EU clears €150B SAFE fund for defence loans

Ursula von der Leyen, President of the European Commission, participates in the plenary session of the European Parliament in Strasbourg, France on 11 March, 2025 | Photo: Christophe Licoppe/EC – Audiovisual Service/European Union

The Council of the European Union (EU) announced on Tuesday it had cleared a €150 billion fund to offer loans to member states for defence spending.

The EU Council said in a statement it had passed a new regulation for setting up the new financial instrument called Security Action for Europe (SAFE) ‘that will support member states that wish to invest in defence industrial production through common procurement, focusing on priority capabilities.’

Ursula von der Leyen, President of the European Commission, was quoted as saying, “Exceptional times require exceptional measures. I welcome today’s agreement on SAFE, our Defence Industrial Readiness Loan instrument, as a critical step forward. Europe must now assume a greater share of responsibility for its own security and defence. With SAFE, we are not only investing in cutting-edge capabilities for our Union, for Ukraine, and for the entire continent; we are also strengthening the European defence technological and industrial base.”

T&Cs

The Council says the SAFE fund, which will come into force on May 29, 2025, ‘will provide up to €150 billion that will be disbursed to interested member states upon demand, and on the basis of national plans,’ adding, ‘the disbursements will take the form of competitively priced long-maturity loans, to be repaid by the beneficiary member states.’

According to the EU Commission, the SAFE instrument ‘will provide long-maturity loans (with a maximum duration of 45 years and a 10-year grace period for principal repayments) which are competitively priced, and well structured. They will be funded by EU borrowing, making them often a more cost-effective source of funding for public investments than national borrowing.’  

Non-EU Members?

The Council said that although, at least two participating countries would have to carry out ‘common procurements’ to qualify for the loans ‘to ensure economies of scale and interoperability, and reduce possible fragmentation of the EDTIB European Defence Technological and Industrial Base,’ ‘in response to current geopolitical situation and urgent need for massive investment in defence equipment,’ SAFE loans could be used for procurements by individual member states, ‘for a limited period of time.’

The SAFE instrument will also, notably, associate the defence industry of non-EU member state, Ukraine, with the fund from the beginning, in addition to EEA-EFTA (European Economic Area – European Free Trade Area) states; Iceland, Liechtenstein and Norway, being treated as member states for the purpose of, both, common procurements and industry sourcing.

The United Kingdom and other candidate countries will be allowed the opportunity to join common procurements after they sign Security and Defence Partnerships with the EU and, contingent to further bilateral or multilateral agreements, such ‘third states’ could become eligible under certain conditions.

Shopping List & Conditions

Right now, the EU has two categories of priorities for procurement for which SAFE can be utilised by its member states.

Category 1 includes ‘ammunition and missiles; artillery systems, including deep precision strike capabilities; ground combat capabilities and their support systems, including soldier equipment and infantry weapons; critical infrastructure protection; cyber; military mobility including counter-mobility.’

Category 2 imposes stricter conditions on contractors, requiring them ‘to have the ability to decide on the definition, adaptation and evolution of the design of the defence product procured.’

This category includes ‘air and missile defence systems; maritime surface and underwater capabilities; drones and anti-drone systems; strategic enablers, such as, but not limited to, strategic airlift, air-to-air refuelling and C4ISTAR systems as well as space assets and services; space assets protection; artificial intelligence and electronic warfare.’

65% European Content

The EU has imposed conditions for a minimum-requirement of European-origin content for both categories to ensure self-reliance. Components that originate ‘outside the EU, EEA-EFTA states and Ukraine’ cannot be more that 35 percent of the ‘estimated cost of the components of the end-product.’

The EU Commission has earlier explained, that purchases under SAFE should be made from ‘entities established and headquartered in the EU, EEA/EFTA States and Ukraine.’ In the case of ‘war consumables (non complex products),’ at least 65 percent of the components by value have to be sourced from EU, EEA-EFTA, or Ukraine. The same condition applies to complex platforms, with the additional rider that ‘contractors fully control the design of the defence equipment’ ‘to ensure we do not create new dependencies for complex systems.’ 

The European Council said ‘SAFE is the first pillar of the European Commission’s ReArm Europe Plan/Readiness 2030, which proposes to leverage over €800 billion in defence spending.’