ReArm Europe: How the EU is reorganizing its defense with €800 billion (Plan/Readiness 2030)

Von der Leyen's defense billions: Who decides and who pays in the end?

Europe's security policy is at a historic turning point. The war in Ukraine has created a reality in which the question is no longer whether Europe needs to do more for its defense, but how and how quickly. The decades-long peace dividend has been exhausted, and calls for strategic autonomy and a robust, credible defense capability are louder than ever.

Amid this new urgency, the European Commission has presented the "ReArm Europe Plan/Readiness 2030" – an ambitious and far-reaching initiative that aims to mobilize no less than over €800 billion in additional defense investments by the end of the decade. But how will this enormous sum be raised, and what are the political, economic, and legal consequences of this paradigm shift? The plan rests on a multifaceted foundation of five pillars: a new loan instrument financed by joint debt (SAFE), an unprecedented relaxation of EU fiscal rules on national spending, the flexible reallocation of regional funding, an expanded role for the European Investment Bank, and the massive mobilization of private capital.

This offensive, however, is not without controversy. It is sparking a profound debate about the future of the Union: How can the necessary strengthening of defense capabilities be reconciled with long-term economic stability and debt rules? Will more money automatically lead to a more effective, integrated European defense, or will it deepen national fragmentation? And what role does democratic oversight by the European Parliament play when decisive measures are decided via emergency clauses? Beyond the official plan, other, sometimes radical, ideas are circulating, such as the establishment of a separate "armament bank," further fueling the debate.

The following comprehensive Q&A breaks this complex topic down into understandable pieces. It examines in detail the individual pillars of the ReArm Europe Plan, analyzes the underlying legal and financial mechanisms, summarizes the critical views of experts, and contextualizes the positions of the EU institutions. It is a guide to understanding one of the most momentous political decisions Europe has faced in decades – a decision that will significantly shape the continent's strategic, economic, and political future.

Why is the financing of the EU defense industry suddenly such a central issue?

The financing of the European Union's defense industry has increasingly come into focus in recent years, but the decisive turning point was undoubtedly Russia's unprovoked invasion of Ukraine in 2022. This event fundamentally changed Europe's security landscape and infused debates about defense with new urgency and dynamism. Previous discussions, often limited to theoretical concepts of strategic autonomy, were replaced by the harsh reality of a war on the EU's borders. The need to not only strengthen its own defense capability but also to provide material and financial support to Ukraine has forced member states and EU institutions to act swiftly. Documents such as the 2022 Strategic Compass, which outlines the EU's security and defense measures until 2030, and the Versailles Declaration of EU leaders that same year reflect this paradigm shift. The realization that peace and stability in Europe can no longer be taken for granted has transformed defense financing from a niche issue to one of the top priorities on the political agenda.

Was this the first time the EU provided funds for defense?

No, the use of EU funds for defense-related purposes is not a completely new phenomenon, but the scope and nature of funding have changed dramatically. The foundation was laid by the European Defence Fund (EDF), established under the Multiannual Financial Framework (MFF) 2021-2027 and building on previous pilot projects and preparatory actions. The legal basis for the EDF was Article 173 of the Treaty on the Functioning of the European Union (TFEU), which grants the EU competences in the field of industrial competitiveness. This approach cleverly circumvented the prohibition on financing operations with military or defense implications from the EU budget (Article 41(2) TFEU) by focusing on strengthening the industrial and technological base of the defense sector. More specific instruments such as the Munitions Production Support Act (ASAP) and the European Defence Industry Act through Joint Procurement (EDIRPA) were later adopted on this basis. These earlier steps were modest compared to the sums and mechanisms being discussed today. However, they paved the way and set legal precedents for today's far more ambitious agenda.

What is the broader political context for current defense initiatives?

The current initiatives are part of a broader reorientation of the EU. The European Commission under President Ursula von der Leyen has defined security and defense as a key priority for the 2024-2029 term. In her political guidelines, von der Leyen reaffirmed the commitment to work towards a "European Defense Union." This vision goes beyond mere financing mechanisms and aims at deeper integration and coordination of member states' defense policies. The publication of the ReArm Europe Plan in March 2025 and the preparatory work for the first White Paper on European Defense are concrete manifestations of this strategy. This White Paper identifies financing – along with industry and capabilities – as one of the key pillars of future EU defense. The proposals also reflect the recommendations of the influential reports by Enrico Letta on the Single Market and Mario Draghi on Competitiveness, both of which emphasize the need to reduce bureaucratic hurdles and pool European capabilities to compete globally. It is therefore a concerted attempt to integrate the EU’s economic, industrial and security strengths.

The ReArm Europe Plan/Readiness 2030: A detailed analysis

What exactly is the ReArm Europe Plan/Readiness 2030?

The ReArm Europe Plan/Readiness 2030 is a strategic proposal of the European Commission presented by President Ursula von der Leyen on March 4, 2025. Its overarching objective is to mobilize over €800 billion in additional defense investment by 2030. The plan is a direct response to the changing security situation in Europe and is intended to enable member states to significantly increase their defense spending, strengthen the European defense industry, and promote the EU's strategic autonomy. Rather than a single piece of legislation, it is a package of measures based on five key pillars and leveraging various financial and regulatory levers to achieve this ambitious goal. Following concerns from some member states, particularly Italy and Spain, the original name, "ReArm Europe Plan," was expanded to "ReArm Europe Plan/Readiness 2030" to place a stronger focus on readiness rather than pure armament.

Which five pillars form the foundation of the plan?

The plan is structured around five key pillars that work together to mobilize the necessary resources and achieve the strategic objectives:

1. A new financial instrument called the Security Action for Europe (SAFE), which will provide up to €150 billion in loans for joint defense procurement through joint debt issuance.
2. Strengthening national defense financing by activating the national escape clause of the Stability and Growth Pact, which grants member states more fiscal space for defense spending.
3. A more flexible use of existing EU instruments, in particular the Cohesion Fund, to reallocate resources to defence-related projects.
4. An expanded role and increased contributions from the European Investment Bank (EIB) to finance security and defense projects.
5. Mobilising private capital through the further development of the Savings and Investment Union to create a sustainable financing base for the entire defence sector.

How was the plan received at the highest political level?

At the special meetings of the European Council in March 2025, the plan received general approval from the EU heads of state and government. They recognized the existential challenge posed by the war in Ukraine and welcomed the Commission's intention to activate the escape clause of the Stability and Growth Pact to facilitate national spending. They noted the proposal for the €150 billion SAFE lending instrument and called on the Council to examine it swiftly. They also supported the EIB's plans to expand its lending to the defense industry. The heads of state and government emphasized the urgency of accelerating all initiatives to strengthen European defense capabilities and reiterated that a stronger EU would make a positive contribution to transatlantic security and complement NATO, which remains the cornerstone of collective defense for most EU members. At the same time, they called on the Commission to explore further options for new EU-wide financing sources and to promote the mobilization of private funds.

What are the initial reactions of experts to the plan?

Expert reactions were mixed and can be summarized as "positive but cautious." For example, Paul Dermine, Professor of EU Law, considers the plan an important political signal and a first step toward strengthening the Commission's role in defense policy. However, he warns that the plan remains heavily based on national spending and thus does not address the core problems of market fragmentation and lack of interoperability. He argues that the projected €800 billion may not be fully realized and that more ambitious instruments, such as joint borrowing along the lines of Next Generation EU (NGEU) or through the European Stability Mechanism (ESM), have not been pursued. Other experts, such as Fenella McGerty of the IISS, highlight the economic risks. While they recognize the need for increased spending, they warn that relaxing fiscal rules and creating extra-budgetary funds could jeopardize the long-term debt sustainability of member states, especially given existing financial pressures from demographic change and climate change. The tenor is that the political signal must now be followed by practical and well-thought-out measures in order to have an impact.

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Pillar 1: The SAFE loan instrument

What exactly is the “Safety Measure for Europe” (SAFE)?

SAFE is a proposed new financial instrument designed as a central component of the ReArm Europe Plan. It envisages the European Commission, on behalf of the EU, raising up to €150 billion on the capital markets. These funds will then be on-lending to Member States in the form of long-term loans. The specific purpose of these loans is to finance urgent and large-scale public investments in the European Defence Technological and Industrial Base (EDTIB). Specifically, the funds will enable the joint procurement of critical defence equipment such as ammunition, missiles, artillery systems, as well as capabilities in the fields of space, artificial intelligence, and cyber defence. The instrument is designed to run for a period of five years (2025-2030) and thus provide short- to medium-term seed funding.

On what legal basis should SAFE be established and what procedural consequences will this have?

The Commission proposes to establish SAFE on the basis of Article 122 TFEU. This article is an emergency instrument allowing the Council, on a proposal from the Commission, to adopt measures when a Member State is in difficulties or seriously threatened with difficulties due to exceptional events beyond its control. The key procedural consequence of this legal basis is that it excludes the European Parliament from the regular legislative process; the decision is taken solely by the Council. This was already the case with the establishment of the NGEU recovery fund during the COVID-19 pandemic and led to considerable dissatisfaction in Parliament. In response, a "budgetary scrutiny procedure" was agreed upon, which gives Parliament at least an advisory role in examining the budgetary implications of such measures, but no formal co-decision power.

What are the conditions for using SAFE loans?

The use of the funds is subject to clear conditions to ensure that the plan's objectives are achieved. The most important condition is joint procurement. A project must be carried out by at least two Member States, or by a Member State together with Ukraine or an EFTA/EEA state. Furthermore, the proposal includes a "European preference clause." This stipulates that the contractors involved in the procurement and their main subcontractors must have their infrastructure and production facilities in a Member State, an EEA/EFTA state, or Ukraine. Another important condition is that the value of components originating from these countries must not be less than 65% of the total estimated cost of the final product. This is intended to ensure that the money is primarily used to strengthen the European and allied defense industry and reduce dependence on non-European supply chains.

What concerns do experts specifically raise about the SAFE instrument?

Daniel Fiott of the CSDS highlights several critical points. First, the shift from traditional EU defense financing, which was often based on grants (as in the EDF), to a pure loan instrument raises questions. Loans must be repaid, which could place a significant burden on some member states, especially those with already high public debt, and deter them from participating. There is a risk that wealthier states may not need the loans and poorer states may not be able to afford them, which would undermine the overall impact of the instrument. Second, it remains unclear which criteria will be used to distribute the loans among member states and how a fair balance will be struck between each country's specific defense needs and support for Ukraine. The biggest concern, however, is that if not designed wisely, the instrument could increase rather than reduce national fragmentation in defense procurement, as each member state could be tempted to secure "its" piece of the pie for its own national industry rather than create a truly integrated European base.

Pillar 2: Relaxation of fiscal rules for national spending

How exactly should the EU fiscal rules on defense spending be relaxed?

The plan proposes using the EU's newly reformed economic governance framework to give member states more flexibility for defense spending. This would be achieved through a coordinated activation of the "National Escape Clause" (NEC). This clause is intended for exceptional, country-specific circumstances beyond a member state's control that significantly impact its public finances. Unlike the general escape clause, which applies to the entire EU or eurozone in the event of a severe economic downturn, the NEC can be used in a more targeted manner. If activated, the so-called "control account mechanism" would take effect. This means that any additional defense spending by a member state would temporarily not be recorded as a debit when assessing compliance with its spending path. However, it would continue to be recorded as an entry to maintain fiscal transparency and emphasize the temporary nature of the exception.

Are there any upper limits or specific definitions for these expenses?

Yes, the Commission has proposed guidelines in its communication to prevent abuse and ensure fiscal sustainability. The additional flexibility would be limited to an amount of up to 1.5% of gross domestic product (GDP) per country per year. Furthermore, the application of this clause would be limited to a maximum period of four years. The definition of what constitutes "defense expenditure" would be based on the internationally recognized Classification of the Functions of Government (COFOG). This category is broad and includes not only the purchase of military equipment and infrastructure, but also spending on dual-use goods when used by the armed forces, personnel costs, training, and military aid to other countries. The Commission estimates that this mechanism could unlock additional national defense spending of around €650 billion across the EU over the next four years.

What are the potential risks and disadvantages of this approach?

Experts see significant risks here. Fenella McGerty of the IISS warns that while easing debt rules will create short-term financial flexibility, it could exacerbate the long-term debt problems of many member states. Public finances are already under pressure from aging populations, rising healthcare costs, and the massive investments necessary for the green transition. Additional defense debt could jeopardize economic stability. Another risk, highlighted by Bertrand De Cordoue of the Jacques Delors Institute, is duplication and inefficiency. If each member state increases its spending individually, without strong European coordination and joint procurement, this will lead to continued market fragmentation. Instead of an integrated European defense market with interoperable systems, the result could be 27 nationally optimized, but inefficient and expensive, armament programs. The success of this pillar therefore depends crucially on the success of linking national spending with European strategic objectives.

Pillar 3: Reallocation of Cohesion Funds

How can funds intended for regional development be used for defense?

The idea is to allow Member States to reallocate uncommitted European Regional Development Fund (ERDF) funds to defense-related projects. This is not an automatic reallocation, but an option that Member States can exercise as part of the ongoing mid-term review of their Cohesion Policy programs (pursuant to Article 18 of Regulation (EU) 2021/1060). Defense industries are often important regional employers and drivers of innovation. Projects could therefore be designed to both strengthen defense capabilities and promote regional development, for example, through investments in military base infrastructure, research and development centers, or the training of workers for the defense industry. The Commission has announced its intention to propose measures to make this reallocation process more flexible and attractive.

Has cohesion policy been used for crisis response before?

Yes, cohesion policy has proven itself in recent years to be a flexible instrument for managing unexpected crises. For example, after the Russian invasion of Ukraine, the CARE (Cohesion Action for Refugees in Europe) and FAST-CARE initiatives were launched. These enabled Member States to use cohesion funds quickly and unbureaucratically to receive and care for refugees and to address the economic consequences of the war. These precedents demonstrate that reallocating funds is, in principle, possible if the political will exists.

Are there any concerns about this reallocation of funds?

Yes, there are significant concerns, particularly from regional representatives and advocates of traditional cohesion policy. The European Committee of the Regions has called in an opinion for such reallocation to be strictly limited and focused on projects that promote territorial, economic, and social cohesion. This could, for example, include supporting existing regional defense clusters. The biggest concern is that the original objectives of cohesion policy – reducing economic disparities between EU regions – will be undermined if funds are increasingly diverted to other national priorities. The European Parliament's rapporteurs for the next MFF have also emphasized the need to equip the EU budget with a better crisis response capacity so that cohesion funds are not constantly used as an emergency reserve and can be used for their actual long-term investment objectives.

Pillar 4: The role of the European Investment Bank (EIB)

What role has the EIB played in defense financing so far?

Traditionally, the role of the EIB, the EU's "house bank," in defense financing was severely limited. Its statutes and lending policy explicitly excluded the financing of lethal goods such as weapons, munitions, and purely military infrastructure. However, it was permitted to finance investments in so-called "dual-use" goods – technologies and services that can serve both civilian and military purposes. Examples include satellite communications, cybersecurity technologies, and advanced materials. Following the Russian invasion in 2022, the EIB responded with the "Strategic European Security Initiative" (SESI), pledging up to €6 billion for such dual-use projects, which was later increased to €8 billion by 2027. Nevertheless, core financing of defense equipment remained taboo.

What changes have been made or proposed to EIB policy?

In the face of enormous political pressure from many member states, the EIB has significantly relaxed its policy. A crucial step was the abolition in May 2024 of the rule that dual-use projects must generate more than 50% of their expected revenues from civilian use. This opened the door to projects with a stronger military focus. In March 2025, the new EIB President, Nadia Calviño, proposed even more far-reaching changes. This includes the explicit financing of "non-lethal" defense products such as border control technology, anti-jamming systems, or critical infrastructure. The most important proposal, however, is the creation of a permanent defense financing line that would elevate this sector to the same strategic level as the previous priorities of sustainability and cohesion. The EIB Board of Directors has since approved this expansion of eligibility, with the aim of "at least doubling" investment in this area.

Pillar 5: Mobilizing private capital

Why is mobilizing private capital so important to the plan?

The public budgets of EU member states are already under severe strain. Mobilizing private capital is therefore essential to close the massive financing gap in the defense sector. Private investors, from venture capitalists to large pension funds and banks, manage trillions of euros. The ReArm Europe Plan aims to channel some of this capital into the European defense industry. This is particularly important for small and medium-sized enterprises (SMEs) and start-ups in the defense sector, which often struggle to access financing but are critical for innovation.

How should the “Savings and Investment Union” help?

The Savings and Investment Union is a long-term project to deepen and integrate European capital markets. It includes the completion of the Banking Union and the Capital Markets Union. The goal is to create a true single market for financial services, where capital can flow more freely across borders. Such an integrated market would make it easier and cheaper for companies, including those in the defense sector, to raise capital. It would also expand investment opportunities for investors. By reducing regulatory hurdles and facilitating cross-border investments, the Savings and Investment Union aims to mobilize Europeans' immense private savings and channel them into strategic priorities such as the green and digital transformation, but also into the defense industry.

What obstacles stand in the way of private financing of the defense sector?

A key obstacle is the so-called ESG (environmental, social, and governance) criteria, which have become a central component of the investment strategy of many institutional investors such as banks and pension funds. The defense sector is often categorized as unsustainable and excluded from investment. This reluctance to invest in companies that manufacture weapons is a significant obstacle to financing. The challenge for policymakers will be to create a regulatory environment that addresses these concerns, possibly through a more nuanced view of "defense" as a contribution to national and European security and thus as a social good, without undermining the fundamental principles of responsible investment.

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Alternative financing ideas beyond the ReArm Europe Plan

What alternative financing models are being discussed?

In addition to the pillars contained in the ReArm Europe Plan, several other ideas are being discussed in political and expert circles. One of the most prominent is the creation of a specialized "armament bank" or, in an expanded form, a "Defense, Security, and Resilience Bank" (DSRB). Another idea is a direct increase in the EU defense budget in the next Multiannual Financial Framework. Finally, the use of unused loans from the Corona Recovery Fund (RRF) has also been discussed, although this option is considered less realistic.

What is the idea behind an “armament bank”?

The idea of an "armament bank," inspired by the model of the European Bank for Reconstruction and Development (EBRD), aims to create an agile and specialized financing instrument outside the restrictive framework of the EU treaties and the EU budget. Such a bank would not be funded by the EU as a whole, but directly by the participating states and secured by their national guarantees. This would have several advantages:

1. It would circumvent the EU Treaty's legal restrictions on military spending.
2. It would allow for voluntary participation. Neutral EU member states such as Austria, Ireland, or Malta would not be required to participate and would have no right of veto.
3. It could also be open to non-EU countries such as the United Kingdom or Norway, which would broaden the financial base and strengthen security cooperation in Europe.

This bank could provide low-interest loans for the purchase of military equipment and for investments in the defense industry, thus leveraging significant resources.

How is the proposed Defence, Security and Resilience Bank (DSRB) different?

The DSRB is an even broader concept. It would not only finance traditional defense, but also investments in broader societal resilience, for example, in critical infrastructure, energy security, or protection against cyberattacks and disinformation. It would offer low-interest loans and leasing models for equipment and hedge risks for commercial banks to facilitate financing, especially for smaller defense companies. A key, but controversial, proposal for initial funding is the use of frozen Russian central bank funds, or at least the income generated from them. By being independent of the EIB, it would be able to operate more flexibly and would not be subject to its restrictive lending guidelines.

Would an increase in the EU budget be an option?

Yes, and many in the European Parliament support this approach, as it would ensure the greatest degree of democratic oversight. EU Defence and Space Commissioner Andrius Kubilius has proposed allocating around €100 billion for defence in the next Multiannual Financial Framework (MFF), starting in 2028. This would represent a massive increase compared to current funding. While the EU budget may not finance military operations, it can, as is already the case, support the industrial base, research and development, military mobility, and dual-use projects. Currently, however, the EU budget has zero room for manoeuvre. Heading 5, "Security and Defence," accounts for only about 1.3% of total spending. A significant increase would require tough negotiations between member states on the overall budget size and the allocation of priorities, but it would be the most transparent and parliamentary-controlled path.

The position of the European Parliament

What is the European Parliament’s general position on the plans?

In a plenary debate in March 2025, a broad majority of political groups in the European Parliament expressed their fundamental support for strengthening European defense capabilities. Many MEPs welcomed the Commission's initiatives as an important and necessary step in the right direction. They reaffirmed Parliament's long-standing commitment to stronger EU security and emphasized the need to continue supporting Ukraine and increasing the EU's strategic autonomy, particularly in light of Russian aggression and uncertainties in the transatlantic partnership.

What specific concerns and criticisms were raised by Parliament?

Despite their general agreement, MEPs raised a number of important concerns. A key point of criticism was the Commission's proposed legal basis for the SAFE instrument, Article 122 TFEU. Many MEPs warned against systematically excluding Parliament from the legislative process through the use of emergency clauses. They see this as a threat to democratic scrutiny and accountability. Another key point was concern about funding priorities. Several MEPs strongly warned that increased defense spending must not come at the expense of funds for green and social transition or for research and development. They called for a balanced strategy that does not pit security against other future challenges.

What demands does Parliament make for the future?

Beyond the criticism, MEPs formulated clear demands. Many emphasized that the ReArm Europe Plan, while a start, must be embedded in a long-term, comprehensive European defense strategy. It is not enough to simply spend more money; it must also be spent "better and together." This includes strengthening joint procurement, reducing fragmentation, and ensuring access to critical raw materials. MEPs called on the Commission to intensify its diplomatic efforts and develop an EU strategy based on investment and solidarity to sustainably secure European sovereignty. The debate demonstrated that Parliament is ready to support a stronger defense policy, but only on the condition that it is done in a transparent, democratically legitimate, and strategically sound manner.

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