How the EU's SAFE Loans Package Will Reshape Europe's Defense Industry

Employees work at a production line as German Chancellor Olaf Scholz and Defence Minister Boris Pistorius attend the groundbreaking ceremony for a new munitions factory of German defense contractor Rheinmetall on Feb. 12, 2024, in Unterluess, Germany.

(Fabian Bimmer - Pool/Getty Images)

Employees work at a production line in a new munitions factory of German defense contractor Rheinmetall on Feb. 12, 2024, in Unterluess, Germany.

The Security Action for Europe (SAFE) loan facility represents the European Union's most immediate and politically viable tool to accelerate rearmament, support joint procurement and strengthen Europe's defense-industrial base amid growing security threats and transatlantic uncertainty, but long-term strategic autonomy goals will ultimately require more ambitious and contentious measures that currently face significant political constraints amid sovereign and fiscal concerns. Eighteen EU member states — including Belgium, Finland, France, Italy, Poland, Romania, Spain and the three Baltic States — have applied for SAFE funding to support defense investments and joint procurement across the bloc by the July 30 deadline. Germany, the Netherlands and Sweden are among the countries that decided not to apply, at least in this initial round, though they could still do so ahead of the final deadline for formal applications on Nov. 30. According to the European Commission, governments have submitted preliminary funding requests — outlining a minimum and maximum amount they ultimately intend to borrow — totaling approximately 127 billion euros ($127 billion) out of a maximum of 150 billion euros. However, Brussels-based outlet Euractiv reported on Aug. 4 that the commission's figure reflects only the lower end of these requests, and that the combined upper limits from the 18 participating countries actually exceed the 150-billion-euro cap. These figures will guide the commission in assessing overall demand and preparing to raise funds on capital markets on behalf of member states.

The commission did not disclose how much each country has requested, but public statements and media reports provide a basis for estimating the figures. Poland has submitted the largest request, with Defense Minister Wladyslaw Kosiniak-Kamysz citing 45 billion euros in proposed projects. France and Hungary have each requested close to 20 billion euros, while Italy has reportedly applied for 14 billion euros. Lithuania's request ranges from 5 billion euros to 8.7 billion euros, and Belgium's from 7 billion euros to 11 billion euros. Greece is seeking 1.2 billion euros, and Spain has requested 1 billion euros for eight defense programs. Romania has not disclosed a total figure but stated that 70% of its request would go toward military hardware and 30% toward military mobility infrastructure. The final allocation will depend on the total number of applications and the commission's decision on how to distribute the available funds.
SAFE is a temporary EU financing mechanism providing loans to support both national and joint defense investments, with disbursements available through 2030 and repayment terms extending over 45 years. The loans, backed by the EU budget, must align with national defense investment plans approved by the European Commission. Participating member states are required to finalize cross-border defense industry cooperation agreements by the end of November.
Although primarily designed for EU member states, the facility is also open to European Economic Area and European Free Trade Association members, as well as countries that conclude bilateral security agreements with the bloc, on the condition that they contribute annually to maintain their companies' eligibility. Non-EU participants could therefore include Ukraine, Norway, Switzerland, Japan, South Korea, the United Kingdom and Canada.

SAFE is a key component of Brussels' plan to accelerate EU rearmament and foster the development of a more autonomous, resilient and competitive defense-industrial base amid heightened geopolitical tensions and uncertainty over long-term U.S. commitments to European security. SAFE reflects a growing recognition in the European Union that Europe must collectively invest in building a more self-reliant security architecture and expand its capacity to act independently in a deteriorating security environment and increasingly volatile geopolitical landscape. Russia's 2022 invasion of Ukraine shattered long-standing assumptions about European security, exposing critical capability gaps and forcing a reckoning with decades of underinvestment in defense. Meanwhile, mounting signals of U.S. strategic disengagement — amplified by the second Trump administration's aggressive rhetoric and confrontational stance on alliance burden-sharing — have deepened concerns that Washington's long-term security guarantees can no longer be taken for granted and that the burden of conventional deterrence against Russia will increasingly fall on European shoulders. These shifts have triggered a broader strategic reckoning across the European Union, compelling member states to embark on an expansive rearmament drive and deepen moves toward greater defense integration and strategic autonomy. In response, Brussels has moved to establish scalable, long-term instruments such as SAFE to sustain defense investment, strengthen cross-border coordination and reduce reliance on external actors in the development, production and procurement of critical defense capabilities.

SAFE constitutes the centerpiece of the European Commission's ReArm Europe strategy, launched in March, which seeks to mobilize over 800 billion euros in defense spending by the end of the decade. Investment will come through SAFE-backed loans and 650 billion euros in additional national spending, made possible by a temporary relaxation of EU fiscal rules for defense — so far triggered by 15 member states — permitting annual increases in related spending of up to 1.5% of GDP without triggering sanctions under the Stability and Growth Pact through 2028.
The ReArm Europe plan adds teeth to various EU programs introduced in recent years to enhance collective defense and strategic autonomy in arms production. These schemes, including the European Defense Fund and the European Defense Industrial Program, have so far remained underfunded and relatively limited in scope.

SAFE loans will enable joint investment in critical capabilities — such as missile defense, drones and military mobility — while promoting joint procurement and cross-border collaboration across the bloc to cut costs, close capability gaps, enhance interoperability and build a more integrated EU defense market. By offering cheap, long-term loans backed by the European Union's triple-A credit rating, the scheme will allow countries with limited fiscal space — such as France, Belgium, Italy, Spain and Romania — to access funding at lower interest rates than they would on sovereign markets, enabling expanded defense spending at a comparatively lower cost. Fiscally stronger countries like Germany, the Netherlands and Sweden, however, have not applied for SAFE loans due to their greater national fiscal capacity and strong credit ratings. Member states will be able to use SAFE funds to replenish their own stocks as well as to deliver weapons to Ukraine. Alongside other measures within the broader ReArm Europe package — such as providing greater fiscal flexibility on defense spending, repurposing existing EU resources such as unspent COVID-19 recovery and regional development funds toward defense and mobilizing private capital via the European Investment Bank — SAFE offers the most immediate and politically feasible instrument for stimulating short-term defense investment and advancing the development of a more self-reliant European military-industrial base.

However, building a truly autonomous and globally competitive European defense-industrial base would require more ambitious and politically contentious action, including deeper fiscal integration and new funding mechanisms. Beyond the SAFE plan, other proposals under discussion include issuing joint EU debt in the form of defense bonds — an idea backed by a considerable group of member states with comparatively limited fiscal firepower — to supplement existing schemes or establish a standalone off-budget facility modeled after the 800-billion-euro post-pandemic Recovery and Resilience Facility to fund defense investment. However, while joint borrowing for back-to-back loans (like in the case of SAFE) is less controversial, proposals for broader use face strong opposition from fiscally conservative member states such as Germany, the Netherlands, Austria and Sweden, which oppose debt mutualization and the expansion of common EU funding. As an alternative, some policymakers have floated the idea of establishing an intergovernmental defense fund outside formal EU structures, capitalized by direct contributions from participating states and with borrowing capacity. This structure could include non-EU partners like the United Kingdom, Ukraine and Norway, while allowing opt-outs for neutral or non-aligned EU members such as Austria, Ireland, Hungary and Slovakia. Such a fund would enable joint procurement of high-cost defense systems and shared infrastructure without requiring treaty changes, fiscal integration or unanimity voting. However, it would still face significant political constraints related to trust and the risk of free-riding and difficulties in mobilizing sufficient financial commitments. As a result, the hybrid approach combining SAFE loans, reallocated EU funds, eased fiscal constraints and private capital mobilization is likely to prevail in the short to medium term. However, broader initiatives such as defense bonds or a joint fund could gain traction if transatlantic ties deteriorate further or Russian aggression escalates significantly, providing the kind of external pressure needed to overcome constraints around sovereignty and debt mutualization.