Brussels hopes unspent defence loans may help plug Ukraine’s budget hole

The European Commission has reopened €21.3bn in unused loans from its SAFE defence programme. It is encouraging EU governments to use this money for joint projects with Ukrainian companies. The goal is to support Ukraine’s urgent wartime needs while also expanding Europe’s defence production.

The Commission particularly highlights missile defence, drones and ammunition. Governments must normally involve more than one country in new procurement projects, but the rules do not require a minimum share for the second participant. This could allow Ukrainian companies to join projects led by EU countries.

Brussels cannot compel governments to include Ukraine. The loans belong to member states, which take them for their own defence needs. Some governments may prefer national suppliers. Still, the Commission hopes the new rules will direct at least several billion euros toward Ukraine, although some money may remain unused.

SAFE stands for Security Action for Europe. It is an EU financing programme that offers low-interest loans for strategic defence investment. The programme was created to help member states urgently increase their defence capabilities and industrial output.

The loans are supposed to support joint procurement and projects involving several countries. The Commission now wants governments to use them for ventures with Ukrainian companies as well. Suggested priorities include missile defence systems, drones and ammunition, because these are among Ukraine’s most urgent needs.

SAFE was launched amid Russia’s war against Ukraine and doubts about US security guarantees during Donald Trump’s second term. The programme can benefit national defence industries, but its newer procurement rules are intended to encourage cooperation across borders. Member states decide how to use their loans, so Ukraine’s participation is encouraged rather than guaranteed.

The Commission has made €21.3bn in previously unspent SAFE funding available again. Governments can apply during a second round of calls running until 13 November. The money is intended for defence investment, including projects that could involve Ukrainian companies.

Ukraine’s government is facing a €70bn budget shortfall. The article links this crisis to continuing damaging airstrikes and the wider financial pressure of the war. Joint defence projects would not automatically fill the entire gap, but they could provide industrial support and help supply urgently needed equipment.

The sums also show the limits of the proposal. The available SAFE funding is far below Ukraine’s stated shortfall, and not every government may want or be able to borrow more. The Commission therefore hopes to direct part of the money to Ukraine, while acknowledging that some may remain unused.

Several countries did not use as much SAFE funding as expected. Italy, Hungary and France borrowed far less than anticipated, leaving money available for a second round. Some eastern-flank countries, including Romania, may also struggle to take on more loans because they are under an excessive deficit procedure.

Eight EU countries never joined SAFE. Germany and the Netherlands are among them because they can borrow more cheaply on their own than through common EU debt. Only a few countries, such as Poland, Ireland and Greece, are considered likely to want new loans.

This limited demand could leave several billion euros unspent. That would matter because Ukraine urgently needs financial and defence support. Poland is the largest SAFE beneficiary and has earmarked 89% of its funding for Polish arms companies, but its next application must follow the multinational procurement rules.

If EU governments include Ukrainian companies, Ukraine’s defence industry could gain contracts, technology partnerships and a larger role in producing vital equipment. The Commission specifically names missile defence systems, drones and ammunition as urgent areas for cooperation.

The key mechanism is joint procurement. New SAFE applications must meet multi-country requirements, unlike the earlier single-country procedure. A government could therefore bring a Ukrainian company into a qualifying project. There is no minimum share for the second country, so Ukrainian participation might be meaningful but is not guaranteed to be large.

The financial effect would remain limited compared with Ukraine’s €70bn budget gap. Joint projects could support Ukrainian production and wartime supply, but the loans are controlled by EU member states. If governments prefer national suppliers or cannot absorb more borrowing, Ukraine may receive little of the available €21.3bn.

SAFE loans are taken out by EU member states for their own defence needs. The Commission manages the programme, but it does not own the unused money as a transferable grant for Ukraine. The current regulation therefore does not allow unused loans to be sent directly to Kyiv.

The same principle limits Brussels’s influence over projects. Governments choose how to spend their loans, and the Commission cannot require them to involve Ukrainian companies. It can encourage joint ventures and use procurement rules to steer decisions, but it cannot guarantee an outcome.

The revised rules may still create an opening. New applications cannot use the former single-country procurement procedure and must meet multi-country requirements. However, there is no minimum share for the second country. Member states may include Ukraine, but they may also favour their national industries or decide not to borrow more.

Common EU borrowing allows the EU to raise money collectively and offer member states loans under a shared programme. SAFE uses this approach to finance strategic defence investment at low interest. Governments then apply for loans and use them for approved defence purchases or projects.

Joint procurement means that a project involves more than one participating country. Earlier, governments could use a temporary single-country procedure for urgent national purchases. That option is no longer available for the new round. Poland and other applicants must now meet the multi-country requirement, potentially by involving Ukraine.

National governments may prefer domestic suppliers because defence budgets can strengthen their own companies and industrial output. Poland, for example, earmarked 89% of its SAFE funding for its arms industry. The Commission hopes shared procurement can align national industrial interests with support for Ukraine, but it cannot impose that choice.