Europe’s growing defence budgets will not automatically translate into stronger military capabilities without new financing mechanisms, industry investment and greater cooperation between governments and financial institutions. This was the central message of the International Defence Finance Conference held in Budapest on 21 October, where Canadian and Hungarian officials, international banking executives and defence finance experts discussed the proposed Defence, Security and Resilience Bank (DSRB).
The conference, entitled Financing Defence, Security and Resilience in Hungary and Central & Eastern Europe, was convened by the Canadian Chamber of Commerce in Hungary and Halftermayer & Partners, with Baker McKenzie, PwC and ING among its sponsors.
The event brought together representatives of government, commercial banks, international financial institutions and the defence industry to examine how rising European and NATO defence commitments could be translated into industrial investment, stronger supply chains and sustainable economic growth.
A particular focus was the proposed DSRB, a new international financing institution intended to address longstanding barriers to investment in defence and security.
Canadian businesses see opportunities in Europe’s defence industry
Opening the conference, Nicholas Sarvari, the president of the Canadian Chamber of Commerce in Hungary highlighted the considerable potential for cooperation between Canadian companies and European defence manufacturers.
He noted that Ontario alone had approximately 400 companies licensed to operate in the relevant sector, with additional industrial capabilities in provinces including Quebec and Alberta.
According ige l chamber president, smaller companies are increasingly interested in entering the defence industry, developing international partnerships and expanding their production capabilities. However, access to finance remains a major obstacle.
„What’s missing in all of it? Finance. That’s a ige lement of it,” he told participants.
Sarvari explained that traditional commercial banks have often been reluctant to support military technology projects, creating difficulties for innovative businesses seeking to develop new products or expand production.
The chamber president also emphasised the organisation’s ambition to move beyond its traditional networking role and facilitate practical business cooperation between Canadian and European partners.
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Canadian ambassador highlights proposed international defence bank
Canada’s ambassador to Hungary, Her Excellency Judith Gelbman, underlined the importance of financial institutions in strengthening the industrial and technological foundations of collective security.
She argued that increasing defence expenditure was only one part of the challenge. Governments and industry must also ensure that manufacturers have sufficient capital to expand production and meet growing demand.
“Increased defense spending doesn’t automatically translate into increased industrial output if companies are lacking the financing to scale up,” the ambassador said.
She outlined Canada’s cooperation with international allies and partners on the proposed Defence, Security and Resilience Bank.
Modelled on existing multilateral financial institutions, including the European Bank for Reconstruction and Development (EBRD), the proposed DSRB is intended to provide multi-year investment financing on favourable terms throughout the defence and security supply chain.
Small and medium-sized enterprises would be among its intended beneficiaries, particularly those facing difficulties obtaining conventional bank financing despite their strategic importance.
HE Gelbman stressed that the proposed institution would complement rather than replace existing European mechanisms, including the EU’s Security Action for Europe (SAFE) initiative, the European Investment Bank and national defence financing programmes.
She also encouraged participants to use the conference to establish practical connections between defence companies, financial institutions and policymakers.
Hungarian state secretary: Finance must become part of defence strategy
Hungarian Deputy State Secretary János Szőnyegi offered a broader assessment of Europe’s changing defence financing requirements.
He argued that European governments had recognised the need for higher defence spending but had not yet fully addressed how the necessary industrial expansion should be financed.
For decades, defence capabilities were developed primarily through government procurement programmes. However, modern defence production depends on a much wider ecosystem encompassing manufacturers, smaller suppliers, dual-use technologies, research and development, infrastructure, logistics, energy, skilled workers and private investment.
Szőnyegi explained that companies often need substantial capital before they receive the government orders that would make their investments commercially viable.
This creates a financing gap between projects that are strategically necessary and those considered sufficiently attractive by conventional commercial lenders.
The deputy state secretary proposed three criteria for evaluating future defence financing mechanisms: speed, scale and strategic impact.
Financing should be available more quickly than traditional procurement cycles allow, public resources should help mobilise private investment, and strategically essential projects should be able to obtain support even when their commercial risk profiles are challenging.
“Finance is becoming part of defense strategy itself,” Szőnyegi declared.
He also stressed the importance of strengthening Europe’s domestic manufacturing capacity rather than relying exclusively on purchases from external suppliers.
Concluding his address, he posed what he described as the central challenge facing policymakers and financial institutions: how to turn defence expenditure into actual defence capabilities.
Hungary’s defence investments could have a EUR 14 billion economic impact difference
One of the conference’s most significant economic assessments came from Dr Ferenc Antal, Managing Partner at Halftermayer & Partners.
In his keynote presentation on international defence finance, the geopolitical outlook and the proposed DSRB, Antal examined the economic implications of Europe’s growing defence commitments, with particular attention to Hungary.
He argued that European governments faced a difficult balancing act between financing defence requirements and maintaining economic competitiveness.
For Hungary, he suggested, the economic consequences would depend heavily on how much of the additional defence expenditure could be channelled into domestic production and industrial development.
“If we focus on 10% of local added value versus 40% of local added value, the difference in the next four years is 14 billion euros,” Antal said.
The figure compares two hypothetical scenarios presented by the speaker, rather than an already realised economic gain.
His calculations suggest that increasing domestic participation in defence-related production could have substantial implications for Hungary’s industrial development and economic performance.
Antal also examined the potential benefits of financing defence investments through a highly rated international institution.
According to calculations he presented, access to a financing facility with a AAA credit rating could potentially generate an annual financing cost benefit of approximately EUR 80 million.
However, he argued that cheaper borrowing would represent only part of the proposed DSRB’s potential contribution.
The greater opportunity, in his assessment, lies in establishing a financial ecosystem with specialised expertise, clearer regulatory frameworks, appropriate risk management practices and better cooperation between defence companies and commercial banks.
Antal noted that banks had traditionally faced two major obstacles when considering defence industry investments: reputational concerns and uncertainty surrounding financial risks.
The latter include limited visibility over future procurement contracts, cash flows and the commercial sustainability of individual projects.
He suggested that international cooperation and clearer financing frameworks could help make defence companies more bankable, particularly in Central and Eastern Europe.
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International banking executives discuss the emerging defence finance architecture
The conference continued with an executive panel examining the proposed DSRB and the emerging international defence finance architecture.
The discussion, entitled DSRB and the Emerging International Defence Finance Architecture – International Lessons, Product Priorities and Market Expectations, brought together David Marks of the Defence, Security and Resilience Bank Development Group; Xavier Guzman, Country Managing Partner at DLA Piper Luxembourg; Julian Mömesheim, Corporate Bank Defence Coordinator at Deutsche Bank; and Michal Hubert Mrozek, Executive Vice President and Head of Wholesale Banking CEE Network at ING Bank. The panel was moderated by Dr Ferenc Antal.
The session focused on the international institutional framework surrounding defence finance, the types of financial products required by the sector and the expectations of commercial market participants.
The involvement of representatives from international banks, legal advisory services and the DSRB development initiative illustrated the range of expertise required to design financial mechanisms capable of supporting defence-related investment.
Hungarian and regional banks examine practical financing challenges
A second executive panel focused specifically on the needs of Hungarian and Central and Eastern European financial institutions.
Entitled What Hungarian and CEE Financiers Need from the DSRB: Bankability, Guarantees, Prudential Treatment and Project Pipeline, the session examined the financial and regulatory considerations relevant to expanding defence investment in the region.
Participants included Dr Ádám Banai, Executive Director and Chief Economist at the Hungarian National Bank; Andrew Giddings; József Vida of CAE; and Kamil Pruchnik, Senior Regional Representative for Hungary and Poland at the European Investment Fund. The discussion was moderated by Dr Sándor Kovács, Senior Counsel and Defence Lead at CMS Hungary.
The panel’s agenda addressed several practical questions facing lenders and investors, including creditworthiness, guarantee structures, prudential treatment and the development of a pipeline of financeable projects.
Defence financing becomes an economic competitiveness issue
Across the keynote presentations and panel discussions, a common theme emerged: increasing defence budgets alone will not guarantee stronger industrial capacity.
For Hungary and other Central and Eastern European economies, the challenge extends beyond military procurement to questions of investment, domestic added value, industrial competitiveness and access to capital.
The proposed Defence, Security and Resilience Bank was presented as one possible instrument for addressing these challenges, alongside existing European initiatives, national financing programmes and private-sector investment.
The conference also highlighted the potential importance of international partnerships, particularly between Canadian and European companies, in developing defence technologies and expanding manufacturing capabilities.
While the proposed DSRB remains under development, the discussions in Budapest demonstrated the growing attention being paid to the financial structures needed to support Europe’s defence industry.
For Hungary, the central economic question is not simply how much additional money will be spent on defence, but how much of that expenditure can be converted into domestic production, investment and long-term industrial growth.
