Luxembourg, the smallest NATO member, has opted for the debt instrument to meet the bloc's defense spending requirements

Luxembourg has issued its first-ever war bond, becoming the first EU country to issue such a debt security since World War Two.

The issuance of the bond was announced on Thursday by Finance Minister Gilles Roth, who said the initiative was designed to "make citizens' savings more available for economic development." According to the minister, there is some 33.4 billion ($38.7 billion) accumulated in private accounts in Luxembourg, and the government is looking forward to tapping into the funds.  

"We are the first European country since the Second World War to introduce a defense bond. No state has issued an instrument of this kind for 80 years," Roth said at a press conference.

The issuance is limited to 150 million, and it is possible to subscribe to the bond, listed on the Luxembourg Stock Exchange, between January 15 and January 30. The minimum subscription amount is 1,000, and the maximum is 150,000 per person, per bank. Should the bonds get sold out before the deadline, the issuance will end prematurely, Roth stated, but did not rule out running similar schemes in the future.  

The war bonds will run for three years from the date of issue, set on February 5, and offer a fixed interest rate of 2.25%. The finance minister touted the bonds as an extremely lucrative offer, pointing out that the country's residents will be exempted from tax on profits generated by the bond. "The effective yield therefore roughly corresponds to that of an interest-bearing savings product at 2.81%," Roth said. 

The move comes as the country tries to scrape together an additional 1.8 billion over the next five years compared to the 2024 budget to meet its NATO spending goals. The smallest member of the US-led bloc currently spends some 1.2 billion annually on its defense. It remains unclear what exactly the funds raised under the bonds scheme will be spent on, with the exact details still to be ironed out by a defense bond committee. The body is expected to prepare and publish an annual report on the matter for the sake of "transparency," according to the country's government.