President Karol Nawrocki’s decision to veto the law enabling Poland’s participation in the SAFE mechanism has sparked controversy both domestically and internationally. According to Fitch Ratings, the dispute is not merely a technical disagreement over military financing but a signal of deeper political tensions. Analysts warn that the prolonged standoff between the Presidential Palace and the government is undermining Poland’s credit credibility and could complicate the implementation of a coherent economic policy amid record defense spending.
The SAFE mechanism and the consequences of the presidential veto
The Security Action for Europe (SAFE) program is a European Commission initiative offering €150 billion in preferential loans for the development of the defense industry between 2025 and 2030. As a frontline NATO and EU country, Poland was expected to be one of the largest beneficiaries of the fund. According to estimates, access to the mechanism could have provided Warsaw with around €44 billion in financing. However, the president’s veto issued on March 13, 2026, blocked the fast-track legislative process required to access these funds.
In practical terms, this also means losing the possibility of quickly obtaining an advance payment of approximately €6.6 billion. The government has declared that it will continue efforts to secure access to the fund, but without the president’s signature, its room for maneuver is significantly limited. The institutional dispute could therefore delay part of the planned investments in the modernization of Poland’s armed forces. For financial markets, this creates additional uncertainty regarding how Poland’s military modernization program will be financed.
From the perspective of public finances, participation in SAFE would have been beneficial primarily because of the low cost of debt servicing. EU loans are typically cheaper than issuing bonds on the commercial market, allowing governments to extend debt maturities and stabilize financing costs. Fitch notes that losing access to this mechanism could increase pressure on Poland’s state budget in the coming years. According to the agency’s forecasts, Poland’s interest costs could rise to around 7% of budget revenues by 2027, a level higher than in many countries with a similar “A-” credit rating.
Budget pressure and the controversial NBP alternative
Poland is currently undergoing an intensive military modernization program, with defense spending expected to reach about 3.5% of GDP in 2025. At the same time, the state must cope with rising social spending and the costs of running the public sector. Estimates suggest that the general government deficit could reach approximately 6.7% of GDP. In such conditions, ensuring stable sources of financing for defense expenditures becomes one of the key challenges of fiscal policy.
A significant share of military equipment purchases is financed outside the central budget through the Armed Forces Support Fund. While this mechanism increases financing flexibility, it also raises the level of public debt in a broader sense. Analysts point out that such a structure may also limit the transparency of public finances. As a result, financial markets are closely monitoring the structure of debt associated with military modernization.
In response to the SAFE blockade, the president and the Governor of the National Bank of Poland (NBP), Adam Glapiński, proposed an alternative method of financing defense spending. The plan involves using part of the foreign exchange and gold reserves held by the central bank, in a model described as having a “zero percent cost.”
However, the proposal has been met with caution by analysts. Fitch warns that such a solution could increase market risks related to gold price volatility and raise questions about the role of the central bank in financing government expenditures.
Experts also emphasize that using NBP reserves to fund fiscal projects could be perceived as weakening the independence of the central bank. In many countries, such actions are considered potentially risky for institutional stability. In extreme cases, they may lead to a decline in investor confidence in a country’s macroeconomic policy. For this reason, the proposal has become the subject of intense economic and political debate.
Political polarization and the future of Poland’s credit rating
The dispute over defense financing is part of a broader context of political tensions between the president and the government. Since August 2025, relations between these centers of power have been marked by increasing confrontation. The veto of the SAFE-related law is one of the most visible examples of this political cohabitation. For market analysts, this situation represents an increase in political risk.
Institutional conflicts make it more difficult to implement plans for public finance consolidation ahead of the parliamentary elections scheduled for 2027. The lack of stable cooperation between key state institutions may limit the government’s ability to conduct a predictable economic policy. Rating agencies often point to such tensions as factors increasing fiscal risk. As a result, the dispute over SAFE may have implications that extend beyond the defense sector itself.
Although strengthening the armed forces remains a declared objective of all major political forces in Poland, there are clear differences regarding the method of financing the process. For Fitch, the key issue will be whether Poland can maintain a credible and predictable fiscal policy despite political tensions. If the legislative stalemate deepens, the negative outlook for Poland’s “A-” rating could eventually translate into a downgrade. Ultimately, Poland’s creditworthiness will depend on the authorities’ ability to find a compromise between defense needs and the stability of public finances.
