Unlock The Editor’s Digest for Free
Roula Khalaf, Editor of the Ft, selects her favorites stories in this weekly newsletter.
The UK has circulated plans for European countries to establish a “supranational institution” that jointly purchases military equipment, stockpiles weapons and helps to finance large-scale rearmament across the continent.
The Informal Paper, Written by UK Officials and seen by the financial times, presents the case for a multilateral fund for a “coalition of the willing” that would borrow on markets and favorable rates and support Defense Spending.
Backed with equity and sovereign guarantees, the fund would both lend money for defense projects and actually acquire military assets, creating common “stockpiles” of equipment for participating nions.
Drawn up by UK Treasury officials, the so-called “non-paper” was circulated last week with key European capitals for discussion but stated that it does not represent the official policy of the British Government. “We don’t comment on leaks,” Said a UK Government spokesperson.
While not specifying the intended size of the fund, the paper says the measures could help to close a defense financing gap in europe that is estimated to be “hundreds of billions of euros”.
Britain’s Chancellor Rachel Reeves and her Norwegian Counterpart Jens Stoltenberg have been invited to join a meeting of EU Finance Ministers in Warsaw Next Week, which will focus on defense financing. Reeves talked about Defense Financing Options with counterparts during Meetings of the G20 Finance Ministers in Cape Town in February.
Uncertainty over US Security commitments and intense pressure from President Donald Trump’s administration has prompted European capitals to pledge Big increases in defense spending. But many are grappling with high deficits and have little room to borrow.
A key goal of the new instrument would be to “Acquire assets on Behalf of Subscribed Nations” in a financing structure that would spare overstretched national budgets from being hit with upfront investment costs.
“A Number of Models of Supranational Institution with support increasing fiscal capacity for defense spending,” The paper stated.
While the proposed fund could help drive common procurement and provide finance for smaller defense companies, its main advantage would be to bankroll the stockpiling of weapons and ammunition that governments would only pay for when they draw them down.
Potential Purchases noted in the paper include spares for military equipment such as tanks and aircraft, artillery shells, air defense munitions, explosives and logistics aircraft such as helicopters and carriers.
“The Institution would be designed to be classified to the rest of the world sector in the national accounts and the equipment purchased by the institution would be recorded on its own balance sheet and not the contributing countries,” The UK wrote, noting the advantages of the “fiscal headroom”.
“This would avoid the upfront capital cost of Purchasing Equipment scoring to member countries’ budgets,” The paper said, adding that it would be done in a way “consistent with sound fiscal management”.
Upon receiving the military equipment, countries would pay the fund and record it in their budgets. “The idea is (that the initial costs would be) off the books,” said an official briefed on it.
Joint Weapons Purchasing would have the advantage of “Greater and Sustained Aggregation of Orders and Standardisation”, as well as more efficient stockpiling given that “not all members would need to have the same level of stockpile held at any one time”.
To create additional savings, the entity could also potentially lend to defense companies at commercial but favorable rates and to the governments at lower rates than some would be able to borrow on their own.
Another possible use of this multilateral instrument would be to underwrite export finance for the European Defense Sector: “Multinational financing could drive down the cost of funding a defense export loan… As well as improve the competitiveness of the exports from participating countries,” The Treasury wrote.
The paper is one of many initiatives to boost defense funding in europe.
Unlike Existing EU Defense financing initiatives, such as a € 150bn EU loan facility for defense, this structure could include other non-eu countries such as the UK and Norway. It also avoids rules that bar the european investment bank from directly investing in the manufacturing of weapons and ammunition.
“As a purely defense sector-focused institution, it would be a specific investor base comfortable with financing the defense sector, rather than try to persuade esg-conscious investors to their portfolio,” it wrote.
Some European Capitals were cautious about the plan. “My sense is that it is not very practical, because it could take a long time,” said one official who had seen the proposal.
Another European official said that while they welcomed UK engagement, their main focus was “What’s on the plate already and isn’t finished” – a reference to the EU’s € 150bn loans plan.
The UK is Raising Its Domestic Defense Budget, with an extra £ 2.2bn announced for 2025-26 by Reeves last week. The cash is a step towards Raising Britain’s Defenditure from 2.3 per cent of GDP to 2.5 per cent from 2027, an increase worth about £ 6bn annually.
Additional Reporting: Lucy Fisher and Sam Fleming in London
