The European Union has agreed to borrow 150 billion euros to rearm. Unusually, it is mainly the borrowers, not the lenders, who are unhappy.
On March 12, Karol Nawrocki, Poland’s newly elected president, took to state television to veto a bill that would have unlocked 43.7 billion euros for the country’s defence ministry. He called it “a massive foreign loan taken out for 45 years in a foreign currency” and likened the deal to the Swiss franc mortgages that had ruined thousands of Polish households after 2008. Donald Tusk’s coalition government, which had drafted the bill, simply re-routed the money through an existing armed-forces fund. By May 8 Brussels had signed Poland’s full loan agreement. The veto had not stopped the loan.
The scheme Nawrocki blocked is called Security Action for Europe, or SAFE. The Council adopted it last May: 150 billion euros that the Commission would borrow on capital markets and re-lend to member states on long maturities, with a ten-year grace period. Andrius Kubilius, the European Commission’s first defence commissioner and a former Lithuanian prime minister, called it “a European success story” when the loan allocations were announced four months later. “Today, we move from the stage of opportunities to the stage of delivery,” his executive vice-president Henna Virkkunen told reporters when the first eight national plans were approved in January.
The rule that has caused most of the trouble sits at the centre. At least 65 per cent of any procurement contract’s value must originate inside the EU, the European Economic Area, the European Free Trade Association or Ukraine; outside content is capped at 35 per cent. Kaija Schilde, a defence economist at Boston University, told a joint hearing of the European Parliament in June 2025 that 78 per cent of European procurement contracts since 2022 had gone to non-EU suppliers. The vast majority were American. Armin Papperger, the chief executive of Germany’s Rheinmetall, had been making the case from the industry side for years. “An era of rearmament has begun in Europe,” he told reporters in March 2025, predicting his firm’s order book would grow by 450 per cent over five years. In November he stood beside Romania’s prime minister, Ilie Bolojan, to announce that Rheinmetall would supply Bucharest’s Lynx armoured-vehicle programme under SAFE.
The 65 per cent has nevertheless irritated almost everyone outside the EU. As early as March 2025 Marco Rubio, the American secretary of state, was telling the foreign ministers of Lithuania, Latvia and Estonia that any exclusion of American firms from European tenders would be “viewed dimly”. John Healey, the British defence minister, faced the opposite problem. London had hoped for an entry deal but baulked at the contribution Brussels asked for, reportedly around two billion UK pounds. Nick Thomas-Symonds, the UK’s EU relations minister, confirmed in December that the talks had failed: the terms, he said, were not “in the national interest” and did not “provide value for money”. That same day, member states endorsed a bilateral deal with Canada, the deal Britain had refused. David McGuinty, the Canadian defence minister, said it would “catalyse massive private investment” at home. Canadian content can run as high as 80 per cent.
The money’s SAFE
The bigger objection is to the financing. Member states must repay every euro of SAFE money, principal and interest, after ten years’ grace. Luis de Guindos, vice-president of the European Central Bank, used the bank’s Financial Stability Review in November 2025 to warn that heavier defence spending and rising funding costs could strain governments already carrying too much. Italy was the obvious case. Giorgia Meloni’s government resisted applying for months, mindful of the second-largest public debt in the bloc, before relenting under pressure from Brussels and requesting 14.9 billion euros. Germany did not apply at all. Boris Pistorius, its defence minister, had at his disposal the 500 billion euros Berlin had unlocked for defence in March 2025 by exempting military spending from its constitutional debt brake.
The money is moving anyway. Ursula von der Leyen, president of the European Commission, approved the first wave of eight national plans in January. A second wave of eight followed three weeks later. By April 10, the Council had cleared all 18 plans submitted by last November’s deadline, with Czechia and France the last in. Brussels finalised Poland’s loan agreement in late April; von der Leyen called the country “an essential pillar of Europe’s security architecture”. Kubilius, speaking in Brussels on March 16, was blunter: “the likelihood that Europe will face a Russian aggression in the future is high.” Nawrocki has not changed his mind.
Despite Papperger’s forecast of 40 to 45 per cent sales growth for Rheinmetall in 2026, analysts reckon serious EU-wide output will not arrive until 2028 or 2029. Contracts still have to be negotiated project by project. Factories tooled. Workers hired. European intelligence agencies talk of a possible Russian move against another member state by 2027. Poland signed its loan in late April for equipment its factories are not due to deliver at scale until the end of the decade.
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