The EBRD is one of Ukraine’s biggest investors, ploughing more than €4bn into the country since Russia’s full-scale invasion began. But the multilateral development bank’s president Odile Renaud-Basso said the bank will not finance Ukraine’s transformation into a European military industrial hub. “We cannot finance the defence industry and military production,” she said recently at a lecture she gave at the London School of Economics.
“Azerbaijan and Armenia are among our shareholders and we cannot start financing defence for one [and not the other]. This is something we cannot do,” she said. The two countries have been at war for the past four years over the disputed region of Nagorno-Karabakh.
Renaud-Basso made the comments in response to an audience question following the lecture she gave on Ukraine’s European destiny at the LSE on Monday. The lecture was hosted by Bocconi University and the LSE European Institute.
The EBRD was set up in 1991 to help former Soviet bloc countries transition from state control to market-based economies with a sizeable private sector. In recent years, the bank’s remit has expanded to tackling climate change in the more than 30 countries in which it invests, with green economy financing amounting to 50 per cent of the bank’s total investment volume in 2023.
But the first war on the European continent since 1945 has put European economies on a war footing, with the political mood shifting from a focus on climate to Europe’s defence resiliency and security. The architect of the EU’s Green Deal, European Commission president Ursula von der Leyen, has pivoted from climate champion to what some have described as a European “security hawk”.
In February, in a speech to MEPs in Strasbourg, von der Leyen said geopolitical tensions required “a new European defence mindset from institutions to industries to investors”.
She also called on EU member states to endorse a proposal put forward by the European Investment Bank’s new president, Nadia Calviño, to contribute to joint projects aimed at boosting the European defence industry.
Despite its unwillingness to finance defence projects, the EBRD has made comments and taken actions that are considered unusual for an MDB during war time. It immediately condemned Russia’s attack on Ukraine and took more risk onto its balance sheet so it could better support Ukraine’s economy.
Towards the end of last year, EBRD governors agreed to a capital increase of €4bn to keep investing in Ukraine in wartime at current levels, and to provide more funds for reconstruction when the time comes. The bank continues to support Ukraine’s reform efforts.
“In the early days [of the war] my worry was that all efforts would be invested in the military effort with little attention paid to structural change and governance. But Ukraine has risen courageously to the challenge of the war and reform,” said Renaud-Basso.
At her LSE lecture, Renaud-Basso put the case for Ukraine’s wider integration with the EU, outlining other contributions the country could make as a major exporter of steel, electricity, information technology and cybersecurity, as well as human capital. “[Ukraine] could help European companies move supply chains much closer to home. This is particularly true for IT and climate change sectors,” she said.
Ukraine has the largest gas reserves in Europe after Norway, and Renaud-Basso said investment opportunities in the country were in the region of $10bn a year. Potentially, she said, this could contribute to Europe’s energy security and transition to net zero. “Ukraine has a lot of potential in terms of renewables, and [we are] working with clients to support energy security and the green transition in Ukraine,” she said.
The EBRD is also working with Ukrainian banks to develop a product that will provide a guaranteed portfolio of lending to small and medium-sized enterprises.
“Integrating Ukraine into the EU has its challenges, but we need to be clear about the many benefits that accession will bring,” said Renaud-Basso. She added that Ukraine will be the largest country to join the EU since Poland and has the potential to grow at 5 per cent per year. “It could also attract large volumes of [foreign direct investment],” she added.
“A successful and well-run Ukraine will bring many benefits to Europe, and would give the union a boost that Poland and other CEE countries did when they joined,” she said, adding that the addition of these countries delivered more economic growth in countries that were EU members both before and after their EU transition.
“Not to support [Ukraine] today would be to store up many problems that would cost us financially more later,” she said. “We owe it to Ukraine and ourselves to do all we can to help Ukrainians fulfil its European destiny.”
Even if there is an outcome in the forthcoming US elections that would see US support for Ukraine shrink, Renaud-Basso said it is up to European countries, and the UK, to continue to provide support.
