Key facts
- The EU launched its first common defence financing programme, SAFE, in 2025, allowing member states to borrow low-interest loans for defence spending.
- Policymakers are planning a successor, SAFE II, with a potential shift from loans to grants.
- Member states' appetite for defence financing has surged, with initial SAFE I requests exceeding the allocated €150 billion.
- Recent drone incursions have accelerated uptake of SAFE loans and highlighted the need for effective spending.
- The European defence industry faces challenges in scaling up production and keeping pace with technological innovations.
- US disengagement from European security is a major concern, with potential costs of €500 billion to replace US military assets.
The European Union is in the process of revamping its defence financing instrument, the Security Action for Europe (SAFE), one year after its launch. Policymakers are considering a second edition, SAFE II, with a significant push to transition from loans to grants, driven by escalating geopolitical threats and the need for increased defence spending. Member states, particularly those on the eastern flank, are eager for more funding, but face limitations imposed by current EU fiscal rules. The initial SAFE I programme saw member states express a willingness to borrow up to €188 billion, significantly more than the €150 billion allocated, indicating strong demand. However, some countries, like Italy and Romania, scaled back their participation, leaving an estimated €8 billion to €18 billion unspent. Recent drone incursions into European airspace have intensified concerns and accelerated discussions about defence capabilities and the effectiveness of SAFE I funds.
The primary goal of SAFE is to bolster the European defence industry by ensuring stable domestic demand, rather than directly filling military capability gaps. However, a challenge remains in coordinating national defence budgets, which are often geared towards domestic industrial players, potentially leading to a fragmented landscape that lacks scale, particularly in critical areas like drone and counter-drone technology. The industry also struggles to keep pace with battlefield innovations emerging from conflicts like the one in Ukraine. Officials are exploring joint ventures with Ukrainian defence companies to integrate their expertise into European production lines, though some member states fear this could lead to Kyiv absorbing national champions.
Future scenarios are heavily influenced by the United States' increasing disengagement from European security commitments. Defence Commissioner Andrius Kubilius warned that replacing US military assets in Europe could cost the EU up to €500 billion, a figure considered almost insurmountable for member states alone. Designing future financial instruments like SAFE II is complicated by the uncertainty surrounding future defence needs and the evolving nature of potential conflicts.