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Commission Proposal: COUNCIL REGULATION establishing the Security Action for Europe (SAFE) through the reinforcement of the European Defence Industry Instrument

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This past summer, I served as a trainee under Thomas Geisel, who sits on the European Parliament's Committee on Industry, Research and Energy (ITRE) and is also involved in the Committee on Budgets (BUDG).

My primary project involved an in-depth analysis of the proposed Council Regulation establishing the Security Action for Europe (SAFE) Instrument.

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This work offered a firsthand look at how the EU is attempting to address urgent security challenges through novel legal and financial mechanisms. Under Mr. Geisel's direction, my analysis served to advise him on his decision-making process regarding this crucial piece of legislation.

Below is a comprehensive English translation of my internal analysis of the SAFE proposal's structure, legal basis, and implications.

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Analysis of the EU Security Action for Europe (SAFE) Instrument

Commission Proposal: COUNCIL REGULATION establishing the Security Action for Europe (SAFE) through the reinforcement of the European Defence Industry Instrument

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Legal Basis, Subsidiarity, and Proportionality

Legal Basis

  • Article 122 TFEU (Treaty on the Functioning of the European Union) serves as the legal basis (which is questioned by both the EP's JURI Committee and us; the Council follows the Commission's view).

  • SAFE is justified by the sudden and exceptional deterioration of the security situation in the EU since the beginning of 2025.

  • Article 122 permits financial assistance in cases of natural disasters or exceptional occurrences – comparable to its use during the COVID-19 pandemic (SURE instrument, which led to NGEU).

  • The objective is to quickly support Member States with investments in the European Defence Technology and Industrial Base (EDTIB) to manage supply bottlenecks in armaments.
     

Subsidiarity

  • According to the Commission, the proposal complies with the principle of subsidiarity: measures at the EU level are intended to complement national investments.

  • Without coordination, inefficiencies, price increases, and further fragmentation of the EDTIB favouring non-European suppliers allegedly threaten to occur.

  • The common EU action is intended to enable synergy effects, scaling of demand, and a more efficient allocation of funds.

  • The Union can introduce targeted exemptions for procurement rules (Directive 2009/81/EC) to facilitate accelerated joint procurement.
     

Proportionality

According to the Commission, the measures do not exceed what is necessary to achieve the objectives. Interventions in existing legal frameworks (Financial Regulation, VAT Directive, Procurement Directive) are limited in time and purpose-bound.


Form of the Legal Act

A regulation is necessary because it is generally applicable and directly binding – as was the case with previous measures based on Art. 122 TFEU (e.g., SURE).
 

Evaluations, Consultations, and Impact Assessment

  • No ex-post evaluation, stakeholder consultation, or impact assessment was carried out because the proposal was prepared urgently. This urgency allegedly justifies the deviation from usual procedures.
     

Budgetary Implications

  • The Commission can raise bonds on the capital market in accordance with its diversified funding strategy.

  • Volume: up to €150 billion in the form of loans to Member States.

  • Secured by a Union guarantee according to Article 2(3) of the MFF (Multiannual Financial Framework) Regulation; compatibility with budgetary rules is ensured.

  • Problem: the so-called "headroom" (security in case of a Member State's default) is anchored in the MFF.

 

Budgetary discipline is allegedly maintained by the following principles:

  • Prudent portfolio construction (diversification, risk management),

  • Limitation of exposure to individual Member States,

  • Possibility of "roll over" of debt,

  • End date: 31 December 2030 for the last loan applications.

 

Summary of Article Structure in the Regulation

Article 1 – Establishment of the SAFE Instrument
Establishment of a temporary and ad-hoc instrument to support public investments in the defence industry.

Article 2 – Definitions
Key definitions, including for "defence products" and "joint procurement".

Article 3 – Complementary Effect
SAFE complements national measures and accelerates investments through coordination.

Article 4 – Activation of the Instrument
Member States can apply for loans if planned measures are based on joint procurement.

Article 5 – Type of Financial Support
Form of support: Loans to Member States.

Article 6 – Financial Framework
Maximum volume: €150 billion, limited until the end of 2030.

Article 7 – European Investment Plan for the Defence Industry
Member States must submit a national investment plan.


Three-step procedure:

  • Expression of interest (within 2 months),

  • Preliminary allocation of loans by the Commission,

  • Submission of the investment plan (within 6 months of entry into force), content of the investment plans: measures, needs, compliance with EU law, etc.

Art. 8 – Decision on the Application for Financial Assistance

  • The Commission quickly assesses the defence industry investment plan (Art. 7) and decides on the application for financial assistance.

  • If the application is found to be compliant with the rules, the Commission issues an implementing decision with details on the plan assessment, loan amount, and pre-financing.

  • The Commission informs the Member State of its assessment with justification.

  • In making decisions, the Commission considers the financing needs of all Member States according to the principles of equal treatment, solidarity, proportionality, and transparency.

  • If funds remain available after decisions are made, a new call for expressions of interest may be published until the end of 2026.

  • Decisions can be made until 30 June 2027.

Art. 9 – Borrowing and Lending

  • The Commission may borrow funds on behalf of the EU for the SAFE instrument on the capital market or from financial institutions.

  • All operations are conducted in Euro.

Art. 10 – Loan Agreement and Operational Arrangements

  • After the decision, the Commission concludes a loan agreement and operational arrangements with the Member State.

  • The loan agreement regulates availability, duration (max. 45 years), pre-financing, etc.

  • The operational arrangements define the link between the investment plan and the financial assistance, payment schedule, evidence, and control rules.

Art. 11 – Pre-financing

  • Member States can apply for pre-financing of up to 15% of the loan support.

  • Disbursement only occurs after the entry into force of the loan agreement and, where applicable, operational arrangements.

  • Pre-financing can be paid out in tranches if funds are available.

Art. 12 – Payment Rules and Suspension of Loans

  • Loans are available until 31 December 2030 at the latest; disbursements occur in tranches.

  • Member States submit semi-annual progress reports and can apply for payments.

  • The Commission quickly examines the reports and approves or suspends payments in case of objections.

  • The Member State can comment within one month.

Art. 13 – Prudential Rules for Loan Portfolio
The three largest borrowers together may not receive more than 60% of the maximum loan volume.

Art. 14 – Control and Audits
The loan agreement contains provisions for controls and audits. Member States must submit semi-annual progress reports with expenditure receipts along with their payment applications.

Art. 15 – Reporting
The Commission reports annually to the Parliament and the Council on the use of financial assistance.
If necessary, it proposes extensions of the availability of the SAFE instrument.

Art. 16 – Eligibility Rules for Joint Procurement

  • Joint procurement of defence goods is only eligible if it meets certain conditions (e.g., participants from EU/EEA/Ukraine, no control by third countries without security screening).

  • Strict requirements for the participation of companies, security guarantees, origin of components (at least 65% from EU/EEA/Ukraine), and protection against third-country influence.

  • Contract conditions must safeguard the security interests of the EU.

  • Member States must detail these conditions in the investment plan and monitor compliance.

  • Financial assistance can also be used for participation in certain joint procurements in which third countries may be involved (under security prerequisites).

Article 17 – Conditions for the Participation of Entities and Products from Other Third Countries

  • EU agreements with third countries: The EU can conclude bilateral or multilateral agreements with friendly third countries, such as accession candidates (except Ukraine), potential candidates, and countries with security and defence partnerships (NBI), to allow their entities and products to participate in joint procurement within the SAFE instrument framework.

  • Content of the agreements: These agreements regulate which conditions of participation according to Article 16 are opened, in particular:
    (a) Participation conditions for contractors and subcontractors from the third countries.
    (b) Rules regarding the location of infrastructure, facilities, and resources used for the production of the defence products.
    (c) Rules on the cost shares of components originating from the third country.
    (d) Rules on restrictions that third countries or their entities may impose regarding the design, adaptation, and further development of the defence products.

  • Further agreement contents:
    (a) Fair balance of contributions and benefits for the third country.
    (b) Conditions for the third country's financial contributions to the EU.
    (c) Measures to ensure the security of supply of the procured products.
    (d) Promotion of standardisation and interoperability between EU Member States and the third countries.

  • Financial contributions: The financial contributions of the third countries are to be treated as external assigned revenues in the EU budget and will be used for programmes that support the EU defence industry, the Ukrainian defence industry, and Ukraine.

Article 18 – Amendment of Framework Agreements or Contracts

  • Scope: Applies to joint procurement financed by the SAFE instrument (wholly or partially by loans), and where existing contracts do not contain provisions for substantial changes.

  • Permitted amendments: Adding new contracting authorities from participating states to existing framework agreements/contracts, provided the contractor meets the criteria (similar to Article 16(3)-(11)). Substantial quantity changes are permissible if necessary for adding the new contracting authorities.

  • Notification: Changes must be published in the Official Journal of the EU.

  • Equality: All contracting parties bear the costs for additional quantities accordingly.

Article 19 – Urgency and Negotiated Procedure Without Call for Tenders

  • Joint procurements involving at least one Member State receiving financial assistance from the SAFE instrument are considered urgent due to a crisis (e.g., defence emergency).

  • This permits the negotiated procedure without prior publication of a contract notice (pursuant to Article 28(1)(c) of Directive 2009/81/EC).

Article 20 – Temporary VAT Exemption
Supplies (including imports and intra-Community acquisitions) of defence products resulting from contracts under joint procurement via SAFE are temporarily exempted from VAT (derogating from Article 2(1) of the VAT Directive 2006/112/EC).

Article 21 – Handling Confidential and Sensitive Information
The Commission uses a secured exchange system to safely exchange confidential and sensitive information between the Commission, Member States, and potentially contractors. The Commission has access to all necessary information (including classified data) to verify disbursements and carry out controls, audits, and investigations.

Article 22 – Information, Communication, and Publicity

  • Cooperation: The Commission and Member States can carry out joint communication activities to ensure the visibility of EU financial assistance, while respecting security aspects.

  • Labelling: Member States must make the EU support visible (e.g., using the EU emblem and the mention "supported by the European Union – SAFE") when promoting joint procurements and results.

  • Information Policy: The Commission conducts information and communication measures and involves the representations of the European Parliament where appropriate.

Article 23 – Entry into Force
This regulation enters into force on the day following its publication in the Official Journal of the European Union.

Additional Information from the Recitals (Preamble)

Political and Security Strategic Background

  • Russia's war of aggression against Ukraine is assessed as an existential challenge for the EU.

  • Reference to the Versailles Declaration (2022) and the Strategic Compass (2022): Europe should become more autonomous and sovereign in security and defence matters.

  • Previous Commission initiatives (ASAP, EDIRPA, EDIP) have already attempted to close industrial gaps.

Previous Programmes

  • ASAP (Ammunition Support), EDIRPA (joint procurement), EDIP (long-term defence plan): foundational work for industrial capacities.

  • These programmes are now no longer sufficient – more speed and volume are allegedly needed.

Aggravated Threat Situation & Economic Pressure
Since the beginning of 2025, the security situation has further deteriorated.

  • Massive armament investments by Member States are necessary → however: high cost burden, the money is lacking elsewhere (schools, social systems, etc.).

  • Therefore, SAFE is intended to provide financial assistance as an emergency instrument – time-limited and targeted at investments in the defence industry.
     

Objective of the SAFE Regulation
Expansion of production capacities, faster availability of armaments.
Support exclusively for managing the security-related economic consequences.

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Coherence with Existing Structures
Assistance should be coordinated with CFSP (Common Foreign and Security Policy), PESCO (Permanent Structured Cooperation), EDA (European Defence Agency), and NATO. Combination with other EU programmes is also possible, e.g., co-financing.

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Download full document here: Commission Proposal

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