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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer, a trade economist, is chief executive of the Centre for Economic Security
Credit markets are flashing red and capital is retreating from risk. If this continues, global credit conditions could deteriorate fast. Defence industries, which rely heavily on high-yield debt and specialised financing, will be among the first to feel the pain. Supply chains will seize up. Strategic programmes will slow and sovereign borrowing costs rise. In short: the financial foundations of deterrence are exposed, just as the world becomes more dangerous.
Finance ministers from across Europe meet in Warsaw on Friday and Saturday — joined by counterparts from the UK and Norway — as financial volatility and geopolitical uncertainty converge. The gathering is a critical opportunity to manage the risks of today and shape the institutions of the future. Ministers should use it to issue a clear directive: these nations, alongside Canada, Australia, Japan and international partners, should co-design a new multilateral institution — the DSR (defence, security and resilience) Bank — capable of financing long-term resilience and defence at scale.
The initiative is already gaining momentum. In Brussels, the European parliament has called for its creation — explicitly urging member states to support the DSR Bank. Last week, UK chancellor Rachel Reeves added her voice. The political foundation is now in place. Europe, and particularly the UK, should not hesitate.
The logic is simple but urgent. Europe and its allies need to rebuild defence capacity fast. That means increasing armaments production to deter Russian aggression, securing supply chains and investing in the critical infrastructure that enables credible military capability. The economic backbone of these efforts — particularly in defence manufacturing and munitions — is exposed to tightening credit conditions. If liquidity dries up, production will slow, deliveries falter and deterrence weaken.
Greater co-ordination in defence investment is essential. Fragmented national procurement strategies dilute demand signals and drive up costs. The DSR Bank would provide an incentive structure to support joint procurement and common capability development. By providing guarantees and aligning funding, it would help scale industrial output while reinforcing political cohesion among like-minded nations.
The only way to close this gap is to unlock large-scale capital for production. Otherwise, rising demand for weapons will outpace supply — and trigger higher prices. If nations are forced to re-arm in this way, we risk stoking defence-driven inflation that could trigger broader instability. The DSR Bank would act as a supply-side enabler, helping companies and governments borrow, invest and scale production, keeping procurement affordable.
The European Commission’s €150bn ReArm package is a strong signal that Brussels understands the challenge. It is a necessary accelerant, not a permanent boost. What is missing is a standing institution to deploy capital strategically, rapidly and across borders when markets cannot.
The DSR Bank would offer guarantees, blended capital structures and, where appropriate, first-loss tranches or subordinated debt. This would crowd in private investment and stabilise fragile supply chains. It would target strategically valuable sectors where private capital is scarce: armaments production, defence manufacturing, secure communications, logistics networks and critical infrastructure.
Crucially, it would not stop at the EU border. Canada, Australia and Japan are natural co-founders. The UK, a cornerstone of European and transatlantic defence, must be closely involved. The DSR Bank must be multilateral in ambition, even if it begins with European initiatives. Deterrence is a shared asset — and a shared responsibility.
This is not simply a matter of financial engineering. It is about strategic power and the front line of geopolitical competition. Resilience and credible deterrence are now inseparable.
