In times of urgency, national promotional bank institutions (NPBIs) are the optimal solution to complement the role of the European Investment Bank (EIB) and other alternatives. NPBIs are best suited to set up European or regional financial vehicles with strong control from member states and the best access to capital markets.
Europe is on the path to implementing the Polish presidency’s slogan, ‘Security, Europe!’ Recent geopolitical shifts have not disrupted the prevailing trends in European capital markets or shaken confidence in our own capabilities. The president of the European Commission announced the creation of a new defense financial instrument with an allocation of €150 billion in the form of loans for member states. The Commission is proposing amendments to the Stability and Growth Pact, allowing military expenditure to be excluded from the excessive deficit clause and enabling transfers within existing EU financial programs — e.g. cohesion policy. EIB is also exploring ways to further increase its support for so-called dual-use expenditure.
External pressure for swift economies of scale in financing European defense spending strengthens the argument for utilizing financial institutions trusted by governments that are capable of both the EU’s and national defense initiatives.
In Poland, Bank Gospodarstwa Krajowego (BGK) has been implementing EU financial instruments since the country joined the EU. With its experience in financing the ever-growing number of EU policies, BGK has reinforced its flexibility and efficiency alongside the ability to swiftly adapt to new challenges. The agility of BGK and NPBI to absorb ‘special assignments’ — even on short notice — derives from the status of a public financial institution and a long-term investment horizon.
Poland’s defense financing model
BGK has notable experience in securing funds for defense expenditure. Poland leads NATO in defense spending relative to GDP, with projections for 2025 indicating that this share will stand at 4.7 percent of GDP — higher than the United States, at 3.4 percent, and the United Kingdom’s planned increase to 2.5 percent by 2027. In nominal terms, Poland ranks fourth in Europe, following Germany, the United Kingdom and France.
Poland’s efforts are financed through the state budget and the Armed Forces Support Fund (AFSF). This fund, established under the relevant act, is managed by BGK and is de facto anchored in the state budget. In 2025, 66 percent of defense expenditure is expected to come from the state budget, with 34 percent allocated from the AFSF.
BGK is responsible for managing the fund’s financial liquidity, securing debt financing — primarily via loans and borrowings, supplemented by bond issuance — and distributing funds. To date, BGK has secured approximately €40 billion for AFSF from international markets, benefiting from guarantees from the Polish State Treasury and export credit agencies, resulting in favorable financial conditions. BGK’s track record as a borrower demonstrates that concerns about the impact of military spending on ESG ratings are not an obstacle to obtaining financing. This is particularly relevant in light of ongoing EU negotiations for the Capital Markets Union, a matter yet to be settled.
Toward a European defense financing architecture
EU institutions already have a variety of advanced financing tools at their disposal. The EIB’s role in financing dual-use projects, including support for small and medium-sized enterprises in the defense sector, will be crucial for various activities, including financing new technologies, or so-called defense tech.
BGK’s experience in managing the AFSF could be leveraged to finance strictly military expenditure, which the EIB is currently unable to support. This could serve as a foundation for creating a European Defense Fund, which could be set up and co-managed with other banks.
Creating a new fund through NPBIs offers several advantages. NPBIs possess in-depth knowledge of regional industrial ecosystems, enabling more tailored funding solutions for local companies and research institutions. They also facilitate faster and more efficient allocation of funds. Leveraging their experience with EU funding programs, such as InvestEU, NPBIs are well positioned to implement defense projects efficiently. NPBIs can combine EU, national and private funds, creating significant financial leverage, and integrating various instruments like defense bonds, preferential loans or investment guarantees. Their regional perspective also makes them adept at identifying and supporting strategic companies in the defense supply chain, including research and development initiatives.
Creation of armaments fund(s)
Given the urgency of addressing the armaments gap, we propose that the first step toward implementing the ReArm Europe Plan should involve creating regional or task-based armaments funds , such as one dedicated to the eastern flank of NATO. Such a vehicle could quickly meet the funding needs of countries looking to accelerate defense procurement spending and increase financing for their manufacturing capacity. A regional defense fund would provide new funding opportunities to member states where military modernization efforts are constrained by limited access to financing.
Projects agreed upon at the EU, NATO and member states levels could be financed by a fund, similar to the structure of Poland’s AFSF. The selected NPBI would manage the fund, securing financing with a guarantee from the European Commission and, in some cases, member states too. Such a fund could be anchored in the EU budget, mirroring the setup of the AFSF within the Polish budget, with the Commission providing grants or other resources, including the issuance of defense bonds if necessary.
In terms of financing the expansion of production capacities, the private sector could play a key role, with appropriate incentives such as financing guarantees.
In conclusion, we believe that the European discussion on financing its defense capabilities has now shifted from ‘whether’ to ‘how?’ And NPBIs are the answer, emphasizing the crucial role in managing and raising funds for European financial programs. The advantage of NPBIs, such as BGK, is their ability to quickly absorb new tasks. To us, the EU defense policy represents another assignment, and leveraging such trusted partners offers the fastest route to building an effective and open financing architecture. This approach complements the role of other financial institutions, EIB or potentially a new armament bank modeled on the European Bank for Reconstruction and Development. Modifying a public bank’s mandate is a much simpler process, and given the time-sensitive nature of the current defense investments, regional procurement funds managed by NPBIs offer the most efficient solution.