Emerging defence financing initiatives

State of play: EU‑level defence financing

Although security and defence remain primarily national competences, the EU increasingly complements Member States' efforts through its own budget and other financial instruments. EU support covers defence research and development, industrial production, joint procurement and military mobility.

The main EU budgetary instrument is the European Defence Fund (EDF), established in 2021 to finance collaborative defence research and capability development. Initially endowed with almost €7.3 billion under the 2021‑2027 multiannual financial framework (MFF), its budget was increased by €1.5 billion following the MFF mid‑term revision, bringing total funding to around €8.8 billion. The EDF promotes cooperation between companies and research organisations across the EU, supports interoperable defence technologies and equipment, strengthens the competitiveness of the European defence industry and contributes to a more integrated European defence market. Norway is currently the only third country fully associated with and participating in the EDF, on essentially equal terms with Member States. Ukraine has been progressively integrated into EDF activities and, since the December 2025 legislative changes, can become formally associated once the required agreement is concluded. Other third‑country entities may participate only under restrictive conditions and generally without receiving EDF funding.

Following Russia's full‑scale invasion of Ukraine in 2022, the EU considerably expanded its defence‑related financial instruments. In 2023, it introduced two temporary instruments ‑ financed through the EU budget ‑ supporting ammunition production and common procurement. The Act in Support of Ammunition Production (ASAP) provided €500 million to expand European production capacity for ammunition, explosives, propellants and missiles. The European Defence Industry Reinforcement through Common Procurement Act (EDIRPA) provided €310 million, including €10 million from Norway, to incentivise Member States to procure defence products jointly and generate economies of scale.

These measures were followed by the European defence industry programme (EDIP). Adopted by the Council in December 2025, EDIP provides €1.5 billion in grants for 2025‑2027 to strengthen European defence readiness, including €300 million dedicated to supporting Ukraine. The programme implements several measures contained in the first‑ever European defence industrial strategy, presented in March 2024, and makes common procurement an important element of EU defence industrial policy.

In addition, under the ReArm Europe Plan/Readiness 2030, the EU aims to mobilise up to €800 billion for defence through greater national fiscal flexibility, €150 billion in Security Action for Europe (SAFE) loans and increased mobilisation of European Investment Bank and private financing, thereby complementing public defence expenditure with additional sources of capital.

The Security Action for Europe (SAFE) instrument.,adopted in May 2025, provides up to €150 billion in loans to Member States for defence investment, generally based on joint procurement among several governments. Unlike the instruments financed directly from the EU budget, SAFE is funded through EU borrowing and the issuance of EU bonds. At least 65 % of component costs must originate in the EU, Ukraine or eligible EEA/EFTA countries. SAFE is now in its implementation phase. National defence investment plans have been submitted by 19 Member States.The Commission subsequently assessed these plans, proposed financial assistance(with Council approval) and individual loan agreements were signed. Following the first loan agreements in May 2026, disbursements have begun: Poland received the first payment of €6.6 billion that May, followed by payments to several other Member States, including Lithuania, Cyprus, Greece and, most recently, Estonia in August 2026. Further payments will be made as agreed milestones and implementation requirements are met. SAFE financing covers a broad range of priority capabilities, including air and missile defence, artillery systems, ammunition and missiles, drones and counter‑drone systems, ground combat capabilities, maritime capabilities, strategic enablers, cyber capabilities, military mobility, space assets and critical infrastructure. According to the Commission, several Member States have expressed interest in a second SAFE instrument.

The EU is also strengthening support for smaller and innovative defence companies. In July 2026, the European Parliament and the Council reached a political agreement on the Programme for Agile and Rapid Defence Innovation (AGILE). With a budget of €115 million, AGILE will provide rapid and targeted support to small and medium‑sized enterprises (SMEs), start‑ups and scale‑ups that are developing and testing emerging and disruptive defence technologies, including civilian technologies adapted for defence applications. It is expected to become operational in early 2027.

The European Investment Bank (EIB) – the EU's financing body, of which the Member States are the shareholders – has substantially expanded its support for Europe's security and defence sector, making it one of its core strategic priorities. The eligibility rules for its investments have been broadened to include dedicated military equipment, infrastructure, services and technologies, although weapons and ammunition remain excluded. The EIB's security and defence financing increased from €1.2 billion in 2024 to more than €4 billion in 2025, reflecting the EU's wider efforts to strengthen European defence readiness and its defence technological and industrial base (EDTIB). Eligible investments cover defence research, development and manufacturing; including drones, AI, quantum technologies, advanced sensors, radar, avionics and communications systems. Financing is also available for cybersecurity and cyber defence, military bases and other critical infrastructure, military mobility, space, and energy‑related projects. The EIB places particular emphasis on improving access to finance for SMEs, mid‑caps and innovative start‑ups in defence supply chains. They do so through loans, guarantees, venture debt and equity investments. A dedicated Security and Defence Office coordinates financing and advisory support.

Defence, Security and Resilience Bank

Unlike the EU, NATO lacks comparable financial instruments for defence investment, in turn prompting the exploration of other, intergovernmental financing alternatives. The Defence, Security and Resilience Bank (DSRB) originated as a private initiative, with the blueprint developed by Rob Murray, CEO of the DSRB Development Group, but has since evolved into a government‑backed multilateral initiative. The idea, originally referred to as the 'NATO bank', was first briefed to the NATO Secretary General's Office in 2019, and formally proposed in 2025. Murray, who had previously led the creation of NATO's Defence Innovation Accelerator for the North Atlantic (DIANA) and the NATO Innovation Fund, chaired the DSRB's charter negotiations in April 2026. The DSRB Development Group brings together 'leaders from finance, defence, academia and multilateral institutions', including former NATO and government officials. It describes its role as temporary, with responsibility ultimately to be transferred to a formally established multilateral institution 'capable of addressing one of the most urgent challenges of our time: how to fund and scale the capabilities that safeguard democratic security'. At NATO's 2026 Summit in Ankara, participating governments announced their intention to establish the DSRB.

The DSRB is intended to become a permanent, multilateral, state‑backed defence bank with a triple‑A credit rating, capable of mobilising up to €117 billion to finance defence and security projects. It would provide low‑interest loans and guarantees to attract private capital and support the industrial scaling of defence capabilities. By pooling and leveraging the credit strength of participating states, the bank would seek to 'expand access to capital, reduce financing costs, and promote the expansion of industrial capacity' of member countries. Government backing would enable more favourable financing terms and increase interoperability, including through contracts of 15‑30 years. It is proposed that NATO allies would retain full autonomy over their commitments to the bank. Members of the DSRB are expected to make an equity contribution, recorded as an asset in national accounts and counted towards NATO GDP defence‑spending targets. Further savings could be achieved through procurement via relevant bodies, such as NATO's Support and Procurement Agency (NSPA). To mitigate immediate fiscal pressures, contributions to the bank's paid‑in capital could be made across four years. This approach could benefit smaller states, which may not maintain large standing forces but could demonstrate alliance solidarity through financial contributions.

The establishment of the DSRB depends on founding members with strong credit ratings to underpin its financial stability and operations. The only NATO members currently holding AAA rating across major ratings agencies are Canada, Denmark, Germany, Luxembourg, the Netherlands, Norway and Sweden. The initiative is therefore being developed with Canada as the G7 'anchor' where envisaged headquarters are located. This follows Canada's Finance Minister François‑Philippe Champagne's declaration of support for the DSRB in January 2026. Luxembourg is projected to be the DSRB's European hub, reflecting the country's established role as an international financial centre and home of the EIB. In February 2026, shortly before Canada published its defence industrial strategy, its Minister of National Defence and the Minister of Finance and National Revenue met with leading Canadian financial institutions at a defence financing roundtable, signalling the government's public backing for the DSRB initiative. As of September 2026, announced DSRB members include Canada, Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Türkiye and Ukraine. In addition, Australia (raw materials and shipbuilding), Japan (submarines) and South Korea (AI and autonomy) have been identified as priority partners in the Indo‑Pacific; countries whom the EU also intends to enhance information exchange with on defence industry‑related matters.

Germany turned down the proposal in December 2025, opting instead to use the EU's SAFE instrument. However, it reportedly joined the talks as an observer, while the United Kingdom (UK) distanced itself from the DSRB in September 2025, albeit with discussions still ongoing. However, the German defence industry association supports Germany's membership, citing that the bank's funding would be limited to goods from member countries; a position shared by the Make UK Defence group, representing the UK's defence supply chain.

The DSRB is expected to begin operations in 2027, with guarantees for commercial banks to be issued by the end of 2026. By 2027, it aims to secure a triple‑A credit rating, therefore enabling it to issue bonds on international capital markets and raise substantial additional financing. Several major financial institutions, including Deutsche Bank, JPMorgan, ING Group, Commerzbank, National Bank of Canada and Scotiabank have reportedly expressed support.

The rationale behind the DSRB is based on perceived limitations in existing financing instruments, including budget‑cycle delays, limited private‑sector appetite for defence financing and insufficient economies of scale, particularly for SMEs. DSRB proponents consider ReArm Europe 2030 'too little', and the European Defence Fund too bureaucratic and largely EU‑exclusive. Other perceived limitations are related to NATO's role being more focused on standards, interoperability and capability coordination; EIB's limited defence‑lending scope and potential legacy liabilities; as well as SAFE's temporary and regional nature. General Robbie Boyd (senior leader of the development group for the DSRB) argues that the DSRB could provide NATO members with financing for 'lethal defence capabilities that actually deter threats'; complementing rather than replacing existing European and other financial institutions. Rob Murray's Atlantic Council analysis, aiming to promote the DSRB, also suggests that, for the bank's foundation, a 'sensitive yet innovative proposal could involve using seized Russian central bank funds — or at least the interest generated from these funds'.

Multilateral Defence Mechanism

In March 2026, the UK, the Netherlands and Finland announced plans to explore a Multilateral Defence Mechanism (MDM), a proposed financial mechanism to accelerate defence investment, stimulate joint procurement and aggregate demand for critical defence capabilities. Poland joined the initiative in July 2026, when the four countries announced in a joint statement significant progress towards establishing the MDM by 2027. The mechanism is intended to expand to other 'like‑minded partners', with new members reportedly requiring unanimous approval by the founding states. Autumn 2026 was envisaged for mechanism design, development with subscribed partner countries, and membership expansion. The MDM is described as a response to the changing security environment and Russia's continued aggression against Ukraine.

The MDM is envisaged less as a bank, and more as a joint procurement and stockpiling vehicle, with the sovereign control over procurement processes seen as a considerable advantage. It is designed to allow members to pool orders and hold equipment collectively, potentially off national balance sheets, while using a mix of guarantees and paid‑in capital from participating countries, to attract private investment through bond issuance. By aggregating demand for equipment such as tanks, munitions and missiles, it aims to reduce procurement costs, address supply constraints and generate economies of scale. Former UK Chancellor Rachel Reeves, who approved £400 million (roughly €468 million) to support the MDM under Britain's Defence Investment Plan, described the rationale as addressing Europe's 'too fragmented, too costly, and too slow' defence procurement.

Concerns have been raised, however, that the DSRB and MDM could create competing financing initiatives. Former UK Defence Secretary John Healey rejected this characterisation, saying they were 'not in any way a competition', but rather 'distinctive, different and valuable projects' that could be complementary. At the same time, there have been calls for the two initiatives to be brought closer together. In June 2026, Reeves suggested that they could eventually be combined, especially with the UK's participation adding a second G7 member's economic contribution to the bank. Canadian Defence Minister David McGuinty likewise expressed support for UK participation in the DSRB, arguing that the MDM and DSRB existing as separate mechanisms would be less productive; and that the UK and Canada should align their efforts. On the other hand, some UK officials have questioned whether the DSRB proposal would meet the government's goal of increasing value from defence spending. In the case of combining the two initiatives, DSRB proponents also reportedly fear that differences in planning timelines with the MDM could delay the establishment of the defence bank. The July 2026 joint statement by Prime Ministers Starmer and Carney stated that 'Canada and the UK will continue to engage closely to ensure our respective initiatives develop in a coherent and mutually supportive way'; a view stressed again in August 2026 in discussions with Luxembourg Prime Minister Frieden.

A similar – perhaps related – proposal was set out in a paper from the think tank Bruegel, commissioned by the 2025 Polish Council Presidency and presented to EU finance and economy ministers in April 2025. It proposed a European Defence Mechanism with a pan‑European remit, potentially open to the UK, Norway or Switzerland. The aim is to overcome fragmentation of national defence procurement by pooling demand and coordinating larger orders, thereby increasing bargaining power, reducing unit costs and generating economies of scale. Modelled on the European Stability Mechanism, based on an intergovernmental treaty, the mechanism would retain ownership of key strategic assets procured collectively and charge usage fees, allowing participating countries to access capabilities without having to bear the full upfront cost on their national budgets. In brief, the proposal combines common financing, joint procurement and collective ownership as a means of strengthening European defence capabilities while reducing pressure on national budgets. Yet, during the April 2025 discussion, Germany, France and Belgium reportedly argued that the EU should first exploit existing instruments before establishing new ones. The proposal nevertheless highlighted the broader debate over whether Europe needs additional defence‑financing mechanisms or should make better use of those already available.

Complementarity, overlap and fragmentation

These proposals and existing tools differ in their geographical scope, conditionality, governance, timeframe, purpose and ambition, as well as their current stage of implementation. These differences suggest scope for complementarity, but also raise questions about potential overlap. The Canada‑led DSRB is intended to establish a long‑term, Euro‑Atlantic intergovernmental defence financing system, potentially extending beyond the Euro‑Atlantic area. Its primary purpose would be to improve access to capital for countries that have more limited access to financing and less‑developed defence capabilities, with lending preceding the creation of a broader political or strategic community. The MDM, by contrast, is centred on incentivising common procurement and stockpiling, while strengthening partnerships among NATO allies and other like‑minded countries. Its objective is therefore less to provide financing and instead to increase the value and efficiency of defence investment.

EU‑level financing tends to have a more defined geographical and policy scope. EIB lending is subject to strict eligibility conditions and is directed towards EU Member States: while it has expanded its activities in defence, its lending remains under existing institutional frameworks, including climate‑related restrictions. This has fuelled questions about whether the EIB can adapt sufficiently to the financing needs and risk profile of defence, whilst also highlighting the potential value of dedicated institutions, such as the DSRB. Meanwhile, SAFE provides a more immediate investment boost for urgent and large‑scale defence projects. Its financing is governed by EU rules and strategic priorities, including requirements favouring European and associated‑country participation in procurement. Unlike the intergovernmental models envisaged for the DSRB and MDM, SAFE involves a strong supranational role for the European Commission; including through setting timelines, approving national investment plans and overseeing loan disbursement – in turn reflecting a different balance between national control over procurement and EU‑level coordination. Prime Minister Frieden sees the DSRB mechanism as offering greater flexibility than EU's SAFE, regarding eligibility and participation rules.

Differences in national preferences further illustrate the potential for both complementarity and competition between the initiatives. The UK government has championed the MDM, citing differences in priorities with DSRB, while continuing to engage with Canada on the latter. Negotiations on UK participation in SAFE have stalled since November 2025 over its financial contribution and conditions of participation. The UK seeks to maximise the benefits of access to EU financing, while retaining control over its defence spending decisions. Germany and Poland, the higher defence spenders in both NATO and the EU, have generally favoured existing EU instruments. Poland has prioritised SAFE as a readily available mechanism, while also engaging with the MDM. Germany has similarly emphasised the need to meet capability requirements through available instruments, including SAFE, and argues that its own strong access to capital reduces the added‑value of borrowing through a multilateral defence bank such as the DSRB. Therefore, some European countries may prefer an exclusive integration of defence financing within existing institutions, such as SAFE or other instruments.

The role of non‑EU countries could further shape the relations between the proposals. The US could participate in the DSRB and MDM subject to their respective eligibility requirements and if the initiatives consider the US sufficiently aligned with their strategic objectives. However, concerns could arise in Washington about such initiatives, if they are viewed as disproportionately leveraging American credit. At the same time, SAFE and EIB lending, as part of the ReArm Europe plan, aim to strengthen the EDTIB, reduce strategic dependencies and, ultimately, increase Europe's capacity to act with greater degree of autonomy. Canada illustrates the potential for parallel participation: it has had a Security and Defence Partnership with the EU since June 2025 and was granted participation in SAFE in December 2025. Canada did so while also continuing to advocate for the DSRB. This suggests that participation in EU instruments need not preclude support for alternative multilateral financing mechanisms.

National‑level initiatives

Several EU Member States have begun developing national public financing mechanisms for their defence industries, although these generally build on existing promotional and development banks, rather than establishing dedicated 'armament banks'.

Poland has developed perhaps the clearest national model. Its state development bank, BGK, implements the country's Security and Defence Fund (FBiO), worth approximately PLN 23 billion (roughly €5.3 billion). Financing is provided through loans issued by BGK and equity investments. Around PLN 7 billion (€1.6 billion) has been earmarked for equity investments in Polish defence companies, including those active in aerospace, AI, communications, dual‑use infrastructure and digital technologies. The objective is to increase industrial capacity, while strengthening national security and resilience.

Germany is increasingly using KfW – a German state‑owned investment and development bank – as a vehicle for defence financing. The €30 billion Deutschlandfonds, which aims to mobilise around €130 billion in total investment, explicitly includes the defence sector. KfW also provides equity financing to technology companies, including defence start‑ups and scale‑ups. Through its Scale‑up Direct programme, €1 billion is available until 2030 for investments of up to €50 million per company, provided that private investors also participate. Additional venture capital financing for security and defence technologies is envisaged under the Zukunftsfonds II.

Sweden has taken a different approach, relying primarily on existing state‑backed export‑finance instruments. The government introduced special export‑credit guarantees for defence exports to Ukraine in 2025, addressing risks that would otherwise constrain commercial financing of Swedish defence exports.

There is also a broader trend towards an involvement of national promotional banks. In 2025, the promotional institutions of France (CDC), Germany (KfW), Italy (CDP), Poland (BGK) and Spain (ICO) agreed with the EIB to explore greater cooperation and potential co‑financing for the European security and defence industry. Areas identified include research and development (R&D), industrial capacity and infrastructure.

Expert views

Expert analyses broadly converge on the need for greater coordination, scale and efficiency in European defence financing, but differ on the institutional model best suited to achieve this. The European Policy Centre argues that SAFE loans are insufficient to meet the scale of investment required and calls for a larger, dedicated lending institution to support the EDTIB. It proposes a two‑tier model, combining national procurement with joint multinational projects, potentially backed by an equivalent of a 'European defence bank' or the MDM. Think tank Bruegel proposes reducing national procurement, promoting competitive tendering and using lending conditionality to develop a common defence market, initially focusing on critical enablers. The Atlantic Council further supports proposed initiatives, the DSRB in particular, as they argue they could provide better loan conditions than most domestic options, including lower interest rates, longer repayment periods, and more stable defence spending commitments – while also being more resilient to budget cuts during economic downturns, compared to unilateral domestic projects.

The EU Institute for Security Studies stresses the value of bringing European and non‑EU partners together in a way that regards both EU and NATO, while assigning the EU and its instruments a central role in reducing fragmentation through common procurement practices and mutual recognition. The Centre for European Policy Studies similarly highlights the EU's leverage in practical cooperation with like‑minded partners, while the Center for European Policy Analysis points to the importance of compatible strategic cultures, common threat perceptions and political will.

Across these analyses, coordination emerges as a central concern. Suggested approaches range from harmonising existing initiatives (joint borrowing should be paired with joint procurement to prevent allies from spending more without resolving fragmentation), and carefully managing overlapping memberships to merging mechanisms, particularly the DSRB and MDM. At a broader level, some experts advocate 'mapping, layering, connecting and consolidating' Europe's network of minilateral defence arrangements to enhance planning and operational cooperation. A related concern is whether increased defence spending can be translated into effective preparedness. This challenge applies both to individual financing initiatives (e.g.the DSRB) and to their aggregate impact, particularly as higher defence expenditure will need to be sustained over time.

A further proposal emerged in 2025; when former European Bank for Reconstruction and Development (EBRD) Vice‑President Guy de Selliers; journalist Edward Lucas; and former UK Chief of the Defence Staff General Sir Nick Carter, proposed a 'European Rearmament Bank'. The institution would combine EIB and EBRD‑style financing with defence procurement expertise and offer up to €250 billion in leveraged loans. It would be 'purely European centric'; with an aim to finance new defence equipment initiatives through lending given to governments in proportion to their shares. The proposal attracted limited momentum, notwithstanding its proponents raising the possibility of merging it with the DSRB in late 2025.

European Parliament position

In its March 2025 resolution on the white paper on European defence, Parliament urged the Member States to back the establishment of a defence, security and resilience bank to support rearmament, defence modernisation, Ukraine reconstruction and the re‑purchase of critical infrastructure in the possession of 'hostile non‑EU countries'. It also called for 'European defence bonds' to be explored and for the EIB, other international financial institutions, and European private banks to play a greater role in financing the European defence industry. Then, in December 2025, Parliament noted that 'extending the EIB's mandate to include support for the EDTIB would be a more effective and proportionate solution than creating a new defence, security and resilience bank'. Its April 2026 resolution on the EIB's financial activities welcomed the EIB's expanded role and called for synergies between EIB investment, defence investments financed by the EU budget and EU‑wide initiatives. The 2026 resolution on the implementation of the common security and defence policy similarly called for additional investment to address Europe's defence capability and procurement needs, while welcoming Canada's participation in SAFE and supporting closer EU‑UK defence cooperation. Overall, Parliament called for a European financial architecture that would lead away from a national defence spending, and instead focus on joint procurement, collaborative projects, European added‑value and diminished dependency on non‑EU countries. A March 2026 resolution reiterated a call on Member States to 'overcome nationalist reflexes towards their national industrial base' and recommended that the Council and the Commission ensure sufficient funding through EU defence programmes to incentivise joint capability development and procurement.