UK and Canada agree their two defence financing bodies will stay separate and work together
The Treasury and Canada's finance department say the UK-backed Multilateral Defence Mechanism and the Canadian-led Defence, Security and Resilience Bank will be distinct institutions with a framework for cooperation.
By Daily Oracles News Team2 min read
Britain and Canada have set out how their two plans for financing allied defence spending will fit together. In a joint statement on Sunday, HM Treasury and the Department of Finance Canada said the UK-backed Multilateral Defence Mechanism and the Canadian-led Defence, Security and Resilience Bank should remain separate institutions, but would cooperate once both are up and running.
The two governments said they would develop a framework of cooperation between the bodies, which they described as distinct but complementary. Once operational, the institutions are expected to support each other on industrial priorities, investment opportunities and difficult financing problems, with the shared aim of strengthening the defence industrial base and making allied forces readier. The statement gave no figures or dates.
Two models for paying for rearmament
The two projects take different approaches to the same problem: how to fund higher military spending across allied countries without each government borrowing the full cost on its own.
The Multilateral Defence Mechanism is being developed by the UK with the Netherlands, Finland and Poland. It is designed as an independent international financial institution that pools orders from member states. It would lend to members for joint purchases, hold stockpiles on their behalf and provide finance to suppliers. The UK committed £400m to it under its Defence Investment Plan this summer, money a defence official described as new funding from the Treasury.
The Defence, Security and Resilience Bank is a Canadian-led proposal, backed so far by nine countries including Belgium, Greece, Romania, Turkey and Ukraine. Reuters reported in August that it was seeking around €100bn in total, made up of about €20bn of paid-in capital and a further €80bn it could call on, and that it had secured about €5bn of commitments. It would lend cheaply to governments and contractors and guarantee loans made by banks to smaller suppliers. To borrow at the lowest cost, it is seeking a top AAA credit rating.
Why it matters for borrowing costs
The UK has so far declined to join the Canadian bank, citing value for money, and Sunday's statement does not say whether that position has changed. Instead, it sets out how the two bodies will work alongside each other.
For public finances, the attraction of both models is cost. A jointly owned institution with a strong credit rating can usually borrow more cheaply than many of its members could alone, and pooled orders can lower the unit price of equipment. Neither body is lending yet.
What happens next
The statement did not give a timetable for either institution to start operating. Wednesday's Budget will set out the government's latest spending and borrowing plans, alongside new forecasts from the Office for Budget Responsibility.
