EU approves $170 billion SAFE fund to boost defence and reduce reliance on US

European Union member states on May 27 formally approved a €150 billion ($170 billion) defence loan program, known as the Security Action for Europe (SAFE), marking a historic step in the bloc’s efforts to rearm and build long-term strategic autonomy in the face of persistent Russian aggression and rising doubts over US security commitments.

The SAFE scheme, proposed by the European Commission (EC) in March 2025, was endorsed by 26 out of 27 EU countries at a meeting of European ministers in Brussels. Hungary was the only country to abstain. The Polish presidency, which currently holds the EU’s rotating leadership, hailed the move as the bloc’s “first large-scale defence investment programme”.

Under the plan, the EU will use its triple-A credit rating to collectively borrow funds on capital markets and loan them to member states for joint defence procurement projects. By pooling resources, the bloc aims to secure better financing conditions and scale up its defence industrial capacity amid heightened geopolitical instability and pressure to support Ukraine.

Response to Russia and uncertain US role

The SAFE initiative comes amid growing concern about the US scaling back its defence commitments to Europe. European leaders, wary of relying too heavily on Washington, have pushed to strengthen the EU’s own defence capabilities and manufacturing base, especially after Russia’s full-scale invasion of Ukraine in 2022.

The legislation explicitly cites the “urgent” threats posed by Russia and Belarus, stating that support must begin as soon as possible to ensure timely procurement and production of essential defence equipment. A key feature of the fund is its ability to bypass the usual EU spending constraints by exempting defence-related outlays from budget deficit rules, providing immediate fiscal room for investment.

While the EU has increased its collective defence spending by over 30 per cent since 2021, Brussels and several member states have warned that fragmented national procurement and limited production capacity could hamper long-term readiness. SAFE aims to address this by encouraging joint projects and reducing reliance on external suppliers, especially from the United States.

Strategic autonomy with conditions

The SAFE scheme is modelled on the EU’s COVID-19 recovery fund, also based on joint borrowing. Unlike the pandemic fund, however, SAFE consists solely of loans, which some southern EU nations have criticised as placing a heavier burden on already strained public finances.

Loans under the scheme will have favourable terms, including a 45-year repayment window and a 10-year grace period. Additionally, member states will not have to pay VAT on purchases made under the programme. However, starting in 2026, countries must apply for SAFE funds jointly with at least one other state to encourage cross-border collaboration. The scheme is set to run until 2030, with no more than 60 per cent of the total funding allocated to the top three recipients.

The final version of the regulation includes provisions to ensure both industrial and geopolitical balance. To qualify for funding, 65 per cent of the value of a defence project must originate from within the EU, the European Free Trade Association (EFTA), or Ukraine. The remaining 35 per cent can be sourced from other countries, such as the US.

Countries with a Security and Defence Partnership (SDP) agreement with the EU, including the United Kingdom, Japan, South Korea, and several others, are also eligible for partial participation. The UK’s recent defence pact with the EU clears the way for British firms to join the scheme, although further negotiations are needed to finalise access.

Next steps and industry implications

The SAFE initiative is expected to unlock up to €800 billion (about $900 billion) in potential defence spending over time, according to estimates from Brussels. EU officials hope it will catalyse the emergence of a more unified and competitive European defence industry, reducing duplication and increasing interoperability across the bloc.

However, the scheme is not without critics. Some observers warn of regulatory hurdles and potential legal challenges, especially given the Commission’s decision to bypass the European Parliament through a fast-track approval process. Others worry that the inclusion of non-EU participants could dilute the programme’s "Buy European" focus.

Still, for many in Brussels and across European capitals, SAFE marks a decisive moment in the EU’s security trajectory—one that reflects a more assertive and independent defence posture in an increasingly unstable world.

(With inputs from agencies)