Europe seeks to turn unused financing into strategic support.
BRUSSELS, BELGIUM
The European Commission has reopened €21.3 billion in unused defence loans, encouraging European Union member states to channel part of the financing into joint military projects with Ukraine as Kyiv confronts an estimated €70 billion budget shortfall. The initiative reflects Brussels’ efforts to strengthen European defence capabilities while expanding industrial cooperation with a country facing continuing Russian attacks.
The financing comes through Security Action for Europe (SAFE), a €150 billion lending instrument designed to accelerate defence investment across the European Union. Unlike direct grants to Ukraine, SAFE provides loans to participating member states, which retain responsibility for their borrowing and procurement decisions. That distinction limits the Commission’s ability to determine how much of the newly available financing will ultimately benefit Ukrainian manufacturers.
The additional €21.3 billion became available after several countries, including France, Italy and Hungary, requested smaller loans than initially anticipated. Brussels has consequently launched a second application round, allowing governments to submit requests until November 13. The Commission hopes the funding will generate new partnerships involving European and Ukrainian defence companies.
European Commissioner for Defence and Space Andrius Kubilius has urged national governments to prioritize military capabilities urgently needed by Ukraine, particularly air and missile defence systems, drones, counter-drone technologies and ammunition. These areas have become increasingly important as Russian aerial attacks continue to place pressure on Ukrainian infrastructure and military resources.
The proposal also advances a broader industrial objective. European policymakers increasingly regard cooperation with Ukrainian manufacturers as an opportunity to combine the EU’s financial resources and production capacity with Ukraine’s experience developing and adapting military technologies under wartime conditions. Such partnerships could strengthen supply chains while supporting the expansion of European defence manufacturing.
However, the initiative faces a significant political and financial obstacle. Member states have strong incentives to direct defence spending toward domestic companies, particularly when public borrowing creates additional fiscal obligations. The Commission can encourage joint projects but cannot compel governments to allocate their SAFE loans to Ukrainian partners.
Procurement rules nevertheless provide Brussels with a potential mechanism for encouraging cross-border cooperation. An earlier temporary provision allowed countries to use the financing for certain single-country purchases. That exception has expired, meaning new applications must comply with joint procurement requirements, potentially increasing opportunities for Ukrainian participation.
Poland represents a particularly important case. With €43.73 billion allocated through SAFE, Warsaw is the programme’s largest beneficiary, accounting for nearly 30% of its total lending capacity. Polish authorities have directed approximately 89% of their funding toward the country’s domestic defence industry, illustrating the tension between national industrial priorities and the European Commission’s preference for multinational cooperation.
A second complication concerns the financial capacity of participating governments. Some member states face budgetary restrictions, including excessive deficit procedures, which may discourage further borrowing. Meanwhile, Germany and the Netherlands are among the countries that have not joined SAFE, partly because they can obtain financing independently under more favorable conditions.
These differences raise the possibility that some of the €21.3 billion could remain unused despite Ukraine’s urgent financial requirements. Current SAFE regulations do not permit the Commission simply to transfer unclaimed loans directly to Kyiv, leaving joint procurement arrangements as the principal route through which the newly available resources might contribute to Ukraine’s defence.
The initiative also carries strategic significance beyond immediate military procurement. Russia’s invasion has accelerated European efforts to expand domestic arms production, reduce critical supply vulnerabilities and coordinate defence investment. Uncertainty surrounding long-term American security commitments has added pressure on European governments to develop greater capacity to sustain their own military requirements.
Yet the connection between defence lending and Ukraine’s broader budget deficit requires careful interpretation. SAFE financing is earmarked for eligible defence investments rather than unrestricted support for Ukrainian public expenditure. Joint projects could help Kyiv meet military requirements and potentially reduce pressure on other funding sources, but they would not automatically close the country’s fiscal gap.
The Commission’s latest effort therefore illustrates both the opportunities and institutional limitations of European defence integration. Brussels possesses substantial financing instruments and a growing strategic interest in cooperation with Ukraine, but national governments continue to control the decisions that determine where borrowed funds are spent.
Whether the second SAFE funding round delivers meaningful support to Ukraine will depend on the applications submitted, the projects approved and the extent to which member states include Ukrainian companies in their procurement plans.
Behind Every Decision, a Larger Consequence.