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

Von der Leyen's defense billions: Who decides and who ultimately pays?

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

Amid this new urgency, the European Commission has unveiled the “ReArm Europe Plan/Readiness 2030”—an ambitious and far-reaching initiative aiming to mobilize no less than €800 billion in additional defense investment 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 for national spending, the flexible reallocation of regional development funds, an expanded role for the European Investment Bank, and the massive mobilization of private capital.

This offensive, however, is not without controversy. It has sparked 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 control by the European Parliament play when crucial measures are decided via emergency clauses? Beyond the official plan, further, sometimes radical, ideas are circulating, such as the creation of a dedicated “defense bank,” which are further fueling the debate.

The following comprehensive question-and-answer text breaks down this complex topic into understandable parts. It examines in detail the individual pillars of the ReArm Europe Plan, analyzes the underlying legal and financial mechanisms, summarizes critical expert opinions, and contextualizes the positions of the EU institutions. It serves as a guide to understanding one of the most consequential political decisions Europe has faced in decades—a decision that will significantly shape the continent's strategic, economic, and political future.

Why has the financing of the EU defense industry suddenly become 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 altered the security landscape of Europe, lending new urgency and momentum to defense debates. Previous discussions, often confined to theoretical concepts of strategic autonomy, were superseded by the harsh reality of a war on the EU's borders. The need not only to strengthen its own defense capabilities but also to provide material and financial support to Ukraine compelled Member States and EU institutions to act swiftly. Documents such as the Strategic Compass 2022, which outlines the EU's security and defense measures until 2030, and the Versailles Declaration issued by EU leaders in the 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 into 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 defence-related purposes is not an entirely new phenomenon, but the scale and nature of the financing have changed dramatically. The foundation was laid by the European Defence Fund (EDF), established under the 2021-2027 Multiannual Financial Framework (MFF), which built upon earlier pilot projects and preparatory measures. 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 area of ​​the competitiveness of its industry. This approach cleverly circumvented the prohibition on financing operations with military or defence-related aspects from the EU budget (Article 41(2) TFEU) by focusing on strengthening the industrial and technological base of the defence sector. More specific instruments, such as the Law on Supporting Munitions Production (ASAP) and the European Defence Industry Support Law (EDIRPA), were subsequently adopted on this basis. These earlier steps, however, were modest compared to the sums and mechanisms being discussed today. Nevertheless, they paved the way and established legal precedents for today's far more ambitious agenda.

What broader political context underlies the current defense initiatives?

The current initiatives are part of a broader realignment of the EU. The European Commission, under President Ursula von der Leyen, has defined security and defence as a key priority for the 2024-2029 term. In her political guidelines, von der Leyen reaffirmed the commitment to working towards a “European Defence Union.” This vision goes beyond mere financing mechanisms and aims for deeper integration and coordination of Member States’ defence policies. The publication of the ReArm Europe Plan in March 2025 and the preparatory work for the first White Paper on European defence are concrete manifestations of this strategy. This White Paper identifies financing – alongside industry and capabilities – as one of the cornerstones of future EU defence. 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. This is therefore a concerted attempt to integrate the economic, industrial and security policy strength of the EU.

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 by the European Commission, presented by President Ursula von der Leyen on March 4, 2025. Its overarching goal is to mobilize over €800 billion in additional defense investment by 2030. The plan is a direct response to the changing security landscape in Europe and aims to enable Member States to significantly increase their defense spending, strengthen the European defense industry, and promote the EU's strategic autonomy. It is not a single piece of legislation, but rather a package of measures based on five key pillars, utilizing various financial and regulatory levers to achieve this ambitious target. The original name, "ReArm Europe Plan," was expanded to "ReArm Europe Plan/Readiness 2030" following concerns raised by some Member States, particularly Italy and Spain, to place a stronger emphasis on readiness rather than simply armament.

What five pillars form the foundation of the plan?

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

1. A new financial instrument called “Security Action for Europe” (SAFE) is intended to provide up to €150 billion in loans for the joint procurement of defence equipment through joint debt issuance.
2. Strengthening national defence financing by activating the national escape clause of the Stability and Growth Pact, which gives member states more fiscal leeway for defence spending.
3. More flexible use of existing EU instruments, especially the Cohesion Fund, to reallocate funds for defence-related projects.
4. An expanded role and increased contributions from the European Investment Bank (EIB) to the financing of projects in the security and defence sector.
5. The mobilization of 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 fundamental support 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 took note of the proposal for the €150 billion SAFE loan instrument and called on the Council to examine it promptly. They also supported the EIB's plans to expand its lending to the defence industry. The Heads of State and Government stressed the urgency of accelerating all initiatives to strengthen European defence capabilities and reaffirmed that a stronger EU would make a positive contribution to transatlantic security and complement NATO, which remains the cornerstone of collective defence for most EU Member States. At the same time, they called on the Commission to explore further options for new EU-wide sources of financing and to promote the mobilisation of private funds.

What are the initial reactions from experts to the plan?

Expert reactions were mixed and can be summarized as “positive but cautious.” For example, Paul Dermine, Professor of EU Law, views the plan as an important political signal and a first step toward strengthening the Commission’s role in defense policy. However, he cautions that the plan remains heavily reliant on national spending and thus fails to address the core problems of market fragmentation and a 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), were not pursued. Other experts, such as Fenella McGerty of the IISS, highlight the economic risks. While acknowledging the need for increased spending, they warn that relaxing fiscal rules and creating off-budget funds could jeopardize the long-term debt sustainability of member states, particularly given existing financial burdens from demographic change and climate action. The general consensus is that the political signal must now be followed by practical and well-thought-out measures in order to have an effect.

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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 raising up to €150 billion on the capital markets on behalf of the EU. These funds would then be distributed 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 Technology and Industrial Base (EDTIB). Specifically, the funds are intended to enable the joint procurement of critical defence assets such as ammunition, missiles, artillery systems, as well as capabilities in the areas of space, artificial intelligence, and cyber defence. The instrument is designed to operate over a five-year period (2025-2030) and is thus intended to 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 that allows the Council, on a proposal from the Commission, to adopt measures when a Member State is experiencing difficulties or is seriously threatened due to exceptional events beyond its control. The crucial procedural consequence of this legal basis is that it excludes the European Parliament from the regular legislative process; the decision is made 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 review procedure” was agreed, which grants Parliament at least an advisory role in examining the budgetary implications of such measures, but no formal co-decision power.

What conditions are attached to the use of SAFE loans?

The use of these funds is subject to clear conditions to ensure the plan's objectives are met. The most important condition is joint procurement. A project must be carried out by at least two Member States, or by one 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 key condition is that the value of components originating from these countries must not be less than 65% of the estimated total cost of the final product. This is intended to ensure that the funds primarily strengthen the European and allied defense industry and reduce dependence on non-European supply chains.

What specific concerns do experts raise regarding the SAFE instrument?

Daniel Fiott of the CSDS highlights several critical points. First, the shift from traditional EU defense financing, often based on grants (as with the EVF), to a purely loan-based instrument raises questions. Loans must be repaid, which could represent a significant burden for some member states, particularly those already heavily indebted, and deter them from participating. There is a risk that wealthier states will not need the loans and poorer states will not be able to afford them, undermining the overall effectiveness of the instrument. Second, it remains unclear what criteria will be used to allocate the loans to member states and how a fair balance will be struck between the specific defense needs of each country and the support for Ukraine. The biggest concern, however, is that if the instrument is not wisely designed, it will exacerbate rather than reduce national fragmentation in defense procurement, as each member state might be tempted to secure “its” piece of the pie for its own national industry instead of creating a truly integrated European base.

Pillar 2: Relaxation of fiscal rules for national spending

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

The plan proposes using the EU's newly reformed economic governance framework to give member states greater flexibility in defense spending. This would be achieved through a coordinated activation of the National Escape Clause (NEC). This clause is designed 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 more selectively. If activated, the so-called "control account mechanism" would be triggered. This means that additional defense spending by a member state would temporarily not be recorded as a charge when assessing compliance with its spending path. However, it would still be recorded as an annotation to maintain fiscal transparency and emphasize the temporary nature of the exception.

Are there upper limits or specific definitions for these expenditures?

Yes, the Commission has proposed guidelines in its communication to prevent abuse and ensure fiscal sustainability. The additional flexibility is to be limited to a maximum of 1.5% of gross domestic product (GDP) per country per year. Furthermore, the application of this clause is to be limited to a maximum duration of four years. The definition of what constitutes “defense expenditure” is to 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 expenditure on dual-use goods when used by the armed forces, personnel costs, training, and military assistance to other countries. The Commission estimates that this mechanism could unlock an additional €650 billion in national defense spending 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 might create short-term financial leeway, 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 needed for the green transition. Additional debt for defense 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, armaments programs. The success of this pillar therefore depends crucially on linking national spending to 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 unallocated funds from the European Regional Development Fund (ERDF) to defence-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 programmes (pursuant to Article 18 of Regulation (EU) 2021/1060). Defence industries are often important regional employers and drivers of innovation. Projects could therefore be designed to both strengthen defence capabilities and promote regional development, for example through investments in the infrastructure of military sites, in research and development centres, or in the training of a workforce for the defence 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 to be a flexible instrument for managing unexpected crises in recent years. For example, following the Russian invasion of Ukraine, the CARE (Cohesion Measures for Refugees in Europe) and FAST-CARE initiatives were launched. These enabled member states to use cohesion funds quickly and without bureaucracy for the reception and care of refugees, as well as for addressing the economic consequences of the war. These precedents demonstrate that reallocating funds is possible in principle, provided the political will exists.

Are there any concerns about this reallocation of funds?

Yes, there are significant concerns, particularly from regional representatives and proponents of traditional cohesion policy. The European Committee of the Regions has stated that any such reallocation should be strictly limited and focused on projects that promote territorial, economic, and social cohesion. This could include, for example, supporting existing regional defense clusters. The main 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 Multiannual Financial Framework (MFF) have also stressed that the EU budget needs to be better equipped to respond to crises 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 so far in defense financing?

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

What changes have been made or proposed to the EIB's policy?

Faced with 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 revenue 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. These include the explicit financing of “non-lethal” defense products such as border security technology, anti-jamming systems, and critical infrastructure. The most important proposal, however, is the creation of a permanent defense financing line, which would elevate this sector to the same strategic level as the existing 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 the mobilization of private capital so important for the plan?

The public budgets of EU member states are already under considerable strain. Mobilizing private capital is therefore essential to closing the enormous funding 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 defense start-ups, which often struggle to access financing but are crucial for innovation.

How is the “Savings and Investment Union” supposed to help with this?

The “Savings and Investment Union” is a long-term project to deepen and integrate European capital markets. It encompasses the completion of the Banking Union and the Capital Markets Union. The goal is to create a genuine 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 barriers and facilitating cross-border investment, the Savings and Investment Union aims to mobilize the immense private savings of Europeans 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 significant obstacle is the so-called ESG criteria (environmental, social, and governance), which have become a central component of the investment strategies of many institutional investors such as banks and pension funds. The defense sector is often categorically classified as unsustainable and excluded from investment. This reluctance to invest in companies that manufacture weapons is a considerable barrier to financing. The challenge for policymakers will be to create a regulatory environment that addresses these concerns, perhaps 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 included 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 a broader sense, a “Defence, Security, and Resilience Bank” (DSRB). Another idea is to directly increase the EU defense budget in the next Multiannual Financial Framework. Finally, the use of unused loans from the COVID-19 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 ​​a “defense 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 capitalized 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 legal restrictions of the EU treaty regarding 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 not have a 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 armaments and for investments in the defense industry, thereby leveraging considerable funds.

How does the proposed “Defense, Security and Resilience Bank” (DSRB) differ from this?

The DSRB is an even broader concept. It would not only finance traditional defense but also investments in broader societal resilience, such as critical infrastructure, energy security, and 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, particularly for smaller defense companies. A key, but controversial, proposal for initial financing is the use of frozen Russian central bank funds or at least the returns generated from them. Being independent of the EIB would allow it to operate more flexibly and avoid 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 guarantee the greatest democratic oversight. EU Defence and Space Commissioner Andrius Kubilius has proposed allocating around €100 billion to defence in the next Multiannual Financial Framework (MFF) from 2028 onwards. This would be a massive increase compared to current funding. While the EU budget cannot 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, there is virtually no room for maneuver in the EU budget. Heading 5, “Security and Defence,” accounts for only about 1.3% of total expenditure. A significant increase would require tough negotiations between member states on the overall size of the budget and the allocation of priorities, but it would be the most transparent and parliamentaryly controlled path.

The position of the European Parliament

What is the European Parliament's general stance 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 stressed 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 several important concerns. A key point of criticism was the legal basis proposed by the Commission for the SAFE instrument, Article 122 TFEU. Many MEPs warned against systematically excluding Parliament from the legislative process through the application of emergency clauses. They saw this as a threat to democratic oversight and accountability. Another important point was the concern about funding priorities. Several MEPs strongly cautioned that increased defense spending must not come at the expense of funding for the 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 criticism, MEPs formulated clear demands. Many emphasized that while the ReArm Europe Plan was a start, it needed to be embedded in a long-term, comprehensive European defense strategy. Simply spending more money was not enough; it also needed to be spent “better and jointly.” This included 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 safeguard European sovereignty. The debate demonstrated that Parliament is prepared to support a stronger defense policy, but only on the condition that it is implemented in a transparent, democratically legitimate, and strategically sound manner.

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