The United Kingdom is negotiating with Canada to merge their respective defence financing initiatives, as neither proposal has garnered sufficient support to achieve critical mass. The talks were confirmed by UK Chancellor of the Exchequer Rachel Reeves at the NATO summit in Ankara, Turkey, on Tuesday.
Proposed merger of defence finance institutions
Both countries have proposed creating bodies to provide capital for the defence industry, aiding NATO allies in their rearmament efforts. “My preference would be to create one new institution that fulfills the role of a number of purposes,” Reeves told reporters. “The next step is to continue to work on bringing them together more formally.”
Canada’s initiative, the Defence, Security and Resilience Bank (DSRB), has been dubbed a “bomb bank” by some. Prime Minister Mark Carney announced that eight countries—Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey, and Ukraine—have agreed to back the DSRB, which would be headquartered in Canada. Banks such as JPMorgan Chase & Co. and Royal Bank of Canada are also listed as backers.
Challenges for Canada's DSRB
Despite Carney’s efforts to rally middle powers amid a disruptive United States, the DSRB faces “some obstacles,” according to Imran Bayoumi, deputy director and resident fellow at the Atlantic Council. “The lack of any other G7 nation amongst the bank’s initial backers raises questions about how much money it can offer and how much influence it will have,” he told Bloomberg.
The UK has refused to join Carney’s initiative despite intense lobbying by the former Bank of England governor. This decision has been widely criticized, including by former UK Defence Secretary John Healey, who resigned last month over funding for his defence investment plan. Reeves is expected to depart as Chancellor when Prime Minister Keir Starmer leaves office as soon as this month.
UK's alternative: Multilateral Defence Mechanism
Instead of joining the DSRB, Reeves established the Multilateral Defence Mechanism (MDM) to address her concerns that Canada’s proposal lacks stockpiling and procurement provisions and focuses more on lending to smaller defence firms in nations with lower credit ratings. She said the MDM would save the UK as much as 20 per cent on procurement.
Earlier on Tuesday, the UK, Poland, the Netherlands, and Finland announced they were making “significant progress” on the MDM, with the UK contributing an initial 600 million euros. Reeves insists the MDM and DSRB are complementary, but no country has yet signed up to both. The UK recently enlisted former Prime Minister Gordon Brown to lead discussions with Canada on avoiding potential overlap.
“If smaller countries are really looking to diversify away from the U.S., they will be most effective when pooling their efforts, not duplicating them,” said Bayoumi. Carney, without endorsing a merger, noted that the MDM “is pretty much a procurement initiative—sovereign procurement. There’s an obvious complementarity between that and a bank, which is what the DSRB is. If you have more predictable procurement, it’s easier to finance against it.”
