The European Commission, in its newly released White Paper on European Defence, has presented member states with proposals on how to finance large-scale defense investments and strengthen the European defense industry. These proposals include not only a €150 billion loan instrument but also fiscal flexibility—1.5% of each member state’s GDP spent on defense will not be counted toward public debt limits by the Commission. The current proposals aim to rapidly boost the EU’s defense capabilities, and more are expected in the next EU budget cycle for 2028–2034.
On March 19, 2025, the Commission presented its White Paper titled “Readiness 2030”, outlining a framework for the ReArm Europe initiative, which aims to mobilize over €800 billion to strengthen European defense.
“The Commission is offering member states a fairly innovative financing proposal, increasing their capacity to fund defense expenditures—either through the new SAFE program (providing €150 billion in loans to fill critical capability gaps) or by offering fiscal leeway so that national defense spending does not count toward excessive deficit procedures,”
explains Katarzyna Smyk, Head of the European Commission Representation in Poland, in an interview with Newseria.
This means member states will be allowed to increase military spending by 1.5% of GDP without triggering EU fiscal penalties. Over four years, this could add up to €650 billion in additional national defense expenditures.
“This relief gives countries room to increase spending without the fear of being placed under scrutiny for exceeding deficit limits,”
says Smyk.
“Poland is currently subject to the excessive deficit procedure in part because of its high defense investments. This exemption is therefore very important for Poland, and it seems that Poland has successfully lobbied for it.”
The SAFE Program – €150 Billion in Defense Loans
The Commission also introduced the SAFE (Security and Defense Enhancement) instrument, offering €150 billion in low-interest loans for actions that increase defense capacity. Funds will be distributed to interested member states upon request and based on national defense plans.
To apply, a country must submit a request to the Commission along with a plan describing the defense product to be funded. Priority areas include ammunition, guided missiles, artillery systems, drones, anti-drone systems, air defense, electronic warfare, and critical infrastructure protection. Applications can be submitted jointly by several countries—or individually during the first year.
“Of the €150 billion, we propose that 65% be spent on European capabilities or goods produced in Europe. Any member state that partners with another EU country—or with Ukraine or Norway—can apply. The goal is to make Europe more secure, increase our production independence, and create jobs in Europe by inviting businesses to either start operations or expand existing capabilities in the defense sector,”
emphasizes Smyk.
Supporting the European Defense Industry and Ukraine
Joint procurement contracts must include a provision ensuring that at least 65% of component costs come from the EU, EFTA-EEA countries, or Ukraine. This way, the SAFE program will not only allow quick investment boosts in defense but will also strengthen the European defense industry.
“One of the goals of this package is also to continue supporting Ukraine and benefit from its defense experience,”
says Smyk.
“Ukraine is treated as an equal partner in the application process. A member state that includes Ukraine in its project automatically meets the requirement of involving at least two entities. This reflects the increasing integration of Ukraine’s defense sector with the EU’s.”
The ReArm Europe plan also involves the European Investment Bank (EIB), which will expand its lending scope to include defense and security projects. Currently, access to financing remains a major challenge for 44% of defense-sector SMEs. The proposed strategy aims to redirect private savings into capital markets, helping individuals invest in critical sectors like defense.
“The European Commission has identified many market barriers that hinder the growth of SMEs and entrepreneurship in defense—including administrative and bureaucratic burdens. That’s why this package is accompanied by a simplification package to ease the requirements for setting up defense-related businesses,”
explains Smyk.
“The Commission wants to simplify the process so that in this strategic and crucial sector, starting and scaling up a defense business becomes faster and more efficient.”
Quick Deployment Now, Larger Tools Coming Later
According to Smyk, the financial tools proposed in the White Paper are available relatively quickly and will allow the EU to catch up in key defense areas by 2030. However, more extensive instruments—involving a greater share of EU funds for defense—will only be possible in the next multiannual financial framework (MFF).
“What could really change the game is the new EU budget, with discussions starting this summer when the Commission presents its proposals. This budget will cover 2028 to 2034, but we must act now,”
emphasizes Katarzyna Smyk.
