From Tax Haven to War Banker: Luxembourg’s Role in Europe’s Military Buildup

At the NATO summit in Ankara Luxembourg positioned itself as one of the alliance’s most vocal advocates for accelerated European rearmament. For a country of just 700,000 people, safely nested in Western Europe with virtually no standing army, this stance is obviously not driven by defence needs. Its calculation is purely financial.

Luxembourg’s enthusiastic embrace of war rhetoric is rooted in its outsized role in global finance. Despite its tiny size, the Grand Duchy is among the world’s leading financial centres. The numbers are obscene. By the end of 2025, assets under management in Luxembourg-domiciled funds reached €8.2 trillion. The Grand Duchy manages 58 percent of all global cross-border funds. It is the world’s second-largest fund domicile, trailing only the United States, and Europe’s largest fund hub. Its external financial assets stand at €13 trillion. This is not a country. It is a machine for the extraction of value, a vast financial pump that siphons the world’s wealth into the coffers of the global elite.

And now that machine has found a new product to sell: death.

Defence Minister Yuriko Backes let the mask slip before the summit when she told reporters, “With every item of expenditure, we must also consider the economic return for Luxembourg.” War is a good business. And Luxembourg intends to be the banker.

Luxembourg’s most concrete contribution in Ankara was its support for the new Defence, Security and Resilience Bank (DSRB), a multilateral institution that is being planned to channel private capital into defence and security projects. Headquartered in Canada, with Luxembourg playing a key European role, the bank aims to finance not only dual-use technologies but also lethal capabilities. The project so far is backed by representatives from Albania, Belgium, Greece, Latvia, Romania, Turkey and Ukraine. The idea was first proposed in 2024 by bankers (surprise surprise) and a group of former NATO security advisers and military officials. JPMorgan, Deutsche Bank, Commerzbank, and ING, as well as Canada’s largest banks: RBC, BMO, CIBC, National Bank of Canada, Scotiabank, and TD Bank have since become involved in the project.

Luxembourg’s own defence spending is also quite telling. When Prime Minister Luc Frieden took office, the country’s NATO contribution stood at 0.4 percent of Gross National Income (GNI). Now it is racing toward 2.3 percent by 2029 - roughly €1.66 billion. By meeting NATO targets, Luxembourg buys a seat at the table where the contracts are handed out.

Beyond the bank, Luxembourg signed up to new NATO projects including the GlobalEye reconnaissance system, cooperation on defence-critical raw materials, and investment in a tenth Multirole Tanker Transport aircraft.

What makes this moment particularly obscene is the speed with which the financial sector has abandoned its moral pretenses. Until recently, many fund managers regarded arms manufacturing as ethically questionable. Now they embrace it enthusiastically. European defence ETFs have delivered returns of 60 to 75 percent between 2025 and mid-2026. In the first five months of 2025 alone, investors poured over $2.7 billion into such funds. The six largest French banking groups increased their financing to defence companies by 25 percent by the end of 2025, reaching over €46.6 billion - a 75 percent increase compared to 2021.

BlackRock launched its Europe Defence ETF in May 2025. BNP Paribas increased defence financing by €2 billion and dropped its policy barring financing of “controversial weapons.” BPCE issued a €750 million defence bond that was oversubscribed nearly fourfold. Warburg Pincus is considering raising up to €1.5 billion for a dedicated defence fund.

Last year the Financial Times reported that Deutsche Bank had established a dedicated defence and infrastructure team consisting of approximately 40 bankers across different divisions to capitalise on the European rearmament push. Their number has already grown since the article was published.

Rearmament is a profit-making enterprise, a vast transfer of public wealth into private hands, dressed in the language of security.

Yuriko Backes, who oversees three portfolios since she serves as minister of Mobility and Public Works, Defense, and Gender Equality and Diversity (!) acknowledged this directly when she stated: “We can no longer say: ‘The others will sort it out for us’ and rely exclusively on the Americans. Those days are over.” She is right, of course. But the replacement she envisions is not European strategic autonomy in the service of peace. It is a new architecture of profit in the service of war, which benefits both Washington and Wall Street.

The tragedy is that Europe’s rearmament is being celebrated as a growth opportunity while the bodies of Ukrainian soldiers still lie unburied in Donbass because Kiev refuses to receive them from Russia.

Luxembourg’s hawkishness is a business model. And like all business models built on the suffering of others, it will eventually consume its creators. But in the meantime, the profits will flow, the dividends will be paid, and the bankers will count their money while Europeans say goodbye to welfare and are told to prepare for war.