Carney's $135B defence bank picks Luxembourg as European hub

Prime Minister Mark Carney said Friday that Luxembourg will serve as the European headquarters of a new Defence, Security and Resilience Bank headquartered in Canada, a vehicle designed to raise $135 billion for defence projects in countries that struggle to access cheaper financing.

"There is a critical mass of countries that intend to join," Carney told reporters Friday, adding that he looked forward to discussing the bank with the new UK prime minister. "Canada is one of them, and we will be the headquarters, Luxembourg is the European headquarters."

The bank will let small and medium-sized defence firms meet surging demand for weapons and military equipment, particularly since the Ukraine war began. Carney argued that existing initiatives — including a European Union loan program — have not done enough. Five Canadian cities are competing to host the global headquarters, with a decision expected after the NATO summit.

The bank's creation comes as NATO members face intensifying pressure to boost defence spending ahead of the alliance's July 7-8 summit in Ankara, where Carney and U.S. President Donald Trump are expected to attend. U.S. Defense Secretary Pete Hegseth recently scolded allies for failing to show "a credible path" to meeting the 5% of GDP defence spending target by 2035, accusing some of the alliance's largest economies of "free riding."

NATO spending targets drive urgency

Canada met the alliance's 2% of GDP defence spending target for the first time in March, according to NATO estimates, after years of criticism from Washington. Carney said Thursday the country is on track to reach 4% by the end of the decade. Contributions to the new defence bank would count toward NATO's 5% target, according to a joint op-ed Carney published this week with Luxembourg Prime Minister Luc Frieden in the Financial Times.

The last time NATO members faced comparable pressure to increase spending was in 2014 after Russia's annexation of Crimea, when allies committed to moving toward 2% of GDP within a decade. At that time, only three members met the threshold. By 2024, 23 of 32 members had reached it, according to NATO data.

UK resistance and the Ankara summit

The UK is expected to resist calls to join the bank, Politico reported Thursday, a potential setback given London's role as Europe's largest defence spender. Industry watchers expect more clarity on which countries might back the bank after the NATO meeting in Ankara next month.

Carney said he and Trump spoke by phone Wednesday about Arctic security, NATO, Iran and the broader Middle East situation, describing the conversation as "very constructive." Conservative Leader Pierre Poilievre criticized Carney for not raising U.S. tariffs on Canadian aluminum, steel, auto and lumber during the call, saying the prime minister made "a phenomenal amount of concessions" without securing trade relief.

The bank's structure mirrors elements of multilateral development lenders such as the European Investment Bank, but with a narrower mandate focused on defence supply chains. If it reaches its $135 billion target, the vehicle would rank among the larger multilateral financial institutions created in the past decade, comparable in scale to the Asian Infrastructure Investment Bank's initial authorized capital of $100 billion.

This article is for informational purposes only and does not constitute investment advice.