Luxembourg lets Israel bond approval lapse, clouding EU fundraising prospects

Luxembourg did not renew Israel's authorization to issue bonds after the permit expired on August 31, leaving Israel's future in borrowing from investors in European markets uncertain. The decision was confirmed by Luxembourg's Finance Minister Gilles Roth to RTL television last month.

The Commission de Surveillance du Secteur Financier (CSSF), the country's financial regulator, decided in May not to extend the approval of the bond prospectus beyond its expiration date. A prospectus is a legal document detailing a bond and its issuer before it is offered to the market, prepared under the oversight of the regulator in the jurisdiction where the bond is issued.

What are Israel Bonds?

Israel Bonds, issued through the Development Corporation for Israel (DCI), are debt securities issued by the State of Israel, representing loans from investors to the Israeli government. Investors earn interest on the bonds they purchase.

The capital raised through Israel Bonds is not earmarked for specific purposes but flows into the government's overall finances, meaning it can be used to fund defense and military spending.

After Hamas attacked southern Israel on October 7, 2023, and Israel launched its military operation in Gaza, the Israeli government boosted military funding. Israel Bonds were widely marketed that year with the message “Support Israel in its war.” According to Amnesty International, Israel raised $4.5 billion from international markets through bond sales between October 2023 and January 2025.

According to Israel's Finance Ministry, Israel Bonds sold in the European Union raise about $2.5 billion annually. Attention to the volume of Israel Bonds held by EU countries has increased as Israel's strikes in Lebanon, Gaza, and the West Bank continue.

Luxembourg's role

Since Israel is not an EU member, Luxembourg's financial regulator acts as a sponsor for EU investors by approving the prospectus. Previously, Ireland had managed Israel's bond documents after the UK left the EU in 2020.

In September last year, Central Bank of Ireland Governor Gabriel Makhlouf confirmed the country would not renew approval under pressure from parliamentary and civil society groups over Israel's military campaign. Luxembourg subsequently took over the prospectus approval.

CSSF Director General Claude Marx told RTL last month that the agency would not approve the prospectus for another year, saying that accepting the transfer of the prospectus for consecutive years would “violate European regulations.” However, the European Securities and Markets Authority (ESMA) told the Luxembourg Times that it permits successive approval transfers.

Consequences for Israel

With Luxembourg no longer approving the prospectus, Israel will need to persuade another EU country to take over if it wants to continue issuing bonds in that market. It is currently unclear which country might be willing to do so.

Israel can still access other global markets, particularly the United States, its main ally. Since 1951, DCI has raised billions of dollars through bond sales in U.S. financial markets, around $2.5 billion annually.

Pressure from international organizations

In July, Amnesty International urged Luxembourg, Ireland, and all EU member states to stop selling Israel Bonds or face “the risk of complicity in Israel's genocide against Palestinians in Gaza.”

Steve Cockburn, the organization's regional director for Europe, said Israel “is increasingly relying on foreign investment to fund its genocide, apartheid, and illegal occupation.” He stressed that “allowing the sale of these bonds in the EU market carries a huge moral and legal cost. International law is clear: every state has an obligation not to aid or assist genocide and an obligation to prevent it.”

Amnesty International data shows Israel's military budget rose from 4.2% to 8.3% of GDP between 2022 and 2024.