European Union Mulls New Defence Financing After Oversubscribed €150bn Loan Scheme

 

ZIT-The European Union is exploring additional sources of defence funding after demand for its ground breaking €150 billion ($177 billion) joint defence loan instrument far outstripped supply, EU officials and insiders say.

The plan created under the Security Action for Europe (SAFE) instrument was designed to support member states’ defence investments by making competitively priced, long-term loans available for joint procurement of critical military equipment. But 19 member states collectively requested more than €150 billion, oversubscribing the programme and leaving some countries without access to desired funding.

With billions of euros still unallocated as authorities reconcile loan applications with final contracts, officials expect the existing SAFE funds to be fully disbursed by spring 2026. Once that phase is complete, the European Commission will assess the process and consider a second round of financing, potentially including a new loan plan to meet continued defence needs.

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🛡 A New Chapter in EU Defence Funding

Launched as part of the broader Readiness 2030 framework — an ambitious European strategic defence initiative proposed by European Commission President Ursula von der Leyen SAFE represents an unprecedented EU-level attempt to finance defence industrial production on a large scale. The broader plan aims to mobilise some €800 billion in defence investments across the bloc in response to rising geopolitical tensions, particularly the war in Ukraine.

SAFE’s €150 billion envelope is being deployed through loan agreements that support joint European procurement of priority defence capabilities such as missiles, drones, air defence systems and cybersecurity technologies, with the goal of strengthening the European Defence Technological and Industrial Base (EDTIB). Funding decisions are tied to collaborative national plans approved by the Commission and require procurement from EU-linked industries.

In practice, member states including Poland, Romania, Spain and others have already been allocated provisional loan shares under SAFE. Poland, for example, emerged as one of the largest requested beneficiaries in the programme’s initial round.

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📜 Political Debate and Legal Tension

While the programme’s popularity underscores widespread demand for enhanced defence funding, it has also sparked institutional controversies.

Members of the European Parliament have raised objections to the legal basis used by the Commission to establish the SAFE fund specifically, its invocation of emergency provisions that allowed the Commission to bypass ordinary co-legislative procedures. A parliamentary committee even recommended initiating legal action against the Commission for side lining lawmakers in the creation of the loan scheme.

This tension highlights a broader debate over EU governance, democratic oversight and the balance of power between the Commission, Council and Parliament as defence policy becomes a strategic priority for the bloc.

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📈 Broader Defence Funding Landscape

SAFE is only one piece of a rapidly evolving European defence finance architecture:

• The European Defence Industry Programme (EDIP) was approved in December 2025, providing €1.5 billion in grants to boost defence industry competitiveness and support capacity building across the EU’s defence technology sector.

• Other ongoing initiatives, such as the Permanent Structured Cooperation (PESCO) framework, continue expanding collaborative defence projects among member states.

• The European Defence Fund (EDF) — launched earlier has already financed hundreds of collaborative research and development projects, though policymakers argue that funding should increase further in the next multi-year budget cycle.

EU leaders have also backed measures to simplify investment regulations and enable faster deployment of defence funds across borders. Proposals include fast-tracking permitting and reducing red tape to accelerate large-scale defence investments.

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🕊 From Crisis Response to Long-Term Strategy

The push for joint EU defence financial instruments reflects a deepening recognition among member states that collective capability development is crucial not only for European security but also for strategic autonomy in a rapidly changing global environment.

If Europe opts for a second SAFE loan round or other financing mechanisms, it would mark a further step toward institutionalised, EU-wide defence finance — shifting away from purely national defence budgets toward coordinated, shared investment strategies.

For now, Brussels’ eyes are on the spring 2026 evaluation, which is expected to shape the next phase of European defence funding and may determine whether new loans, borrowing tools or even budget reconfigurations are needed to match ambition with demand.