EU defense bonds could be a new asset class to bolster weapons makers amid Russia's war on Ukraine, European Council chief says

• Defense bonds could help Europe finance its security needs, the European Council chief said.
• The financing vehicle would help European weapons makers boost production.

The European Union needs to ramp up defense financing as Russia's war in Ukraine drags on, European Council chief Charles Michel said on Thursday.

Issuing defense bonds could help European weapons makers boost production as countries rearm in the face of the Russian threat.

"We should also consider the idea of European defense bonds to strengthen our technological and industrial base," he said in a Thursday speech at the European Defense Agency conference. "These EU bonds could emerge as a new asset class, including for retail investors."

His comments stemmed from concern that the Europe's defense industries are fragmented, while arms and ammunition need to be made faster and more efficiently.

"Increasing the predictability of public orders will help our industry access private financing, and it will send a very clear message: produce and we will buy," he said.

The suggestion of joint borrowing may not find broad EU support, although similar measures were implemented during the COVID pandemic.

European Commission head Ursula von der Leyen said at the conference that it was time for the European Investment Bank to improve financial support for the defense sector, according to Bloomberg.

The lending arm has been hesitant to entangle itself more with the defense industry, given the risks this would pose to its top credit rating and ESG status, Bloomberg said. The bank doesn't currently provide loans on weaponry, and changing this rule would require a go-ahead from EU members.

Apart from defense bonds, Michel also suggested regulatory improvements to make defense spending more efficient, better coordinating investments between members, and funneling money towards under-financed defense sections.