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.