Piraeus has taken on a leading role in promoting and financing defense investments in our country, as the first Bank in Greece participating in the special program of the European Investment Bank and the only one from SE Europe supporting the initiative of the Defense and Resilience Bank (DSRB).
This was emphasized by Thodoris Tzouros, Senior General Manager, Chief Corporate & Ιnvestment Banking of Piraeus, at the Athens Defense Conference and in a discussion on Financing the EU's Defence Funding Renaissance. Mr. Tzouros analyzed the obstacles currently existing in attracting investments, private and institutional, in the defense sector at the European level and, as he characteristically said: “Europe’s rearmament requires more than political commitment. It requires banks ready to take action.”
Piraeus is indeed taking action and has been participating since January in the EIB program for security and defense – the first Bank in Greece and the third in Europe, securing funds amounting to €100 million, which will be channeled to small and medium-sized enterprises in the sector.
Its support is also significant for the Defense and Resilience Bank, which is at the establishment stage and aims to address chronic underinvestment in defense, security, and resilience.
Mr. Tzouros put forward the proposal that the proven, scalable model of the Recovery & Resilience Fund, which was implemented with great success by Greece, be applied immediately to defense financing.
Specifically,
- RRF Loan Program Structure: 50% RRF/SAFE financing, 30% commercial bank co-financing, 20% own funds from the project financiers.
- Performance track record: In 3 years, the Greek RRF loan mechanism facilitated total capital investments of more than €20 billion — proving speed, transparency, and private sector leverage.
- Immediate applicability: The same IT platform, the framework of certified auditors, and the launch process can be reactivated for SAFE-financed defense investments in the Greek private sector.
- Bank role: Banks operate as a mechanism for launch, evaluation, and monitoring — ensuring the quality and commercial viability of projects receiving public funds.
The head of Piraeus Corporate & Investment Banking referred to a series of issues that act as a brake on attracting significant private investments in the defense sector in Europe.
First of all, the ESG and investment classification framework, which is also the biggest structural obstacle, since over the last 10 years, the majority of European institutional investors applied policies excluding exposure to the defense sector. There is improvement, but it is happening slowly and in isolated cases, while the reputational risk for fund managers remains.
Second, the problem of classifying defense expenditures as Dual Use, since there is no harmonized definition at the EU level and a regulatory labyrinth is created that deters especially institutional investors with inherently conservative legal teams.
Third, there is a structural financing problem arising from the mismatch in the procurement cycle, since government contracts are large, slow-moving, and non-negotiable in terms of payment timing, resulting in companies in the sector having large working capital needs.
“Several promising defense technology companies stumble into the ‘valley of death’ between initial state funding for Research and Development and commercial-scale contracts”, Mr. Tzouros characteristically stated.
Another field creating obstacles is the regulatory fragmentation observed in Europe, with such differences from country to country that significantly increase the legal and regulatory compliance cost, something that does not exist in the US and disproportionately affects smaller investors and emerging companies that do not have specialized regulatory compliance teams.
Finally, the fact that defense is a sector where a large part of the most important commercial information is classified or commercially sensitive makes it difficult for investors to value companies. Public market investors struggle to properly value defense companies without access to backlog data or export licenses.
“Traditional financial models underestimate the value of a signed government contract relative to balance sheet indicators. This creates a ‘winner takes all’ dynamic, where a small number of specialized investors capture most of the opportunity”, underlined the Chief Corporate & Investment Banking of Piraeus.