THE CAPITAL RE-ARMAMENT: Banking, Public Finance and Private Credit for Defence Industrial Readiness
In the decade preceding 2022, Europe’s defence financing was characterised by restraint, institutional fragmentation and a deliberate separation between supranational financial instruments and the military-industrial sphere. The European Union’s self-conception as a peace project translated into restrictive financial norms that kept defence largely outside common funding frameworks. The European Investment Bank, in particular, excluded defence and armaments from its lending mandate, while EU-level instruments such as the European Defence Fund were limited to modest, forward-looking R&D grants rather than industrial scale-up. As a result, Europe entered the post-Cold War security crisis with an undercapitalised defence industrial base, heavy reliance on non-European suppliers and limited capacity to surge production. Russia’s full-scale invasion of Ukraine exposed these structural weaknesses with exceptional clarity, turning long-standing underinvestment and financial taboos into an immediate strategic liability for both NATO and the EU.
The report analyses how this shock triggered a profound reconfiguration of Europe’s defence-financial architecture and explains what the reader will find in the pages that follow. It reconstructs the political and strategic logic behind the shift from ad-hoc emergency tools to a more durable framework for defence industrial financing, centred on the European Defence Industrial Strategy and its implementing programme, EDIP. It details the transformation of the EIB and EIF from defence-averse institutions into central enablers of security and defence investment, including the lifting of long-standing exclusions, the creation of the Defence Equity Facility, and the emergence of defence-dedicated private credit vehicles. The analysis then maps how grants, loans, equity and guarantees are being combined to address concrete bottlenecks in ammunition, components, logistics and critical technologies, while highlighting persistent dependencies and constraints. Throughout, the report situates these instruments within NATO and EU strategic priorities, showing how capital allocation is being aligned with defence industrial readiness, and provides a structured basis for assessing whether Europe’s financial rearmament is translating into real, scalable and resilient military capability.