SAFE Explained: Who Really Benefits?

In this article you will learn:

• What the SAFE programme is;
• Who can apply for its funding;
• Whether non-EU countries can tap the SAFE mechanism;
• The key risks and opportunities for participants.

On May 27 2025, the Council of the European Union adopted the regulation establishing the Instrument for Strengthening European Security – SAFE. It is an extraordinary fund designed to urgently fill gaps in the defence abilities of countries, increase the production capacity as well as ensure the availability of defence equipment.

Worth pointing out that SAFE is a first and currently the most important pillar of the ReArm Europe Plan/Readiness 2030 prepared by European Commission which proposes raising over €800 billion in defence spending.

From a capital-allocation viewpoint, SAFE represents a €150 billion, EU-backed demand pipeline for defence assets across 30 jurisdictions. The facility is underwritten by the Union’s AAA balance sheet and disburses competitively priced loans with maturities up to 45 years and a 10-year principal grace period, giving borrowers fiscal breathing room and offering investors ultra-long, high-quality paper. Early disbursements are scheduled before year-end 2026, creating near-term order-book visibility for listed primes and mid-cap suppliers.

The mechanism of SAFE

The European Commission will allocate up to €150 billion to help member states scale up production lines, workforce skills and strategic supply chains, thereby enabling larger common defence procurement. Upon request and based on supported application and national plans, the European Union will release resources to the interested countries. The disbursements will take the form of competitively priced, long-term loans, maturing in up to 45 years and featuring a 10-year grace period on principal. Speaking about the financing of this project, SAFE is based on joint borrowing, and will be raised through the issuance of single-branded EU Bonds and EU Bills.

The primary objective of SAFE is to develop sustainable and scalable industrial capacity within the European Union, not only to fund the procurement of end-products. Therefore, project proposals must merge production capability development with final acquisition. Yet contrary to other long-term instruments, like EDIP, SAFE is a short-term emergency instrument with funding available until 2030, so SAFE is focused on a near-term readiness to a significant extent. Of course, the expanded capacity and the procured defence articles will serve for the decades to come.

SAFE loans are financed through the same single-brand EU-Bond/Bill platform used for NextGenerationEU, yet the proceeds are ring-fenced for defence. For investors this means benchmark-level liquidity, ECB repo-eligibility and a likely 3—5 bp pick-up over French OATs. The duration ladder—10-, 20- and 45-year tranches—will appeal to liability-driven investors seeking ultra-long assets, while the joint-borrowing model limits idiosyncratic sovereign risk.

To maintain the European Union cohesiveness in terms of defence industry the fund will be based on production through joint procurement. It means that the loan will be granted to at least two countries. Nevertheless, due to the dynamic international situation and the need of the urgent and huge investments in defence equipment, for the contracts signed until May 2026, „provided that this Member State takes all necessary steps, to be agreed upon in the operational arrangement, to extend the benefit of that contract by actively reaching out to other Member States, EEA EFTA states and Ukraine as well as acceding countries, candidate countries, potential candidates, or other third countries with which the Union has entered into a Security and Defence Partnership”, as the EU Regulation says.

The objective of the joint procurement is to ensure the economies of scale, interoperability as well as predictability in production. Access to SAFE loans is conditional on anindustrial investment plan that details how new or expanded facilities will deliver those economies of scale. Moreover, thanks to that it is attainable to achieve the reduced costs of a strong European industrial base in the defence sector.

The possibility of the cooperation with third countries and eligible activities within the Instrument

SAFE enables Ukraine and EEA-EFTA states the opportunity to participate in joint procurement. It will be also applicable for acceding and candidate countries, potential candidate countries and those who signed the partnerships with European Union in terms of defence and security (Security and Defence Partnership, SDP). The EU has seven such agreements with Norway, Moldova, South Korea, Japan, Albania, North Macedonia, and UK.

Regarding the eligible activities to be supported by the fund, European Council distinguished two categories of defence products:

1. ammunition and missiles; artillery systems, including deep precision strike capabilities; ground combat capabilities and their support systems, together with soldier equipment and infantry weapons; critical infrastructure protection; cyber; military mobility along with counter-mobility;
2. 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.

These two lists come directly from Article 1(2)(a–b) of Council Regulation (EU) 2025/1106 establishing SAFE. They are not intended to be mutually exclusive. Category 1 includes capabilities that can be fielded quickly (e.g. artillery ammunition, class-1 drones), whereas Category 2 covers more complex, longer-lead systems (e.g. layered air defence, class-2/3 drones, strategic enablers).

Projects that straddle both lists should identify a primary category in the National Defence Investment Plan; the Commission may split hybrid proposals into separate work packages rather than reject them.

To promote the European market, the cost of components originating outside the EU, EEA-EFTA countries, and Ukraine must not exceed 35% of the estimated cost of the final product. This ensures design authority remains within European entities and reduces risks related to kill switches, software dependencies, or blocked re-exports.

Defence exposure can trigger exclusions under many Environmental, Social and Governance (ESG) investment policies. Investors should therefore pre-screen mandates before subscribing. SAFE mitigates reputational and sanctions risk by requiring at least 65% EU/EEA-EFTA/Ukraine content and capping third-country inputs at 35 %. Coupled with the instrument’s Article 122 humanitarian rationale, many responsible-investment frameworks now classify SAFE holdings under the „security-as-sustainability” doctrine—supporting societal resilience rather than offensive warfare.

The importance of SAFE

SAFE is first and foremost an industrial policy instrument, not a procurement fund. It represents a strategic shift toward rebuilding Europe’s defence manufacturing infrastructure. According to the conclusion the European Council, the Member States need to become more sovereign and more responsible for its defence. An emphasis was placed on the need for preparedness to act independently and deal with the most pressing challenges. The establishing of this fund should be also perceived as an element of the deterrence strategy to enhance the European Union reputation for taking the present and future threats from Russia and its partners seriously.

The importance of this project was also highlighted during the session of the European Union on March 6, 2025, when all Member States committed to reinforcing their overall defence readiness, reducing strategic dependencies, addressing critical capability gaps, and strengthening the European Defence Technology and Industrial Base (EDTIB).

The presence and future of the project

This fund was presented as a response to the threat posed by Moscow and increasing pressure from United States during the Donald Trump’s second term. Paradoxically, it was not announced in the wake of Russia’s full-scale invasion of Ukraine, but rather amid fears of the trade war with Washington and potential reduction of the U.S. presence in Europe. According to the project’s objectives, the European Union would like to position itself as a stronger and more assertive global actor. However, this ambition seems difficult to reconcile with Brussels’s agreement on a deal with the United States that includes 15% tariffs, alongside the European Union’s commitment to purchase $750 billion worth of energy from the U.S. and invest an additional $600 billion into the American economy. Under these circumstances, one thing that European Union is so much needed is the greater sense of agency in negotiations with international actors and strengthened unity on key issues concerning regional security architecture. Without that, it might be quite challenging to create a cohesiveness, strength and competitive advantage.

Undoubtedly SAFE should be perceived as some sort of impetus for boosting European defence capabilities. Nevertheless, this is only the drop in the ocean. Military spending alone is not sufficient. Each member state must also invest more in education, military trainings, civil defence infrastructure such as shelters and improving social resilience and preparedness. Only through above conditions it is possible to build a comprehensive security system.

To avoid misinterpretation, it must be stressed that SAFE is not only €150 billion arms procurement programme. Its success will be measured both by the depth and sustainability of the industrial capabilities it creates and by the volume of equipment purchased.

How can a member state benefit from SAFE?

A European Union (EU) member state can use SAFE loans primarily to finance new ammunition lines, air-defence component plants, and workforce-training centres. Major equipment acquisitions are expected to follow. Because SAFE was designed as a pan-European instrument, each member state—regardless of size—can tailor its use to fit national industrial gaps and security priorities.

Participation begins with a National Defence Investment Plan (NDIP), a strategic roadmap that outlines proposed projects and demonstrates how each meets SAFE’s industrial content requirement—namely, that at least 65% of the value must originate from the EU, the European Economic Area (EEA), the European Free Trade Association (EFTA), or Ukraine. Typical applications range from a few billion euros for niche industrial upgrades to multi-billion-euro modernisation packages. Final funding decisions are made by the European Commission, based on a comparative assessment of all NDIPs and the overall availability within the €150 billion ceiling.

SAFE is not intended to finance off-the-shelf procurement. Instead, it aims to build scalable, sovereign, and sustainable industrial capabilities across the EU. Countries may use it to support new strategic initiatives or industrialise elements of existing defence programmes—so long as these are aligned with SAFE’s eligibility criteria and, typically, involve joint procurement with at least one other member state.

Although SAFE funding is delivered as ultra-long, AAA-rated EU loans (with maturities of 10, 20 or 45 years, and a 10-year grace period), domestic capital can participate through three primary channels:

-        Institutional investors—such as pension funds, insurance firms, and sovereign wealth funds—can subscribe to SAFE bonds, gaining access to high-quality, long-duration assets that are eligible for repurchase operations with the European Central Bank (ECB).

-        National development and commercial banks may co-finance SAFE-backed projects through syndicated loans, many of which will benefit from sovereign or EU guarantees that reduce financing costs.

-        Equity investors can target local prime contractors or mid-sized suppliers selected to lead or participate in SAFE-qualified tenders.

Two critical milestones define the programme’s initial implementation: NDIPs must be submitted to the European Commission by 30 November 2025, with allocation decisions scheduled for Q1 2026. Before committing capital or making bids, participants must verify full compliance with SAFE’s content thresholds (≥ 65% EU/EEA-EFTA/Ukraine components and ≤ 35% from third countries).

SAFE represents more than just a €150 billion loan facility—it is the EU’s first large-scale test of shared fiscal power in the defence sector. For policymakers, it marks a shift toward collective deterrence and strategic autonomy. For investors, it offers a new class of AAA-wrapped, long-term assets tied to European security priorities.

Risks remain—including potential legal challenges to Article 122, industrial bottlenecks, and heightened scrutiny under Environmental, Social and Governance (ESG) frameworks. Nonetheless, SAFE’s built-in safeguards—such as the EU budget backstop, strict origin rules, and sanction filters—help ensure transparency and mitigate exposure.

Ultimately, a member state’s success under SAFE will depend on its ability to deliver credible industrial projects, attract co-financing, and maintain consistent engagement with EU institutions. Should the inaugural €150 billion tranche deliver results, a scaled-up successor facility is already part of the European Commission’s long-term agenda—indicating that SAFE may be only the first step in a multi-decade European defence-financing strategy. Countries that act early and decisively may gain not only fiscal leverage, but also long-term industrial and strategic influence in Europe’s evolving security architecture.

Authors: dr. Aleksander Olech, Amelia Wojciechowska