The economic security strategy of the European Union addresses vulnerabilities in supply chains, infrastructure, technology and economic dependencies. A shortage of an essential component can interrupt production well beyond the firm buying it. Supporting an alternative source may therefore serve a public purpose, even when private investors cannot capture all the benefits.

That argument still needs a precise objective. The aim might be to keep essential supplies available during a disruption, preserve expertise that would be difficult to rebuild, or make it easier to replace a supplier. Each objective requires different evidence. Locating a factory in Europe does not, by itself, establish that its output will be available when European businesses need it.

A credit guarantee helps a lender accept a risk it might otherwise reject. If the borrower fails to repay, the guarantor covers the agreed portion of the eligible loss, subject to the contract. The borrower still owes the debt. A guarantee is different from a grant, which transfers money without the same repayment obligation, and from a public loan, through which the state provides the financing itself.

Researchers Thorsten Beck, Leora Klapper and Juan Carlos Mendoza examine these arrangements in their study of partial credit guarantee funds. Their analysis explains why the lender’s retained risk and the rules for assessing loans matter.

Protection can encourage lending, but excessive protection can weaken the incentive to check whether a borrower can repay. Their cross-country survey describes differences between schemes; it does not establish a single optimal coverage rate.

Consider a simplified example. A government guarantees 80% of unrecovered principal on a loan of 100 million euros. If 40 million euros remain unrecovered after default, the agreed division would allocate 32 million euros to the guarantor and 8 million to the lender, assuming all conditions are met. The guarantee’s maximum exposure, its expected cost and its eventual payment are therefore different amounts.

A battery plant in France

The financing of Verkor’s battery factory in Dunkirk offers a concrete European example. In June 2024, the European Institute of Innovation and Technology reported that the European Investment Bank’s financing package included 270 million euros in direct loans under the European Commission’s InvestEU mandate. This was part of a wider financing arrangement involving public and commercial banks.

The relevant guarantee operates through the financing institution. InvestEU uses an EU budget guarantee to support investments by implementing partners such as the European Investment Bank. It does not hand the guarantee amount to a company as a grant. The public commitment increases the institution’s capacity to accept investment risk.

An assessment should examine whether production becomes commercially usable and whether access to materials, equipment and customers leaves the intended vulnerability materially reduced.

In its project assessment for Verkor, the bank states that InvestEU protection allows it to consider the loan’s increased risk profile. It also says that it would not undertake the operation to the same extent without that support. This is the bank’s explanation of why the guarantee matters, rather than independent proof of the project’s eventual economic benefits.

For economic security policy, the next question is what the additional financing achieves. Battery manufacturing can contribute to Europe’s industrial capabilities, but capacity on paper is only a starting point.

An assessment should examine whether production becomes commercially usable and whether access to materials, equipment and customers leaves the intended vulnerability materially reduced. Those outcomes need to be measured before a financing decision can be treated as an achievement in economic security.

A Finnish export order

Finland provides a different example. Finnvera’s published transaction notice records a buyer credit guarantee for the sixth Icon Class cruise ship to be built at Meyer Turku. The guarantee agreement was signed on 16 July 2026. The notice reports a credit amount of approximately two billion euros, a twelve-year credit period and 95% cover.

The parties are worth distinguishing. Meyer Turku is the exporter, Royal Caribbean Cruises Ltd. is the buyer, and KfW IPEX-Bank is the guarantee holder. The guarantee protects the agreed credit exposure supporting the export transaction. It is not a grant of two billion euros to the shipyard, nor does it mean that this amount has been lost by the public sector.

It is not a grant of two billion euros to the shipyard, nor does it mean that this amount has been lost by the public sector.

Finnvera presents the project as supporting continuity in Finnish shipbuilding and the retention of strategically important expertise. That is a rationale for industrial support, rather than an assertion that cruise ships themselves are an essential supply. It shows how the language of strategic capability can extend to an industry whose immediate customers are commercial buyers abroad.

The policy question is whether the public risk accepted is justified by benefits that would otherwise be lost. Maintaining a skilled supplier network may have value beyond the individual order.

Judging that value requires evidence about feasible alternative orders and uses of skills, alongside the terms and concentration of the financial exposure. The public transaction notice identifies the arrangement; it cannot settle that wider assessment on its own.

The risks outside the contract

Research on guarantees helps separate the financing announcement from the public result. In Public Credit Guarantees and Access to Finance, economists Juan Carlos Gozzi and Sergio Schmukler distinguish additional finance from improvements in the recipient’s economic performance. A loan that a firm would have obtained anyway provides a different justification for support from one that makes a viable investment possible.

Even additional lending does not establish a net benefit for the whole economy. Supported firms may draw business away from competitors, and the guarantee may carry costs that outweigh its benefits.

The authors argue for examining financial sustainability and additionality together, including comparison with other policy instruments. That reasoning is useful for economic security, although evidence about small-business guarantee schemes cannot simply be applied to large industrial projects.

The distribution of risk also extends beyond the lender and borrower.

The distribution of risk also extends beyond the lender and borrower. A smaller supplier may buy specialised equipment before receiving firm orders. Workers may acquire skills with limited use outside a project. A municipality may provide infrastructure whose costs continue if production stops. A guarantee protecting a lender does not automatically protect any of these commitments.

An evaluation should therefore ask what participating suppliers can finance, when they are paid, and which commitments survive a delay. Where feasible, shared training or infrastructure with wider uses can reduce dependence on one project.

These choices should be assessed alongside the headline financing terms, especially when the policy’s stated purpose includes preserving an industrial network.

A bargain the public can review

In Industrial Policy for the Twenty-First Century, Harvard political economist Dani Rodrik argues for public cooperation with businesses that combines learning with accountability.

His discussion of transparent decisions, criteria for success and time limits offers a useful discipline for today’s security policies. A government must be able to learn from firms without treating their requests as sufficient evidence of public value.

For a guarantee, a public summary could explain the vulnerability being addressed and why this instrument was chosen. It should distinguish the exposure covered from the likely fiscal cost, describe fees and recoveries, and explain who retains the main risks.

Commercially sensitive details can remain protected while the public purpose and broad financial commitment are made understandable.

For Finland and other open European economies, resilience will continue to depend on trade and cooperation as well as domestic capabilities. Public guarantees may help preserve capabilities worth having.

Review dates should correspond to decisions that can still change the outcome, such as construction milestones or a proposed extension of support. Changes must respect existing legal obligations. A disappointing result does not give the state permission to abandon a valid guarantee; it does provide evidence for decisions about future support.

For Finland and other open European economies, resilience will continue to depend on trade and cooperation as well as domestic capabilities. Public guarantees may help preserve capabilities worth having.

Their strongest justification is a demonstrable public benefit, assessed against the risk accepted and the alternatives available. Citizens should be able to see what protection they are financing and what they can reasonably expect in return.

Gustavo Pessoa is an economist and professor at Fundação Getulio Vargas in São Paulo, Brazil.

Article image: Chris Liverani on Unsplash

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