On Tuesday, a draft bill related to the program proposed by the President, Polish “Sejf 0%,” was submitted to the Sejm. On the same day, the official website of the head of state published the justification for the draft legislation.
The document notes that the government’s proposal concerning the European SAFE mechanism carries both political and economic risks. “Experts from the banking sector estimate that the interest costs alone of the SAFE loan for Poland would amount to €42 billion (178 billion zlotys),” the justification emphasizes.
Instead, the president proposes in the bill the establishment of the Polish Defense Investment Fund (PFIO) “as a fully sovereign mechanism financed from domestic resources and supported by the National Bank of Poland.” “This model makes it possible to accumulate at least 200 billion zlotys by 2035, eliminating external risks and ensuring full freedom in the procurement of defense technologies,” the document states.
Listing the risks associated with the European SAFE mechanism, the authors point to the political risk stemming from the potential application by the European Commission of the general conditionality mechanism. This creates the threat “that payments for defense purposes could be suspended as a result of political disputes with the European Commission at any time and without any actual basis, similar to what occurred in the case of funds from the National Recovery Plan.”
The document also highlights the risk of limiting procurement sovereignty for the Polish Armed Forces due to the imposed “Buy European” requirement, which obliges countries to spend at least 65 percent of funds on products with components originating from the EU, the European Economic Area, or Ukraine. “This limits Poland’s ability to freely purchase military equipment from other countries that are also crucial to Poland’s defense strategy and whose equipment ensures compatibility and interoperability,” the justification stresses.
Another issue raised is currency risk. “Taking on debt denominated in euros for 45 years exposes the Polish state budget to enormous servicing costs in the event of a weakening of the zloty. A sovereign currency model supported by the National Bank of Poland shifts the burden of financing defense spending to the national currency and reserves that the state controls independently. PFIO funds may be denominated both in the Polish zloty and in foreign currencies, including the euro and the dollar. This gives the government full freedom in managing currency risk, which is another argument demonstrating the advantage of this bill over the government’s proposal,” the justification states.
It was also noted that the SAFE mechanism assumes that military equipment should be purchased and delivered by 2030, “which means that special military production could only cover equipment already being produced today.” A perspective of 3.5 years is considered too short to design and build new, fully operational production facilities. “This completely excludes new investments and the development of capabilities to create new military technologies. The timeframe for fulfilling orders should not be one of the main criteria at such a high level of spending. It will also hinder the development of the Polish defense industry, which may not be able to prepare production resources in such a short time and could lose competition to Western entities,” the document emphasizes.
“The establishment of the Polish Defense Investment Fund, whose primary source of financing will be funds derived from the profits of the National Bank of Poland, transferred directly to defense tasks, is a method of financing the modernization of the Armed Forces that will ensure the state decision-making sovereignty, financial stability, and resilience to external risks. This mechanism involves directing part of the NBP’s profit to the Fund, where these resources can immediately be used to finance long-term investment projects, bypassing the limitations resulting from annual budget planning. As a result, PFIO obtains a stable, predictable, and domestic source of capital that can be supplemented by bond issuance, loans, and interest from surplus funds in zlotys placed on deposit. In a situation where the state’s security requires an uninterrupted pace of expanding defense capabilities, choosing a stable, independent, and economically secure solution becomes a necessity. PFIO responds to this challenge in a comprehensive and systemic manner,” the authors of the document stated.