Executive Summary

The emergence of two competing multilateral defense banks in Europe represents both an urgent response to security challenges and a coordination problem that threatens to undermine the very objectives these institutions seek to achieve. This case study examines the proposed merger between the European Rearmament Bank (ERB) and the Defence, Security and Resilience Bank (DSRB), analyzing the strategic landscape, stakeholder dynamics, and pathways toward effective consolidation.

The European Rearmament Bank (ERB) has proposed merging with the Defence, Security and Resilience Bank (DSRB) Investing.com, two competing initiatives to create multilateral lending institutions for European defense projects. Guy de Selliers, an ERB leader, reached out to DSRB last week suggesting consolidation, noting it’s counterproductive to have two organizations competing for the same goal.

The Two Banks

Both initiatives aim to establish AAA-rated institutions to rapidly mobilize capital for European defense procurement, but they differ in approach:

ERB (proposed by former UK defense chief General Nick Carter and others in January):

• Targets European NATO members exclusively and plans to generate up to €250 billion in lending by leveraging about €10 billion from member shareholders TradingView
• Focuses on market-rate lending
• Has received endorsement only from Poland so far

DSRB (backed by JPMorgan, Deutsche Bank, and others):

• Seeks broader membership including Canada and aims to raise £100 billion to fund defense projects TradingView
• Suffered a setback when UK officials declined to back it in September

Current Status

Government talks are ongoing, with France praising the concept but expressing concerns about sovereignty and financial capacity Investing.com. The DSRB has not commented on the merger proposal.

This reflects Europe’s broader push to strengthen defense capabilities amid geopolitical pressures, particularly given Trump’s return to the presidency and his criticism of NATO spending levels.

Case Study: The Fragmentation Challenge

Background Context

Europe faces its most significant security challenge since the Cold War. The ongoing conflict in Ukraine, coupled with signals from the incoming U.S. administration regarding reduced NATO commitments, has forced European nations to confront a stark reality: their defense industrial capacity and procurement systems are inadequate for current threats. Traditional defense spending has been constrained by fiscal pressures, bureaucratic inefficiencies, and a decades-long peace dividend that hollowed out military capabilities.

The Dual Bank Problem

Two initiatives emerged simultaneously to address this financing gap, each with credible backing but divergent approaches:

European Rearmament Bank (ERB) was conceived by former UK Chief of Defence Staff General Nick Carter and other defense veterans in January 2025. The ERB proposes leveraging approximately €10 billion in government capital to generate up to €250 billion in defense lending. Its model focuses exclusively on European NATO members and operates on market-rate lending principles, treating defense procurement as a commercial investment that generates security returns.

Defence, Security and Resilience Bank (DSRB) emerged with backing from major financial institutions including JPMorgan and Deutsche Bank. DSRB aims to raise £100 billion with a broader membership base including Canada, reflecting a transatlantic rather than purely European focus. The bank attracted significant private sector support but faced setbacks when the UK government declined to endorse it in September 2024.

The Coordination Failure

The existence of two competing institutions creates several problems. Both organizations are courting the same governments, requesting similar financial commitments, and promising comparable outcomes. This competition confuses potential member states, divides advocacy efforts, and reduces the credibility of both initiatives. Finance ministries already skeptical of new multilateral commitments see the duplication as evidence of insufficient planning and coordination among proponents.

Guy de Selliers’ outreach to DSRB represents an acknowledgment that this fragmentation is untenable. His statement that “it’s not helpful to have two organizations both talking about creating a multilateral bank and competing with each other” captures the essential problem: scarce political capital and government attention are being divided rather than concentrated.

Stakeholder Analysis

Government Stakeholders face complex political calculations. Poland has endorsed the ERB initiative, likely viewing enhanced defense capacity as existential given its proximity to Russia. France has praised the concept while expressing sovereignty concerns, reflecting its traditional preference for European strategic autonomy and wariness of institutions that might constrain its independent defense industrial policy. Germany, though not mentioned in current reports, likely harbors concerns about fiscal exposure and the political optics of defense spending increases. Smaller NATO members may see opportunities to access defense capabilities they cannot afford independently.

Private Sector Backers including JPMorgan and Deutsche Bank bring financial engineering expertise and access to capital markets, but their involvement also introduces questions about profit motives and loan terms. These institutions can help achieve AAA ratings through sophisticated structuring, but governments must ensure that lending serves strategic rather than purely commercial objectives.

Defense Industry Players represent another crucial constituency. European defense manufacturers from Airbus to Rheinmetall would benefit from expanded procurement financing, but they also have divergent national interests. A truly European defense bank must navigate industrial policies that often favor national champions over cross-border collaboration.

Current Impasse

As of early December 2025, only Poland has formally endorsed either initiative. This limited uptake reflects several barriers. First, many European governments remain fiscally constrained and politically risk-averse about new financial commitments. Second, the competition between ERB and DSRB creates uncertainty about which horse to back. Third, sovereignty concerns particularly in France suggest that some nations fear ceding control over defense decisions to a multilateral institution. Fourth, the absence of clear U.S. policy on European defense burden-sharing creates strategic ambiguity that makes long-term commitments difficult.

Outlook: Scenarios and Probabilities

Scenario 1: Successful Merger and Rapid Scaling (Moderate Probability)

In this scenario, ERB and DSRB leadership recognize that merger is essential and negotiate terms within the next three to six months. The combined institution adopts the strongest elements of both proposals: ERB’s focused membership and market-rate discipline combined with DSRB’s private sector backing and financial sophistication. A core group of founding members including Poland, the Baltic states, and potentially the Nordic countries provides initial capitalization. The bank achieves AAA rating through careful structuring and begins lending operations by late 2025 or early 2026.

Success factors include continued security pressure from Russia, a U.S. administration that explicitly encourages European burden-sharing while maintaining basic NATO commitments, and strong leadership from the merged institution that builds trust with skeptical governments. France eventually joins after negotiating safeguards for its defense industrial base, and Germany follows once domestic political conditions allow increased defense spending.

The merged bank eventually mobilizes €150-200 billion in lending capacity over five years, financing everything from ammunition production facilities to joint procurement programs for air defense systems. It becomes a cornerstone of European strategic autonomy, though tensions with NATO procurement mechanisms require ongoing management.

Scenario 2: Prolonged Competition and Parallel Development (Low-Moderate Probability)

In this scenario, merger talks stall due to irreconcilable differences over governance, membership criteria, or lending terms. Both institutions proceed independently, each securing support from different government coalitions. ERB gains traction with Central and Eastern European nations most concerned about Russian threats, while DSRB attracts Western European members and potentially Canada through its transatlantic approach.

The parallel development creates inefficiencies and occasional conflicts over borrower eligibility and project prioritization, but both banks manage to become operational. Combined, they mobilize less capital than a unified institution would have achieved, perhaps €100-120 billion total. However, the existence of two institutions also creates some benefits through competition and diverse approaches to risk management.

This scenario requires sustained security concerns that keep defense financing on government agendas, plus sufficient political will to support two separate institutions. It represents a suboptimal but workable outcome.

Scenario 3: Failure to Launch (Moderate Probability)

In this pessimistic scenario, the merger does not occur and neither institution gains sufficient government backing to become operational. The competition between ERB and DSRB, combined with fiscal constraints and political barriers, leads to a gradual loss of momentum. Governments pursue alternative approaches including bilateral agreements, enhanced use of existing European Investment Bank mechanisms for dual-use infrastructure, or purely national procurement programs.

This scenario could unfold if security pressures ease through a Ukraine peace settlement that reduces immediate threat perceptions, if the U.S. signals continued strong NATO commitments that reduce urgency for European self-sufficiency, or if major European economies enter recession and force fiscal retrenchment. The failure would represent a significant missed opportunity for collective defense capacity building.

Scenario 4: Partial Implementation with Hybrid Structure (Moderate-High Probability)

This represents a middle path where ERB and DSRB merge operationally but maintain distinct financing vehicles or membership tiers. The institution offers both the ERB’s focused European NATO membership with market-rate lending and a DSRB-style broader membership with potentially concessional terms for certain projects. This hybrid structure accommodates diverse government preferences while achieving operational efficiency.

The merged bank starts conservatively with a smaller €50-75 billion capitalization target, focusing on projects with clear cross-border benefits and strong commercial viability. As it proves its effectiveness and builds trust, membership and capital commitments expand. France and Germany join in a second wave after seeing successful initial operations and negotiating governance arrangements that address their sovereignty concerns.

This scenario requires skilled diplomatic negotiation and institutional design that balances competing interests. It represents perhaps the most realistic path forward given current political constraints.

Solutions: Strategic Pathways Forward

Immediate Actions: Building Merger Momentum

The merger proposal represents a critical inflection point. To capitalize on this opportunity, leadership from both institutions should immediately establish a joint working group with clear decision-making authority and a tight timeline for reaching agreement on core terms. This group should be small, technically competent, and empowered to negotiate on behalf of their respective organizations.

The working group should prioritize three key deliverables within 60 days: a unified value proposition that clearly articulates how the merged institution serves member state interests better than either separate entity; a governance framework that addresses sovereignty concerns while maintaining operational efficiency; and a capitalization strategy that identifies realistic government commitments and leverages private sector participation.

Simultaneously, champions of the merger should conduct intensive diplomatic outreach to key governments. Poland, having already endorsed ERB, should be engaged as a founding anchor. The Baltic states and Finland, given their acute security concerns, represent natural early supporters. Sweden and Denmark, with their recent NATO accessions and strong fiscal positions, could provide both financial and political credibility.

Most critically, Germany and France must be brought into the conversation as founding members or at minimum as supportive observers. Without these two largest European economies, the bank’s credibility and capacity would be severely limited. Outreach should be personally led by the most senior and credible figures associated with each initiative, including former defense chiefs and finance ministers who can engage counterparts at the highest levels.

Institutional Design: Addressing Core Concerns

The merged institution must resolve several fundamental design questions to gain broad support.

Membership Criteria: The bank should adopt a tiered membership structure. Core Tier 1 membership would be limited to European NATO members, addressing ERB’s focus on European strategic autonomy and defense integration. Tier 2 associate membership could extend to partners like Canada or potentially the UK (depending on post-Brexit relationship dynamics), addressing DSRB’s transatlantic vision. Tier 2 members might participate in governance but have limited voting rights or participate in specific project financing without full membership benefits.

Governance Structure: Create a board structure similar to the European Investment Bank, with representation weighted partially by capital contributions but with floors that ensure smaller members have meaningful voice. Establish clear decision rules that require supermajorities for major policies but allow efficiency for operational lending decisions. Critically, create explicit safeguards that prevent any single member or small group from blocking projects for purely national industrial policy reasons.

Include private sector representation in an advisory capacity to ensure commercial discipline and market access, but keep final decision authority with government representatives to address sovereignty concerns. The presence of institutions like JPMorgan and Deutsche Bank should be leveraged for technical expertise and capital markets access rather than governance control.

Capitalization Strategy: Target initial paid-in capital of €10-15 billion from founding governments, with callable capital commitments of an additional €30-40 billion to support AAA rating. This relatively modest initial ask makes membership more achievable politically while the callable capital provides rating agencies confidence in the bank’s ultimate backing.

Complement government capital with private sector participation through subordinated debt or co-financing arrangements. Private capital should absorb first-loss risk on commercial projects while government capital supports the most strategically important but potentially less profitable ventures. This blended finance approach maximizes leverage while maintaining public control.

Lending Terms and Focus: Adopt market-rate lending as the baseline to ensure financial discipline and sustainability. However, create a small concessional window funded by specific government contributions for projects with overwhelming strategic value but limited commercial viability, such as munitions stockpiling or early-stage development of emerging defense technologies.

Focus initial lending on projects that demonstrate clear cross-border benefits and help resolve current capability gaps. Priority areas should include: joint procurement programs that achieve economies of scale; defense industrial capacity expansion in ammunition, artillery, and air defense systems; critical infrastructure resilience including energy and telecommunications networks with dual-use applications; and research and development consortia for next-generation capabilities where no single nation can afford full development costs.

Building Political Will: The Communication Challenge

The merger and institution-building effort requires a sophisticated communications strategy to build and maintain political support across diverse national contexts.

Framing the Narrative: Position the defense bank not as militarization but as strategic insurance and economic development. Emphasize that defense spending represents high-multiplier domestic investment that creates jobs, drives technological innovation, and builds exportable industrial capacity. Frame European defense capability as essential not for aggression but for maintaining the security and prosperity that Europeans have enjoyed for decades.

Connect defense capacity directly to economic security. Russian energy coercion, cyber attacks on critical infrastructure, and potential coercion through trade dependencies all require resilience investments that the bank can support. This broader security framing helps build coalitions beyond traditional defense hawks.

Address sovereignty concerns directly, particularly for France. Emphasize that the bank enhances rather than constrains national sovereignty by providing financing that enables independent capability without dependence on extra-European suppliers or allies. Make clear that the bank complements rather than replaces national defense industries and procurement.

Building Public Support: Defense spending increases face public skepticism in many European countries. The bank’s proponents should engage civil society, think tanks, and media to build understanding of current security challenges and the necessity of improved defense capabilities. Public messaging should emphasize defense of democratic values, protection of prosperity, and maintaining independence from authoritarian powers.

Transparency will be essential. Unlike intelligence services or military operations, the bank’s lending activities can and should be publicly disclosed to build trust. Regular reporting on projects financed, capabilities achieved, and economic benefits generated will help maintain public and political support over time.

Leveraging External Pressure: The incoming U.S. administration’s signals about burden-sharing create both risk and opportunity. While threats to withdraw from NATO are destabilizing, clear expectations that Europe must do more for its own defense can be reframed as an impetus for European strategic autonomy. The bank represents exactly the kind of European initiative that should satisfy U.S. demands for greater burden-sharing while maintaining alliance coherence.

Similarly, continued Russian aggression and threats provide unfortunate but compelling evidence of the need for enhanced European defense capacity. The bank’s proponents should clearly link its mission to addressing specific capability gaps exposed by current conflicts without being alarmist or appearing to welcome conflict.

Long-Term Solutions: Sustainable Defense Financing Architecture

Embedding the Bank in European Security Infrastructure

For the defense bank to succeed over decades rather than years, it must become an integral part of European security architecture rather than a standalone institution.

Integration with EU Defense Initiatives: The bank should establish formal coordination mechanisms with existing EU defense cooperation frameworks including PESCO (Permanent Structured Cooperation) and the European Defence Fund. Rather than competing with these programs, the bank should provide the financing that makes them operationally effective. PESCO projects often struggle with funding; the bank could become their primary financing vehicle.

Connect bank lending to the EU’s broader industrial policy objectives. The European Commission has identified strategic dependencies in semiconductors, critical minerals, and advanced manufacturing. The bank can support defense industrial projects that simultaneously address these broader economic security concerns, building coalition support beyond defense ministries to include economics and industry portfolios.

Relationship with NATO: Despite focusing on European members, the bank must maintain positive relationships with NATO structures. Establish information-sharing protocols that ensure bank-financed capabilities integrate smoothly with NATO force planning and interoperability requirements. The bank should become a financial pillar supporting NATO’s capability targets rather than an alternative to alliance structures.

Complementing Rather Than Displacing National Programs: The bank will only gain sustained support if member states view it as enabling rather than constraining their national defense policies. Establish clear principles that bank financing complements national procurement budgets rather than substituting for them. Focus on projects that individual nations cannot efficiently undertake alone: joint procurement that achieves scale economies, cross-border infrastructure, and shared capability development.

Allow member states significant flexibility in how they use bank financing within broad parameters. A Polish loan for artillery production expansion may look quite different from a French loan for aerospace technology development, reflecting different industrial bases and threat perceptions. This flexibility prevents the bank from becoming another Brussels bureaucracy imposing one-size-fits-all solutions.

Sustainable Financing Model and Risk Management

Long-term success requires that the bank operates on a financially sustainable basis while managing unique risks associated with defense lending.

Diversified Funding Sources: Beyond initial government capital, the bank should access multiple funding streams to ensure sustainability and reduce dependence on politically volatile government appropriations. Issue highly-rated bonds in capital markets at favorable rates, leveraging the government guarantees and AAA rating. These bonds should attract institutional investors seeking secure, long-dated assets.

Develop a revolving fund model where loan repayments finance new lending, reducing the need for continuous government capital injections. As defense procurement typically involves long asset lives, structure loans with appropriate maturities and repayment terms that match the economic life of financed assets.

Explore innovative financing mechanisms including securitization of certain loan portfolios, particularly for assets with clear commercial applications. Co-financing arrangements with private banks for less risky projects can stretch public capital further while bringing private sector due diligence to project evaluation.

Risk Management Framework: Defense lending carries unique risks including political risk of project cancellation, technological risk of capability obsolescence, and counterparty risk if borrowers face fiscal crises. Develop sophisticated risk assessment frameworks that evaluate not just financial metrics but strategic importance, industrial capability impacts, and geopolitical factors.

Maintain rigorous project evaluation standards that ensure loans support genuinely needed capabilities rather than becoming vehicles for wasteful prestige projects. Establish independent technical review panels that assess project feasibility before approval. Require borrowers to demonstrate clear demand for capabilities and realistic deployment timelines.

Diversify the loan portfolio across countries, capabilities, and time horizons to avoid concentration risk. A balanced portfolio might include: short-term ammunition production expansion; medium-term procurement of proven systems like air defense platforms; and long-term research and development for next-generation capabilities. This diversification ensures that the bank maintains cashflow and credibility even if individual projects face challenges.

Measuring Success and Accountability: Establish clear metrics for evaluating the bank’s impact beyond simple financial returns. Track capability gaps addressed, industrial capacity created, jobs generated, and cross-border cooperation fostered. Regular independent audits of both financial performance and strategic impact will build confidence among member states and publics.

Create mechanisms for adapting the bank’s focus as security challenges evolve. The current emphasis on artillery, ammunition, and air defense reflects today’s lessons from Ukraine. Future conflicts may expose different gaps requiring different industrial responses. The bank’s governance should allow agile reorientation toward emerging priorities while maintaining financial discipline.

Addressing the Franco-German Challenge

The long-term success of any European defense initiative ultimately depends on Franco-German partnership, yet these two nations have expressed the most reservation about current proposals.

France’s Sovereignty Concerns: French hesitation reflects deep institutional preferences for strategic autonomy and control over defense policy. To bring France fully aboard, the bank must offer ironclad protections that French defense decisions remain sovereign while accessing bank financing.

Consider creating a specific governance provision that no project in a member state can be blocked by other members for commercial or industrial policy reasons. This addresses French concerns that Germany or others might use the bank to disadvantage French defense companies. Simultaneously, establish that France retains full control over its nuclear deterrent and other sovereign capabilities outside the bank’s purview.

Offer France a leadership role in the bank’s governance that reflects its position as Europe’s premier military power and only nuclear-armed EU member. A French Managing Director or Deputy position, along with location of certain key functions in Paris, could provide the symbolic recognition of French primacy that facilitates buy-in.

Connect the bank explicitly to French concepts of European sovereignty. Frame defense industrial capacity as essential for Europe to be a geopolitical actor independent of American or Chinese influence. This resonates with longstanding French strategic culture and creates a positive rather than coerced rationale for participation.

Germany’s Fiscal and Political Constraints: German challenges are different but equally fundamental. Despite recent increases, German political culture remains deeply uncomfortable with defense spending and military power. The bank must be framed in ways that resonate with German values and fiscal conservatism.

Emphasize the bank’s economic development and industrial policy dimensions rather than purely military aspects. Germany’s powerful industrial lobby appreciates opportunities for its defense sector, which includes major players like Rheinmetall. Position the bank as supporting high-value manufacturing jobs and technological leadership.

Address fiscal concerns by demonstrating that the bank’s leverage means Germany’s financial contribution generates multiple times its value in defense capability. The AAA rating and market borrowing capacity mean that Germany’s capital commitment will be multiplied many times over. This efficiency argument resonates with German fiscal conservatism.

Connect the bank to Germany’s growing recognition of its European security responsibilities following the Ukraine invasion. Chancellor Scholz’s “Zeitenwende” speech marked a rhetorical shift; the bank provides an institutional vehicle for translating that rhetoric into concrete policy. Position German participation as essential leadership in the new European security order.

The Franco-German Grand Bargain: Ultimately, sustained European defense cooperation requires French and German agreement on burden-sharing and strategic direction. The bank could serve as the institutional expression of a new defense compact between these historic partners.

Such a compact might include: French acceptance of more institutionalized and collective approaches to defense in exchange for German acceptance of French strategic primacy in military matters; German financial contributions that reflect its economic weight in exchange for French willingness to support German defense industrial development; and joint Franco-German leadership of the bank that symbolizes partnership and shares the political benefits and risks.

This grand bargain extends beyond the bank itself to broader questions of EU defense integration, relationships with NATO and the United States, and Europe’s geopolitical ambitions. The bank becomes not just a financing vehicle but a manifestation of renewed Franco-German partnership adapted to contemporary security challenges.

Preparing for the Long Game: Evolution and Adaptation

Even with successful merger, strong initial membership, and adequate capitalization, the defense bank will face ongoing challenges requiring institutional evolution.

Technological Disruption: Defense technology is rapidly evolving with artificial intelligence, autonomous systems, hypersonic weapons, and cyber capabilities. The bank’s lending practices must accommodate high-risk, high-reward emerging technologies alongside traditional procurement. This may require creating a venture capital-style arm that accepts higher failure rates but captures breakthrough capabilities.

Expanding Scope: The bank may naturally evolve beyond traditional defense to encompass broader security concerns including cyber defense, space systems, critical infrastructure resilience, and supply chain security. This mission creep carries risks of diluting focus but also opportunities to build broader political coalitions and address interconnected security challenges.

Membership Evolution: The bank should anticipate requests for membership from non-NATO European partners and potentially aspirant members from the Western Balkans or Eastern Partnership countries. Establishing clear, transparent criteria for membership expansion will be essential. Generally, expansion should be welcomed as it spreads the bank’s philosophy and increases its capacity, but must be managed carefully to maintain financial soundness and strategic coherence.

Responding to Peace: Perhaps paradoxically, one challenge would be a dramatic reduction in security tensions that undermines political will for defense investment. The bank’s governance should prepare for this possibility by ensuring it can shift focus toward maintaining industrial capacity and technological edge even absent acute threats. The goal should be sustainable long-term capability rather than panic-driven spending that evaporates when immediate crises pass.

Conclusion: The Imperative of Action

The proposed merger between the European Rearmament Bank and Defence, Security and Resilience Bank represents far more than an administrative rationalization. It reflects a broader question of whether Europe can muster the political will, financial resources, and institutional creativity to secure its own defense in an increasingly uncertain world.

The case for consolidation is overwhelming. Competition between similar institutions wastes advocacy resources, confuses potential members, and reduces credibility with skeptical governments. A merged bank with unified leadership, clear governance, adequate capitalization, and broad membership offers the best path to achieving the collective defense financing that current security conditions demand.

Success is far from guaranteed. Fiscal constraints, sovereignty concerns, institutional inertia, and competing national interests all pose significant barriers. France and Germany’s hesitation must be addressed through sophisticated diplomacy that accommodates their distinct concerns while maintaining the bank’s core mission. The absence of broad government support beyond Poland suggests that much work remains to build the political coalitions necessary for success.

Yet the alternative to success is unacceptable. Europe cannot rely indefinitely on American security guarantees that may prove unreliable. National defense programs alone cannot generate the industrial scale and interoperability that modern defense requires. The defense spending gap between European security needs and available capabilities continues to widen. A well-designed, adequately capitalized multilateral defense bank offers the most promising path to closing that gap efficiently and sustainably.

The moment for action is now. Security pressures remain acute, providing political impetus for difficult decisions. The merger proposal has created an opportunity to consolidate efforts before momentum dissipates further. The coming months will determine whether Europe rises to this challenge or whether this initiative joins the long list of European defense proposals that foundered on national divisions and institutional paralysis.

The leaders of both institutions, the governments they are courting, and the broader European security community all share responsibility for seizing this opportunity. The stakes extend far beyond financing mechanisms to fundamental questions of European security, prosperity, and geopolitical relevance in the decades ahead. History will judge whether Europe’s leaders proved equal to this moment.