Europe Needs to Get Serious About Its Defense. A New Bank Is the Answer.

By Christopher Collins and Mike O’Sullivan

The version of record of this op-ed appeared in Barron's.

Europe has effectively been at war since 2022. Russia’s drones are still flying over European airports, their ships continue to sabotage critical undersea cables, and their cyberattacks across the continent are surging.

Europe still isn’t ready to fight back.

There have been fits and starts of ambitious defense measures: last year, the European Commission sought to mobilize €800 billion under its Readiness 2030 plan, the European Union earmarked €150 billion for the Security Action for Europe, or SAFE, program, and the European Investment Bank (EIB) quadrupled its defense spending to €4 billion. But if Europe is to take full responsibility for its own security—and President Donald Trump is making clear it needs to—what currently exists isn’t enough.

The SAFE program is a demand-side instrument. It helps EU governments borrow to procure defense materials by issuing low-interest, long-maturity loans. It does nothing to promote more supply; SAFE offers no mechanism for guaranteeing commercial bank lending to defense firms, for instance. And the fact that the program is so heavily oversubscribed clearly signals both the demand and the urgency for more help. Meanwhile, the EIB is limited in what it can do by structural constraints: its own policies prevent it from financing weapons and ammunition. As the EIB’s president has rightly said, the bank “is not a defense ministry.”

This is where the proposed Defence, Security and Resilience Bank (DSRB) could come in—not as a rival to the existing European mechanisms, but as a complement that covers the ground they cannot.

The concept of the DSRB was developed by Rob Murray, formerly the head of innovation at NATO, who began working on the idea in 2018. The bank was officially launched last year and is now well beyond the drawing board: major global banks have signed on to help structure the institution, and its backers aim to have it operational by the end of 2026.

It is a straightforward idea: a multilateral bank, owned and overseen by democratic states. The DSRB would raise funds by issuing AAA-rated bonds on global capital markets and would then lend to member governments and guarantee loans made to defense firms by commercial banks. By pooling allied credit strength, these loans would be made at rates most NATO members cannot access on their own and over the long time frames that defense investment demands. Importantly, with the DSRB, there is no joint debt and no shared liability. Each country answers only for its own equity stake, which preserves national control.

The gap the DSRB is best placed to fill is on the supply side, helping companies that develop and build defense equipment access capital. This is especially true for the growth-stage firms across Europe, that are too mature for early-stage venture capital but too small and too risky for conventional bank lending.

Europe has relatively few investment funds that do the type of investing required to scale these companies. And European commercial banks, after years of ESG-driven retreat from the defense sector, lack both the appetite and the internal expertise to lend to these firms without guarantees. A DSRB-backed guarantee structure would address both these issues.

The European capital markets argument also deserves more attention. The EU’s Savings and Investment Union project aims to keep European capital in Europe, channeling it into productive, long-term capital market investments. The DSRB’s AAA-rated bonds would be precisely the kind of high-quality, euro-denominated instrument that a deeper European capital market could absorb, investing European savings into European security. Far from competing with the Savings and Investment Union, the DSRB could become a compelling use-case for the program.

Canada has emerged as a champion of the DSRB. Under Prime Minister Mark Carney — who has made strengthening Canada's strategic autonomy a national priority — Canada has taken a leading role in establishing the bank and hosting meetings with partner countries to begin negotiations on the bank’s charter. Canada has already lined up all of its major banks as partners and the country’s biggest cities are all vying to host the bank’s headquarters.

European defense and finance ministers are more lukewarm.

Germany says it prefers the existing SAFE program. But the DSRB would complement SAFE, not compete with it. Berlin knows this, or at least Deutsche Bank does, given that the German bank is one of the DSRB’s partner institutions. The German government’s current position amounts to telling its country’s flagship lender that it is wrong about how defense should be financed. That is an unusual stance for an export economy that prides itself on listening to industry.

The United Kingdom’s Treasury has said the DSRB would not deliver sufficient value. More than 800 British defense companies have publicly disagreed. The UK says it wants to spend 2.5% of GDP on defense, yet the country faces serious fiscal constraints. A multilateral guarantee structure is precisely the kind of tool that could help square that circle.

With major firms such as Naval Group, Dassault, Thales, and MBDA, France has the strongest defense industrial base in Europe; last year the country became the world's second-largest arms exporter. Yet Paris has barely commented on the DSRB. In diplomacy, that signals internal disagreement or caution.

Perhaps France fears that its strategic autonomy would be weakened by joining a bank that it would only partly own. But joining the DSRB would actually strengthen France’s strategic position by facilitating capital inflows. If Paris doesn’t become involved now, it risks spending the next decade complaining about rules it chose not to shape.

As the joke goes, Europe likes being concerned. The DSRB is a way to translate that concern into action. The countries that join the DSRB now will write the charter, while latecomers will accept terms drafted by others.

Europe’s three largest economies have every reason to be leading voices around this table. After all, the threats driving the DSRB, such as Russian aggression, supply chain fragility, and defense industrial underinvestment, are European problems. Letting Canada solve them isn’t a viable strategy.

Christopher Collins is a fellow with the Polycrisis Program at the Cascade Institute. Mike O’Sullivan is author of ‘The Levelling – what’s next after globalization?’(PublicAffairs), and former CIO at CS Wealth. 

Read the article in Barron's