Europe acknowledges the need to acquire more military equipment jointly. Collective procurement is not only a question of scale and efficiency, but also of interoperability, fiscal prudence and strengthening the continent’s defense industrial base. Yet, according to the EU’s own metrics, only 18 percent of defense acquisitions are currently made jointly — far below the benchmark of 35 percent. The problem is not only political will. Defense procurement requires a financial backbone: institutions capable of arranging contracts, securing loans, mitigating risk and guaranteeing delivery. 

The debate around the European Parliament’s European Defence Readiness 2030 report highlights precisely this gap — between the battlefield urgency on Europe’s eastern flank and the institutional ability to mobilize capital at speed.

The EU recognizes the role of access to capital. Through the SAFE Regulation, member states receive the means to rapidly scale up their investment via common procurement. The European Commission has recently tentatively allocated €43.7 billion in loans to Poland, as part of over €150 billion in requests submitted by 19 member states.

National sovereignty and allied cooperation

Defense spending remains, by EU Treaties and by practice, a core competence of member states. Ministries of defense and finance retain control of procurement, deciding when and how to buy tanks, missiles or aircrafts. Yet national sovereignty does not preclude European solidarity.

Recent violation of Polish airspace by Russian drones underscores the immediacy of the threat of Russian aggression. Multiple intelligence assessments pointing to a window of 2028 as a potential milestone for Moscow’s capabilities threatening a full-scale attack on the EU leaves little doubt: Europe must be ready to defend itself.

This urgency is compounded by the limited availability of off-the-shelf military equipment in Europe. Domestic producers, already stretched by support for Ukraine and long-term procurement cycles, cannot simply deliver entire brigades of tanks or missile systems within months. For immediate needs, allied suppliers — particularly the United States and South Korea — remain indispensable. Their industrial scale provides Europe with the breathing space to build capacity while ensuring that equipment is deployed without delay.

Against this backdrop, cooperation with allied third-country defense suppliers is not a deviation from European autonomy, but a necessary pillar of strategic resilience. By leveraging trusted partners’ industrial capacities while localizing parts of the production and supply chains, EU members can both accelerate readiness and anchor new defense ecosystems within Europe.

Poland’s financial innovation in defense procurement

Poland offers a striking case study. Confronted with the immediate threat posed by Russia after the invasion into Ukraine, Warsaw faced the need to rearm at unprecedented speed and scale. Traditional budget channels were insufficient. To bridge the gap, the government established the Armed Forces Support Fund, operated by Bank Gospodarstwa Krajowego (BGK), Poland’s national development bank.

BGK created an innovative financing mechanism, combining state guarantees with international debt instruments, to secure cost-effective, large-volume funding for defense contracts. By mid-2025 BGK had raised the equivalent of over 172 billion złoty (approximately €40 billion) to finance contracts with suppliers from the United States, South Korea, the United Kingdom, Sweden and Norway.

Incorporating market-based financing into defense expenditure necessitates close coordination with the State Treasury and a proactive investor relations strategy. BGK has developed significant expertise in this area, working closely with the Ministry of Finance to align bond issuance strategies and investor communications. This includes joint non-deal roadshows and regular engagement with major investors. By establishing yield curves in  złoty, euros and the U.S. dollar through the issuance of highly liquid benchmark securities, BGK enhances its ability to flexibly supplement financing defense expenditure with bond market instruments.

The fund’s design offers important lessons for Europe. It blends flexibility, sovereign backing, and transparency while drawing on global financial markets. BGK has relied extensively on export credit agencies in supplier countries, ensuring financing conditions aligned with the payment structures of Poland’s contracts. This has enabled Warsaw not only to secure rapid delivery of equipment but also to negotiate significant offsets — embedding parts of production and technology transfer inside Poland. This focus on cost-effectiveness led to financing arranged at rates comparable to — or even below — State Treasury bonds, a result previously thought unattainable by any bank, including state development institutions.

Two recent agreements illustrate the model’s significance

In July 2025 BGK signed a new framework with the Export-Import Bank of Korea and Korea Trade Insurance Corporation, extending its capacity to finance Poland’s acquisition of Korean heavy equipment. These contracts have gone beyond simple purchase orders. They combine direct financing, credit guarantees and technology transfer, ensuring that segments of the supply chain — from components to maintenance hubs — are localized in Poland. This strengthens both Poland’s and the EU’s defense autonomy, while anchoring South Korea as a trusted industrial partner.

In parallel, BGK has become an active borrower under Washington’s Foreign Military Financing (FMF) program, a rare privilege usually reserved for close allies. To date, Poland has secured more than $15 billion in loans and guarantees under FMF, with the most recent $4 billion tranche signed in July 2025. These funds are channeled directly into purchases under the US Foreign Military Sales framework, covering advanced systems from air defense to artillery. Crucially, offsets negotiated under these contracts ensure partial production and servicing in Poland, effectively localizing parts of the supply chain within the EU.

Together, these examples illustrate how alliance-based procurement can serve a triple function: accelerating access to critical capabilities while embedding industrial benefits in Europe and anchoring defense through trade partnerships.

Towards a European defense financing architecture

The Polish case underscores a broader truth: defense procurement requires dedicated financial vehicles, not ad hoc budget reallocations. Here, National Promotional Banks and Institutions (NPBIs) — state-owned banks already active in infrastructure and industrial financing — can play a transformative role across the EU.

NPBIs are uniquely positioned to deliver what Europe now needs most: speed, trust and cost-effective financing. Backed by sovereign mandates, they operate with the full confidence of national governments, which allows them to channel money into defense budgets without the political friction that accompanies private lenders. Because they combine sovereign guarantees with market instruments, they are also able to secure capital more cheaply than ministries or agencies acting alone — a critical advantage, as member states face both higher interest rates and tighter fiscal space.

Equally important is their agility. Unlike supranational institutions, which often operate with long lead times, NPBIs can structure loans, guarantees or even bond issuances in line with the payment calendars of procurement contracts. This flexibility ensures that funds flow precisely when needed, securing delivery schedules for complex, multi-year defense projects.

NPBIs also bring the capacity to absorb and distribute risk. By offering guarantees to defense manufacturers, they give industry the confidence to scale up production, expand supply chains and invest in new facilities. This risk-sharing function is especially valuable for Europe’s fragmented defense industry, where smaller firms often hesitate to commit capital without visibility on future orders.

Their cross-border potential should not be overlooked. While firmly anchored in national sovereignty, NPBIs can cooperate under EU frameworks to finance pooled orders — whether for air defense systems, ammunition or mobility assets. Regional clusters of member states could rely on their national institutions to co-finance joint purchases, balancing respect for national control with the benefits of collective scale.

In effect, NPBIs represent the missing link between European-level political commitments and the financial realities of procurement. They are not abstract instruments, but practical engines capable of turning collective ambitions into bankable contracts.