Europe fires up defence with SAFE programme, but experts call for second financial engine

In a recent report, Politico highlights that Europe’s defence landscape is shifting dramatically. With the launch of the EU’s 150 billion-euro-Security Action for Europe (SAFE) programme, Brussels has taken a historic leap toward collective security—but experts say this is just the first step.

To truly secure the future, Europe needs a bold new financial powerhouse ready to fuel both demand and supply in its defence industry. The race is on to ignite the second engine that will power the continent’s military resilience for decades to come.

While SAFE is being hailed as a historic achievement, experts warn it only addresses the demand side of defense funding. To ensure lasting security, Europe needs a complementary financial institution: a dedicated multilateral Defense, Security, and Resilience (DSR) Bank focused not just on purchases but also on strengthening the industrial base.

SAFE enables the EU to collectively raise funds to buy advanced defense systems—such as artillery, air defense, and cyber tools—with contracts requiring at least 65% of their value sourced from within the EU or trusted partners like Ukraine and Switzerland. The UK, US, and Turkey may supply the remaining share once formal security agreements are established. This marks a major shift for a bloc that struggled to approve a mere €5 billion fund in 2019.

Additionally, Brussels will allow member states to exceed the Stability and Growth Pact’s fiscal limits by up to 1.5% of GDP through 2028 to accommodate SAFE spending, easing financial pressures amid pandemic-related debts and energy subsidies.

However, SAFE’s funds go only to governments and cannot be recycled after 2030, leaving smaller manufacturers dependent on conservative commercial banks—a factor behind ammunition shortages witnessed in 2023. SAFE is not designed as an industrial strategy.

A proposed DSR Bank, gaining support in Brussels and London, would fill this gap. Modeled after multilateral development banks but focused solely on defense, it would issue AAA-rated bonds, provide loans and guarantees to both governments and firms, and offer fiscal flexibility by keeping assets off national budgets. An initial €25 billion capitalization could unlock €75–100 billion in lending, building the patient capital Europe’s defense industry needs.

Together, SAFE and the DSR Bank would form a powerful duo: SAFE generating demand and mutualizing fiscal risk, while the DSR Bank ensures industrial capacity keeps pace—especially vital during economic downturns.

To realize this vision, swift action is essential. A joint declaration at June’s NATO Summit could launch the DSR Bank with initial funding to start operations by 2026, aligned with SAFE’s peak disbursements. The bank would also include key allies like the UK, Canada, Japan, and Australia, reinforcing Europe’s security partnership.

SAFE has proven Europe can move fast and together; the DSR Bank could prove it can also invest collaboratively for the long term. Without it, the EU risks inflationary pressures and strained fiscal space amid rising geopolitical competition. Europe’s defense revival needs two engines — and the second must start now.

By Naila Huseynova