The Financial Architecture of European Rearmament
Public Capital, Institutional Instruments, and the Emerging System Financing Europe’s Defence Innovation and Industrial Capacity
Over the past decade, and particularly after the Russian invasion of Ukraine in 2022, the central question in European defence policy has shifted from the level of defence spending to the structure of defence financing. The problem confronting European governments is no longer limited to allocating larger military budgets, but rather to rebuilding the industrial, technological, and financial foundations required to sustain defence capabilities over the long term. In this context, defence policy increasingly overlaps with industrial policy, innovation policy, and financial architecture. European institutions, multilateral financial organisations, and national public investment actors have progressively developed a complex ecosystem of funding instruments aimed at supporting research, technological development, industrial production, and dual-use innovation. Understanding this emerging system requires moving beyond the analysis of individual programmes and instead reconstructing the broader institutional architecture that finances the European defence technological and industrial base.
This report reconstructs the architecture of public and quasi-public financing mechanisms that support defence innovation, defence industrial capacity, and defence technology development in Europe. The analysis begins by situating the rise of defence financing within the broader strategic context of European security and the evolution of EU defence industrial policy. It then traces the historical development of EU involvement in defence financing from early cooperative frameworks to the establishment of dedicated instruments such as the European Defence Fund. The report proceeds to examine the main European funding mechanisms for defence research and innovation, including EDF and the EU Defence Innovation Scheme, followed by an analysis of financial instruments mobilising capital through the European Investment Bank Group and the InvestEU framework. Subsequent sections examine large-scale industrial financing initiatives such as EDIP and SAFE, the role of NATO-related financial instruments, and the contribution of national development banks and sovereign investment vehicles. The report concludes by mapping the overall financing ecosystem across the defence innovation lifecycle and evaluating its strategic implications for Europe’s capacity to sustain an autonomous and competitive defence technological and industrial base.