Europe is being transformed into a war economy, where economic production will rely almost exclusively on investments in the defense sector, this is a significant shift in the development model that will affect the next generations of European citizens.
In a report of the European Banking Federation, EBF, the federation of the European banking sector, the key points of the transformation of investment priorities concerning the banking sector are highlighted, authored by Jacopo Borgognone and Laura Sambruna.
In a complete departure from the Recovery and Resilience Facility, RRF, for which the cycle of credits is concluding, it is recognized that development dynamics will no longer come from digital transformation or the famous green transition, but from the autonomy of the defense sector in an environment of shifting geopolitical and economic balances, as noted.
It should be highlighted that apart from the militarization of the economy and the creation of social suffocation, the choice to finance weapons that kill civilians, weapons until now forbidden in Europe, reveals the full moral decline of the establishment of Brussels.
This will cause significant transformation both in credit conditions and in the evolution of the manufacturing base of Europe.
The shaping of a value chain in the defense industry
The urgent need to strengthen the European Defence Technological and Industrial Base, EDTIB, and to develop a more flexible, integrated and resilient value chain in the defense sector is emphasized. In this context, the promotion and rationalization of access to financing for European defense companies are emerging as top political priorities for the EU.
The surge of European defense spending
Let us see how this is described in the action plan published by the European Commission on 26 November 2025.
The new security doctrine of Europe has been shaped around the Russophobic logic of the establishment of Brussels.
In March 2022, a few weeks after the special military operation of Russia in Ukraine, EU leaders adopted the Versailles Declaration, committing to invest more and more effectively in defense, to strengthen the industrial base of Europe and to reduce strategic dependencies, within the framework of strategic autonomy.
This stance intensified after the position expressed by US President Donald Trump, who stated that Europe had been a free rider regarding the security umbrella of NATO, and that this umbrella would remain in force only as long as member states fulfilled their obligations to the Alliance.
In successive Summits between 2024 and 2025, EU leaders reaffirmed their commitment to strengthening the Union’s collective defense readiness and to implementing the objectives set in Versailles.
Security and defense remain primarily national competences.
However, the EU acts complementarily, reinforcing and multiplying national efforts.
Readiness 2030 - The ReArm Europe Plan and the financing of 800 billion euros
The ReArm Europe / Readiness 2030 Plan opens the way for a massive wave of defense investments, making possible additional financing of up to 800 billion euros over the coming years, and banks are asked to shape the conditions for the leverage of these investments.
The initiatives of this package aim to ensure that the European defense industry can produce material at the required pace and volume, and to facilitate the rapid movement of troops and military assets within and outside the EU.
The plan includes measures both for strengthening national defense spending and for increasing the EU’s own resources in the defense sector.
It should be noted that particularly in relation to Ukraine, where no agreement has been reached on financing, the idea has been raised to draw up and agree on a framework of joint borrowing, in the form of eurobonds, to strengthen the defense capability of the EU.
Support for the defense spending of member states
The defense spending of member states has increased significantly in recent years.
In 2024 it reached 343 billion euros, of which 106 billion euros were investments, an increase of 19% compared to 2023 and 37% compared to 2021.
In 2025, it is expected to reach 381 billion euros.
The EU has taken a series of measures to help member states further increase their defense investments,
1) through emergency financial assistance, via the SAFE mechanism
2) through fiscal flexibility by activating the national escape clause
3) through strengthening cooperation within the framework of the European Peace Facility
What is the SAFE – Security Action for Europe programme
On 27 May 2025, the Council approved the first pillar of Readiness 2030, SAFE, which provides up to 150 billion euros in loans guaranteed by the EU budget, enabling member states to make rapid and substantial investments through joint procurements.
Funding will be demand-driven and will depend on the investment plans of each member state.
Other third countries, for example the United Kingdom, may participate if they conclude a cooperation agreement with the EU on security and defense.
Activation of the national escape clause - New debt only for defense
The Commission proposed that member states request activation of the national escape clause within Readiness 2030. By October 2025, the Council had approved the request for 16 member states.
This process provides fiscal flexibility within the Stability and Growth Pact, allowing an excess of up to 1.5% of GDP annually (2025–2028) exclusively for defense spending.
European Peace Facility, EPF
The Peace Facility is a key EU tool for financing military assistance, conflict prevention and the maintenance of international security.
With a value exceeding 17 billion euros, it is funded exclusively by member states and includes,
• a pillar for military operations
• a pillar for support measures
EU spending for defense
Within the 2021–2027 budget, the EU allocates,
1) 8.8 billion euros for research and development through the EDF
2) 1.7 billion euros for military mobility
3) 300 million euros for joint procurements
4) 500 million euros for strengthening ammunition production
EDIP – European Defence Industry Programme
On 16 October 2025, the Council and the European Parliament reached a provisional agreement on EDIP, which provides 1.5 billion euros in grants for the period 2025–2027.
EDIP implements key actions of the European Defence Industrial Strategy, EDIS.
Military mobility
On 19 November 2025, the Commission and the High Representative presented the new package on military mobility, to ensure fast and unhindered movement of troops, equipment and assets across Europe.
Simplification of rules and procedures, Defence Readiness Omnibus
On 17 June 2025, the Defence Readiness Omnibus was published, a package of measures reducing bureaucracy and simplifying the institutional framework in the defense sector. On 26 November 2025, the Council approved its position.
At the same time, on 5 November 2025, the Council and Parliament agreed on changes to funding programmes to strengthen investments in the EDTIB.
Crucial private investments in the defense sector
Readiness 2030 also aims to mobilize private capital through the European Investment Bank, EIB, and the Savings and Investment Union.
The role of the EIB
In 2025 the EIB,
1) significantly expanded eligible activities in the security and defense sector
2) recognized security and defense as its horizontal strategic priority
3) tripled available financing for SMEs of the defense supply chain, reaching 3 billion euros
The Savings and Investment Union
The goal is the easier mobilization of private savings and their channeling into critical sectors such as defense for investors who choose such products.
The package aims to support member states’ efforts to strengthen the defense industrial base and the overall readiness and flexibility of the EU by 2030, creating the conditions for timely investments in defense capabilities, providing predictability to industry and reducing bureaucracy.
The aim of European policies is that by 2030, the EU defense sector can respond rapidly to crises, support high intensity operations and reduce dependence on external suppliers.
What the proposed changes in credit conditions are
In the text of the Federation of Banks, it is highlighted that in the defense sector, the commitment of the banking sector is reflected in recent initiatives such as the revision of internal exclusion policies and the updating of guidelines for financing entrepreneurship in the defense industry.
Although EU legislation does not impose self exclusion policies, certain credit institutions apply such practices due to criteria such as reputation risk, a factor that traditionally influenced, and still influences in some countries, banking financing of defense companies.
Many European banks are reexamining financing policies for investment projects in light of geopolitical developments.
Although no regulatory barriers are observed, as highlighted by the Federation, targeted improvements and additional guidance could further facilitate financing for defense companies.
The issue is not the removal of obstacles, but the smoothing of the ecosystem, through demand consolidation, clear procurement signals and reduction of financial risks, with tools such as coordinated public spending, targeted state aid, public private partnerships and adjustments to procurement rules.
Innovations in bank lending procedures for defense investments - War innovation
The need for risk taking and for flows of investment capital is critical for companies developing technologies with long R&D cycles. In this context, equity and quasi equity instruments are often decisive, starting from the seed stage onwards.
Within this framework, the Savings and Investment Union, SIU, seeks to develop and integrate EU capital markets so that European companies have access to diversified forms of financing.
Debt through bank loans remains the main source of external financing for defense SMEs.
To support the sector’s development and innovation, progress is critical in strengthening access to growth capital and high risk investment instruments under the SIU.
It is further noted that many defense innovations come from small, fast growing and often already heavily indebted companies. These are adversely affected by the ECB’s Guide to Leveraged Transactions, which imposes generalized restrictions on lending to companies with high leverage ratios without adequately considering their growth dynamics.
This constitutes not only a disproportionate intervention in banks’ business strategies but also an additional obstacle for companies at a critical development stage.
The pivotal role of public spending and state contracts
To maintain demand for defense capabilities and assets, public spending acts as the catalyst for effective and large scale aggregation of procurements.
The defense industry fundamentally depends on public procurements and related budgets, which remain the main source of financing.
This mainly applies to the largest companies in the sector, which rely almost exclusively on state contracts.
However, long procurement cycles and payment delays from main contractors worsen liquidity problems for SMEs in the defense supply chain.
Smaller companies often lack a mature order portfolio or complete infrastructure, while creating new large scale production lines requires high risk investments.
Private investors often hesitate, especially when there is no long term guarantee of demand from states.
Thus, while banks act as facilitators and service providers along the industrial chain, the existence of predictable, coordinated and adequate public defense spending is crucial for leveraging private capital, a key element of ReArm Europe.
Changes in guarantee schemes to achieve investment leverage
Furthermore, acceleration and adaptation of existing guarantee and insurance schemes is needed, for example in the EIB or in other investment banks such as the Nordic Investment Bank, NIB, in a way that strengthens cooperation with the private banking sector and creates a multiplier effect, instead of relying solely on the limited capabilities of direct public financing.
Indicatively, the mandate of the EIB could be expanded to cover a greater portion of defense investments, including weapons and ammunition, aiming at better access for SMEs, through specific financing lines, guarantees, more flexible structures and simplification of the complex and often restrictive eligibility criteria currently in place.
The framework for controversial weapons and dual use goods
Here the moral decline of war related russophobia is recorded. The term controversial weapons is not defined as such in international law, but is used to describe weapons systems that are prohibited or strictly limited due to their indiscriminate and disproportionate effects on civilians.
These include biological and chemical weapons, anti personnel mines and cluster munitions.
According to international law, banks apply strict exclusion policies, avoiding any financial relationship with companies that produce or distribute such categories of weapons systems.
However, the international legal framework is heterogeneous, not all states have joined the same conventions, which creates variable geometry rules and different levels of binding commitments. This can cause uncertainty and regulatory complexity for financiers.
In this setting, the Defence Readiness Omnibus attempts to address ambiguity by replacing the term controversial weapons with the term prohibited weapons, referring exclusively to weapons banned by international conventions to which the majority of EU member states are parties.
The change in credit conditions as recorded by the federation will bring the collapse of the welfare state and extensive impoverishment of societies, and all this because the establishment of Brussels has placed itself on the wrong side of History and wants to lead the entire continent into ruin.
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