“Military security must be financed securely, taking into account the safety of public finances and economic stability,” says Dr. Sławomir Dudek, President of the Institute of Public Finance. The European Commission’s proposal to relax fiscal rules and allow governments to take on more debt is seen by economists as a step in the right direction — but only as a short-term measure. In the long run, joint EU financing through future EU budgets and coordinated defense programs, along with sourcing capital from financial markets, is essential.
“From a public finance perspective, strengthening military security and modernizing the armed forces cannot rely solely on debt. In the short term, debt can help, but lasting funding sources are needed. This means reviewing current expenditures, setting clear priorities, cutting unnecessary spending, and creating fiscal space for defense. Secondly, EU funds must be used. It’s positive that new instruments are being developed, and Poland should advocate for expanding these tools at the EU level to build European security. Only thirdly should we consider new taxes — but certainly not tax cuts,” explains Dr. Dudek in an interview with Newseria.
Ludwik Kotecki, a member of Poland’s Monetary Policy Council, adds:
“The first source of funding — also for Poland — should be coordinated European defense spending. That includes joint EU funds, joint procurement of military equipment, shared infrastructure development, and all that’s needed for effective deterrence. Because ultimately, that’s the goal — to deter aggression, particularly from Russia and Belarus in our case.”
In March, the European Commission unveiled the White Paper on European Defense – Readiness 2030, outlining how to build a robust industrial base for the defense sector, make large-scale investments, procure defense systems, and ensure the readiness of Europe’s defense industry. The Commission also released a draft regulation for the SAFE (Security Action for Europe) Instrument, aimed at enhancing European security. In principle, funding from SAFE can be accessed jointly by several member states, and — during the first year — by individual countries as well. The €150 billion fund will offer low-interest loans for purchasing ammunition, artillery, drones, and anti-drone systems, with repayment terms of up to 45 years. Countries can also request an advance of up to 15% of the loan.
“The European Commission’s proposals for financing defense spending are complex. On one hand, they allow countries to increase defense expenditures by loosening EU deficit rules. But this is only a temporary fix — like removing batteries from a scale so you can’t see the weight increasing. The debt still grows. It provides flexibility but should not form the basis of an investment strategy,” warns Dr. Dudek.
According to the European Commission Representation in Poland (as of May 5), 12 member states have formally requested the activation of a national clause under the ReArm Europe Plan / Readiness 2030 framework: Belgium, Denmark, Estonia, Finland, Germany, Greece, Hungary, Latvia, Poland, Portugal, Slovakia, and Slovenia. Additional requests are expected as more countries show interest. The clause offers countries additional fiscal space for increasing defense spending while remaining within EU fiscal rules. To maintain medium-term budgetary stability, deviation from the recommended net spending path will be capped at 1.5% of GDP in additional annual defense expenditures through 2028.
“There is an ongoing debate on how to carve out space within the standard EU budget. I believe this is a good direction. Poland should lobby in Brussels and persuade other countries to create joint financial instruments. Only a united front can ensure proper financing and effective deterrence,” says Dr. Dudek.
“While EU funds should be the first line of financing, such a rapid increase in defense spending cannot happen without an increase in public debt. And that’s justifiable. Re-arming Poland is an investment in national security and long-term stability — future generations will benefit, so some level of debt is warranted,” adds Kotecki. “Still, in the medium and long term, we need stable financing sources. These include tax revenues, expenditure-side reforms, and private capital. We should develop incentives and mechanisms to make defense projects bankable — eligible for credit or capital market financing.”
Dr. Dudek warns against the long-term risks of excessive borrowing.
“That’s not safe. It won’t guarantee military security, and it would burden future generations with high debt, leaving no funds for essential public services like healthcare and education,” he emphasizes.
Poland already allocated 4% of its GDP to defense in 2024, with plans to increase this to 4.7% in 2025. The surge in defense spending across Europe is primarily a response to Russia’s aggression in Ukraine and signals from the United States. At the Munich Security Conference in February, U.S. Vice President J.D. Vance criticized Europe for focusing more on limiting democracy than on countering Russian threats. He emphasized that Europe must take greater responsibility for shaping its future, as the U.S. shifts its focus to regions with higher security risks.
“The U.S. has sent a clear message: Europe must take more responsibility for its own security. And I think Europe — not only the EU but also the UK and Norway — understands the need to increase defense spending,” says Kotecki. “Unfortunately, for years — even decades — the defense sector was underfunded and underdeveloped. Now, we face many years of additional spending to build real defense capabilities in Europe and ensure a stable supply of military equipment.”
