resource to governing bodies. But press-ganging them to serve political agendas undermines their reason for existing. Adding overtly political activities to their mandates dilutes their purpose and harms their ability to be active in the areas they are uniquely able to address.