Estonia plans up to €3.6 billion defence loan with EU support

With backing from the European Commission, Estonia is preparing to borrow up to €3.6 billion to strengthen its defence capabilities through joint procurements with other countries.

The move follows the Commission’s proposal this spring for a European rearmament plan, under which it could borrow up to €150 billion from financial markets and then lend the funds to member states. The aim is to secure more favourable loan terms by pooling borrowing, rather than countries seeking defece financing individually, Caliber.Az reports via ERR. 

Speaking to ERR, Janno Luurmees, director of the State Treasury Department at the Ministry of Finance, confirmed that Estonia plans to borrow between €2 billion and €3.6 billion under the scheme.

"Estonia is interested," he said. "The Ministry of Defense has drawn up an initial loan interest request and submitted it to the European Commission, but the entire process is still in its relatively early stages."

The exact amount and the loan term—possibly as long as 45 years—are yet to be decided. By borrowing through the Commission, Estonia expects to save about €4 million annually for every €1 billion borrowed, thanks to lower interest rates.

"The final interest rate will, of course, be determined at the time we take out the loan," Luurmees noted. "But if you look at the current difference in interest rates between Estonia's ten-year bond and the European Commission's ten-year bond, it's roughly 0.4 percent. The benefit would likely be around that."

Currently, Estonia raises funds via bonds, commercial banks, or institutions such as the European Investment Bank and Nordic Investment Bank, which do not finance weapons or ammunition purchases. The EU-backed loan would have no such restrictions, though at least two-thirds of final components must be sourced from EU industry.

As long as our credit rating is lower than that of the European Commission, this remains a relatively favorable opportunity for us to obtain a loan," Luurmees added.

Kalle Kirss, head of the NATO and European Union Department at the Ministry of Defense, said the funds would be used for medium- and short-range air defense missiles and systems, the Baltic Defense Line, artillery shells, other ammunition, infantry fighting vehicles, and expanding the Navy fleet.

"We actually have joint procurements with countries in the region in several cases," Kirss said. "In the past, we've also purchased medium-range air defense systems, meaning IRIS-T systems, together with Latvia and Germany. The premise of this loan program is to carry out joint procurements, although individual procurements will also be permitted during the first year."

The Estonian government has until the end of November to submit a detailed spending plan for the defense loan to the European Commission.

By Sabina Mammadli