This spring, the European Commission proposed a European rearmament plan under which the Commission would borrow up to €150 billion and then lend it out to member states.

By borrowing large sums from the financial market together this way, the hope is to secure better loan terms than if member states were to borrow money for defense investments individually.

Speaking to ERR, Janno Luurmees, director of the State Treasury Department at the Ministry of Finance, said Estonia plans to borrow between €2 billion and €3.6 billion with the Commission's support.

"Estonia is interested," he confirmed. "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 Estonia is interested in borrowing is still undecided, as is the possible length of the loan term — which may be up to 45 years.

By borrowing with the Commission's support, Estonia also hopes to secure a lower interest rate. For every €1 billion borrowed, Estonia would save about €4 million a year this way.

"The final interest rate will, of course, be determined at the time we take out the loan," Luurmees said. "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."

Thus far, Estonia has issued bonds or borrowed from banks or, for example, from the European Investment Bank (EIB) and Nordic Investment Bank (NIB). However, according to the ministry official, the latter are unwilling to lend for the purchase of weapons or ammunition.

According to Luurmees, there are no such exclusions for the loan to be taken with the Commission's support. There are, however, some conditions. For example, at least two-thirds of the final components of the purchased products must be of EU origin or come 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," he noted.

Plans for joint procurements

Kalle Kirss, head of the NATO and European Union Department at the Ministry of Defense, said Estonia's defense loan is planned to fund medium- and short-range air defense missiles along with associated systems, the Baltic Defense Line, artillery shells and other ammunitions and IFVs, as well as expand the Navy fleet.

The plan is primarily to procure defense equipment in cooperation with other countries, i.e. through joint procurements.

"We actually have joint procurements with countries in the region in several cases," Kirss pointed out.

"In the past, we've also purchased medium-range air defense systems, meaning IRIS-T systems, together with Latvia and Germany," he continued. "The premise of this loan program is to carry out joint procurements, although individual procurements will also be permitted during the first year."

Next, Estonia must draw up a more specific plan for which projects to fund with this defense loan. The government will have until the end of November to submit this plan to the Commission.

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