Europeans want to be ready for a crisis before one arrives. Paying for that is harder. At the Warsaw Security Forum on Tuesday, a panel of financiers tried to say who should foot the bill. They arrived at not much.

Marcin Bużański, executive director of Kyiv Security Forum EU, recalled the NATO summit in Ankara. The question there was less about finding money than about selling the spending to voters. The argument between guns and butter, he said, had stuck with him. He asked how countries, institutions, and the private sector could shift towards financing preparedness. Then he turned to the European Investment Bank.

Mikołaj Dowgielewicz, director general and deputy secretary general of the bank, spoke first. His institution has moved into defence. “We are owned by the European Union member states.” That shareholding, he explained, made the once unthinkable shift easier: the EU demanded it at the highest level. The bank responded to the call.

A lender joins the defence effort

Mr Dowgielewicz admitted the bank had doubts. It must answer to bond buyers, who sit across the globe. So far the move has worked, he said. The institution remains triple-A and will stay so. He sees its role as a “lighthouse investor”. Still, he argued, the bank cannot act alone.

“You need to crowd in private sector. You need to use the whole ecosystem that we can mobilise in Europe,” the banker said. Yet he sees little progress on a joint European capital market. Markets, he said, must work together as a system, and that is not happening. “The progress on that is very, very timid.”

Europe’s not ready, let’s just be honest.
— Alexander McWhorter, Citi Ukraine

He called it “way too little too late”. Energy worries him too. Europe is exposed, he said, and must electrify. China, he noted, has surpassed Europe in renewable energy equipment. Raw materials matter as much, because secure supply chains let industry thrive. Europe, he said, still needs industry, education, and innovation.

Guns and butter

Beata Javorcik, chief economist at the European Bank for Reconstruction and Development, said her bank does not fund defence. Even so, it is active in Ukraine. “We have deployed 11 billion euros in Ukraine since the beginning of the war, three billion last year.” Her money bought winter gas and paid for shields around transformers.

She wants a new argument at home. “I think we need to shift the debate towards guns and butter.” Resilience, she said, should mean more than armies and weapons. It should include infrastructure that withstands weather shocks, cyber security, and energy security. Such spending also helps private firms, she argued, and so stimulates growth.

“I think we have no choice but to use defence spending as a tool to boost competitiveness and growth,” she said somewhat reluctantly. Ms Javorcik said defence spending itself must also be resilient. By that she meant the ability to pay not just this year and next year, but five years and 10 years from now. Money, however, is getting dearer.

The price of money

Five years ago, borrowing was cheap and easy. Big tech firms now compete with governments in bond markets, Ms Javorcik said. Inflation, she said, forces central banks to keep interest rates elevated for longer. She cited projections that data-centre investment will equal the GDP of Italy by 2030. The era of cheap borrowing, she said, is gone.

Europe also trails in research. Of the 2,000 firms with the largest research spending, a third are American, a quarter are Chinese, and a fifth are European. Twenty years ago, Europe’s share exceeded a third and China’s was five per cent. “And we need to change that.” Her fix starts with savings.

You need to crowd in private sector. You need to use the whole ecosystem that we can mobilise in Europe. The progress on that is very, very timid.
— Mikołaj Dowgielewicz, European Investment Bank

“So I think the challenge is not to raise the capital, but to make European savings work harder,” she repeated the mantra heard around Brussels over decades. Americans invest in equities, she said, while Europeans keep deposits in banks. Defence in Eastern European EU states, she added, is dominated by state-owned companies. Their productivity is much lower than that of state-owned defence firms in Western Europe.

Smart money for small firms

Start-ups need smart money, not just cash, Ms Javorcik said. “It’s not just about channelling funds, it’s about channelling information as well.” Venture capital and scale-up financing bring advice. Europe also needs a more dynamic defence sector, she said, and must promote start-ups within it. Defence products are complex. Few countries export them.

She also pointed to procurement. “We cannot expect small companies to prepare thousands of pages of bidding in public tenders,” she said. They have no experience, unlike state-owned enterprises. She wants officials to guide them through the process, or to buy from small firms differently. The defence industry must also stay agile, she added.

Mr Dowgielewicz added a note of confidence. Europe, he said, has “a lot of innovative spirit and a lot of brain power”. His bank’s European Technologies Champions initiative helped finance “15 unicorns” in two and a half years. He does not want Europeans to feel that everything is beyond repair, because that mood leads nowhere.

Insurance as prevention

Bogdan Benczak, chief executive of PZU, Poland’s biggest insurer, offers war-risk cargo cover to clients importing goods into Ukraine. A Polish agency backs it. PZU is also acquiring some assets of MetLife Ukraine. Risks that were practically impossible two years ago now need serious thought, he said, because history has sped up.

Prevention is his creed, being “not cost, but an investment”. He described insurers as “an architect of resilience”. PZU also runs programmes on cyber risk and disinformation. Education takes time. Asked how quickly society can learn, Mr Benczak replied: “There is not a quick win, it’s a process.”

PZU also backs start-ups, Mr Benczak said. With the government, the Polish Development Fund, and a bank, it invests in innovative companies. It is also building an infrastructure fund to draw other investors to Poland. The fund links to energy and data centres. Mr Benczak said Europe must invest in them to stay competitive.

Lessons from Kyiv

Alexander McWhorter, Citi country officer and banking head for Ukraine, described a banking system that never stopped. “Citi is the only global bank in Ukraine.” Every bank there, he said, has operated throughout the full-scale invasion. None has missed a day. Citi has been on the ground for 28 years and serves about 500 corporate clients.

Ukraine’s economy has recovered, he said. GDP is back above pre-war levels after falling 30 per cent in 2022. A summer survey found 70 per cent of Citi’s clients at or above pre-war levels in dollar terms. Still, winter looms. “And it’s going to be a very rough winter,” the banker said. The last six weeks have been particularly brutal.

I think we need to shift the debate towards guns and butter.
— Beata Javorcik, European Bank for Reconstruction and Development

Banks usually plan for an earthquake or a power outage—not for something lasting four and a half years—so many have not thought it through. “It becomes a business requirement.” He fears that people are “not really taking it seriously enough”. He asked whether anyone assesses new office buildings for bomb shelters.

Cheaper weapons, faster buying

War has changed the economics, Mr McWhorter said. A front-line drone lasts two months before it needs an upgrade. American interceptors cost $3m each, yet they shoot down drones worth $40k. “The economics just don’t work,” the Citi manager said. So the question becomes cost for effect; he wants the least costly way to get the result.

Ukraine’s front-line units buy directly what works best. Western procurement processes, he said, “just do not match with the realities of today’s battlefield”. That approach also builds an innovative ecosystem and creates jobs. He expects Ukrainian defence exports of $30bn to $40bn after the war, on the lower estimates. Europe has not yet made that shift, he said.

Investors are waiting. “A lot of the money is waiting for more clarity on the security situation, to be very honest,” Mr McWhorter said. Companies already in Ukraine keep investing, and he cited a large cement acquisition announced last week. Reconstruction, he noted, is estimated at $588bn. Energy, construction materials, and defence all draw interest.

Who writes the cheque

Mr Dowgielewicz named priorities for the 1.5 per cent of NATO’s five per cent target that is not core defence. They are energy resilience, infrastructure, and cyber defence as well. “The eastern flank is obviously a special priority,” he said. “Support Ukraine, because without it this is going to get much worse,” he argued. Infrastructure such as railways and highways matters both for military mobility and for civilian reasons.

A Swedish foreign ministry official asked what governments can do. Mr Dowgielewicz said public administrations are under severe stress. Defence ministries, which handle much procurement, must learn to work with financial institutions. He also wanted a true European capital market, drawing on pension funds, to strengthen Europe’s ability to respond.

A councillor from Kyiv urged a special defence tax. Ms Javorcik declined to pick a side. “That’s a political decision and that’s something politicians need to make a call about,” she said. Mr McWhorter was blunter. Europe, he said, continues to downplay the threat, and thinking must change before something happens. “Europe’s not ready, let’s just be honest.” It was not immediately clear if he was referring to the tax alone, or offering a big-picture assessment.