Financing European defence: how can Europe address the fiscal and capital challenges?
7 August 2026
Against a backdrop of geopolitical, strategic uncertainty, Europe is progressing plans to rearm and shoulder more responsibility within NATO. In June 2025, NATO allies made a clear commitment to invest 5% of GDP annually by 2035, including at least 3.5% on core defence spending. However, three concrete questions remain unresolved: (i) how this commitment can be delivered given national budgetary constraints, (ii) how to plug the funding gap for the defence supply chain composed of small and medium-sized enterprises (SMEs), innovative tech companies and start-ups which do not have the same access to finance as the defence primes, and (iii) can new funding instruments, new institutions and a new approach close this gap, leverage public investment and create a virtuous circle which crowds in private capital to meet our needs?
This briefing highlights emerging financing options which may help address these challenges and which complement initiatives taken by the European Union, such as the SAFE programme. We describe:
- new financial products which can help direct private capital to finance the defence and security sectors;
- intergovernmental and multinational initiatives which can complement SAFE, create capacity to raise debt in the capital markets which is not consolidated into national debt figures but which, when combined with the palette of instruments used by development and promotional banks, create a multiplier or leveraged effect that crowds in private capital into funding the defence and security sectors;
- recent market trends which demonstrate that defence, resilience and security could be the new "green" and can attract private capital in the form of both debt and equity.
