“Plans are nothing; planning is everything”.
Dwight D. Eisenhower
Demonstrably accessible financing across defence, security and resilience is one of the pillars of credible deterrence. Without access to threat-responsive funding, security, defence and resilience planning either becomes an exercise in political fantasy or is so constrained that it leads to Potemkin deterrence.
The debate addressed “a dangerous debt driven paradox” that the Global Free must address that is putting social security and national security in direct competition for limited funds. There is a dangerous paradox: the only way politically to afford the defence needed to preserve the peace would be during a war, but then it would be too late. The moment deterrence has failed the peace that is taken for granted would be lost. Banks and pension funds seem to believe they are neutral in the struggle between the Global Free and Global Autocracy but they are not and will have to choose sides. That will only happen when there is a shared threat perception.
Therefore, the banking and financial sector of the Global Free should regard itself as a Great Financial Arsenal if it wishes to be seen as good citizens. This is not least because whilst COVID caused much of the indebtedness preventing many free states investing in peace so-called ‘casino banking’ and the need for the public purse to bale out banks was also responsible for the precipitous decline of many states. There are public funds being made available, such as the European Investment Bank (EIB) and SAFE but due to indebtedness they can generate nothing like enough investment to close the ends, ways and means gap. The EIB is also prevented from supporting defence and will need a change to its charter to do so. A further very significant problem is caused by compliance. Many banks and pension funds claim that they cannot directly fund weapons programmes for the armed forces of the democracies due to so-called environmental, security and governance (ESG) guidelines. Not only is such thinking self-defeating but morally questionable. Some countries such as Denmark and Sweden are moving to change ESG and the EU is considering such adjustments.
One innovative initiative is the not-for-profit Defence, Security and Resilience Bank (DSRB). Supported by both public and private money across the Global Free, its mission is to act as a broker for long-term loans, to act as a conduit for pension funds to be able to fund legitimate defence, and to underwrite guarantees so that banks can support the defence effort.
DSRB aims to issue global bonds by the end of 2026 with its new charter ready by Christmas 2025. Macro Defence Convergence Criteria would greatly assist DSRB because they drive standardisation and thus more efficient and effective investment through shared metrics. Such an approach would better enable both lenders and loanees to understand the impact on society of increased defence spending, how quickly a requisite industrial surge could be mounted so that necessary weapons systems could be fielded quickly, and procurement systems (finally) harmonised. A good place to start would be a DSRB Strategic Audit to properly assess the state of defence, security and resilience in light of the threat. Such an Audit would also help promote innovation and new thinking when much of the investment will need to be made in what have hitherto been seen as exotic and untested technologies. Banks could also buy public debt to reduce the huge debt interest payments that many states must fund and which reduces their ability to fund sound defence. This is effectively what the Americans did in 1946 with the Anglo-American Loan which enabled London to place war debt in a large fund at very low interest rates repayable over decades. Another option would be for the commercial sector to provide guarantees similar to those being offered to maintain the Ukrainian war effort.
Ultimately, the debate was about ethics and bottom-lines at a time when the Global Free are threatened by a new and growing systemic threat. The only bottom-line that should really matter is that the cost of peace would be exponentially less than the cost of war. This is not least because the very mission of defence, security and resilience is to preserve the very peace in which banks, pension funds and other financial institutions do business and make money. It is high time such institutions see themselves for what they are: instruments of power in a global struggle.
Julian Lindley-French