Brussels, 19 March 2025
Today, the European Commission and the EU High Representative have presented a White Paper for European Defence – Readiness 2030. The Commission has also presented, as part of the ReArm Europe Plan/Readiness 2030, an ambitious defence package providing financial levers to EU Member States to drive an investment surge in defence capabilities.
While the ReArm Europe Plan/Readiness 2030 strengthens pan-European defence capabilities with new financial means, the White Paper frames a new approach to defence and identifies investment needs.
Commission President Ursula von der Leyen said: “The era of the peace dividend is long gone. The security architecture that we relied on can no longer be taken for granted. Europe is ready to step up. We must invest in defence, strengthen our capabilities, and take a proactive approach to security. We are taking decisive action, presenting a roadmap for ‘Readiness 2030’, with increased defence spending, important investments in European defence industrial capabilities. We must buy more European. Because that means strengthening the European defence technological and industrial base. That means stimulating innovation. And that means creating an EU-wide market for defence equipment.”
These measures aim to respond to the short-term urgency of supporting Ukraine, but also to address the pressing long-term need to boost Europe’s security and defence.
White Paper for European Defence – Readiness 2030
As announced by President von der Leyen in the political guidelines, the last several years have exposed the chronic under investment and a lack of efficient spending in Europe’s military capabilities. To frame the new approach and to identify Europe’s investment needs, the Commission and the High Representative have presented a White Paper for European Defence – Readiness 2030.
The White Paper presents solutions to close critical capability gaps and build a strong defence industrial base. It proposes ways for Member States to massively invest in defence, procure defence systems and build up the readiness of the European defence industry over the long run. This is essential for Europe’s security. Europe must invest in the security and defence of the continent, while continuing to support Ukraine to defend itself from Russia’s aggression. To effectively address these challenges, the White Paper outlines a number of key lines of action:
- Closing capability gaps, with a focus on critical capabilities identified by Member States.
- Supporting the European defence industry through aggregated demand and increased collaborative procurement.
- Supporting Ukraine through increased military assistance and deeper integration of the European and Ukrainian defence industries.
- Deepening the EU-wide defence market including through simplifying regulations.
- Accelerating the transformation of defence through disruptive innovations such as AI and quantum technology.
- Enhancing European readiness for worst-case scenarios, by improving military mobility, stockpiling and strengthening external borders, notably the land border with Russia and Belarus.
- Strengthening partnership with like-minded countries around the world.
ReArm Europe Plan/Readiness 2030
As announced by President von der Leyen, the ReArm Europe Plan/Readiness 2030 enables spending of over €800 billion, structured around the following pillars:
1. Unleash the use of public funding in defence at national level
The Commission has invited Member States to activate the national escape clause of the Stability and Growth Pact, which will provide them additional budgetary space to increase their defence spending, within the EU fiscal rules.
To safeguard fiscal sustainability, the deviation will be limited to:
- Increase in defence expenditure only, taking as a starting point the statistical category ‘defence’ in the classification of the functions of government (COFOGs);
- Up to a maximum of 1.5% of GDP for each year of activation of the national escape clause;
- For a period of four years.
2. A new dedicated instrument for Security Action for Europe – SAFE:
In light of the current exceptional circumstances, the Commission will raise up to €150 billion on the capital markets, drawing on its well-established unified funding approach to help EU Member States rapidly and substantially increase investments in Europe’s defence capabilities. These funds will be disbursed to interested Member States upon demand, on the basis of national plans.
The disbursements will take the form of competitively priced and attractively structured long-maturity loans, to be repaid by the beneficiary Member States. The loans will be backed by the EU budget’s headroom. SAFE will allow Member States to immediately and massively scale up their defence investments through common procurement from the European defence industry, focusing on priority capabilities. This will contribute to ensuring interoperability, predictability, and reducing costs for a strong European defence industrial base. Ukraine and EFTA/EEA countries will be able to join common procurements, and it will be possible for buy from their industries.
SAFE will also allow acceding countries, candidate countries, potential candidates and countries having signed a Security and Defence Partnerships with the EU to join common procurements and contribute to aggregated demand. They can also negotiate specific, mutually beneficial agreements on the participation of their respective industries in such procurements.
3. Leveraging on the EIB Group and Mobilising private capital by Accelerating the Savings and Investments Union
The ReArm Europe Plan/Readiness 2030 also relies on the European Investment Bank Group to widen the scope of its lending to defence and security projects, while safeguarding its financing capacity. On top of unlocking substantial funding, this will send a positive signal to the markets.
Lastly, public investment alone will not be sufficient to fill the defence industry’s investment needs, from start-ups to large established companies. For this, the Savings and Investments Union Strategy, adopted by the Commission today, will make it easier to mobilise private savings into more efficient capital markets and channel investments into critical sectors of the economy, such as defence, for those who wish to invest in them.
More Information
- White Paper for the Future of European Defence – Readiness 2030
- Communication on Accommodating defence expenditure
- Regulation establishing the Security Action for Europe (SAFE)
- Questions and answers on the White Paper for European Defence – Readiness 2030
- Questions and answers on the ReArm Europe Plan/Readiness 2030
- Factsheet on the White Paper for European Defence – Readiness 2030
- Factsheet on the ReArm Europe Plan/Readiness 2030
- Audiovisual material
Quote(s):
Ursula von der Leyen, President of the European Commission
The era of the peace dividend is long gone. The security architecture that we relied on can no longer be taken for granted. Europe is ready to step up. We must invest in defence, strengthen our capabilities, and take a proactive approach to security. We are taking decisive action, presenting a roadmap for ‘Readiness 2030’, with increased defence spending, important investments in European defence industrial capabilities. We must buy more European. Because that means strengthening the European defence technological and industrial base. That means stimulating innovation. And that means creating an EU-wide market for defence equipment.
Kaja Kallas, EU High Representative for Foreign Affairs and Security Policy
What we invest in defence is how we value our defence. And for the past few decades, we haven’t put a high enough price on it. We must spend more. At the same time, the value we add by working together is priceless. It gives us a competitive advantage that is unrivalled anywhere in the world. In our White Paper for European Defence – Readiness 2030, we set out concrete ways to do this. Be it in our support for Ukraine, addressing our own capability gaps, or standing up for a world where might does not make right, we are always stronger together.
Andrius Kubilius, EU Commissioner for Defence and Space
This Defence package, comprising the White Paper for European Defence and the ReArm Europe Plan/Readiness 2030, marks a defining moment for our Union. Europe can no longer afford to be a bystander in its own security. We must take our defence into our own hands, reinforcing our commitments to collective security and standing firm against those who seek to challenge our sovereignty. This is not just about military strength — it is about our readiness, strategic autonomy, and the future of Europe as a global player.
Valdis Dombrovskis, EU Commissioner for Economy and Productivity, Implementation and Simplification
The world has changed, and Europe must change with it. Our security and prosperity are interlinked. ReArm Europe/Readiness 2030 is our plan to strengthen both. Today, we are proposing to activate the national escape clause as a temporary, coordinated and targeted measure to boost defence investments at national and EU levels. EU countries will be facilitated to make the necessary investments in our defence capabilities and industry, spending more and better – together. This will also boost economic growth, drive innovation and create jobs, while ensuring fiscal sustainability. Europe will rise to this challenge.
Source – EU Commission
Questions and answers on the Defence Package: White Paper for European Defence – Readiness 2030
Brussels, 19 March 2025
What are the main objectives of the White Paper?
The White Paper frames a new approach to defence and identifies investment needs to close critical capability gaps and build a strong defence industrial base.
It sets out the necessary steps to build up the European defence, by:
- Providing unwavering support to Ukraine;
- Closing Europe’s defence capability gaps for the Member States’ Armed Forces;
- Strengthening the European defence industry;
- Preparing the EU for the most extreme military contingencies;
- Enhancing security through partnerships. The White Paper also aims at illustrating the EU’s added value in its defence industrial initiatives and bringing forward new, ambitious proposals.
White Paper as a step towards a European Defence Union: What does that mean concretely?
The European Defence Union reflects the EU’s ambition to enhance cooperation in defence and leverage the added value offered by the EU and the Single Market.
It is an integratory and incremental process. The implementation of proposals reflected in the White Paper and the ReArm Europe Plan/Readiness 2030 will contribute to this objective.
The concept fully acknowledges that Member States are and will remain in the driving seat for defence, from doctrine to deployment.
How does the White Paper relate to other priorities?
This Commission has put Defence on the top of the European agenda, as illustrated by. President von der Leyen’s political guidelines and mission letters for the High Representative/Vice-President and the Commissioners.
An effective defence sector is not only key for our security, but also an important contributor to overall economic competitiveness and growth.
As indicated by the Draghi report, innovation in the defence sector will be key to re-launch our competitiveness and enable positive spillovers in the civilian sector.
Peace and security is a prerequisite for economic stability and continued prosperity within the EU. The defence industry being a driver of innovation, job creation, and economic growth.
A strong defence sector supports EU autonomy, industrial competitiveness, and overall resilience.
Defence investment aligns with broader EU goals, including technological advancements and social cohesion through industrial jobs creation.
How does the EU add value to defence and security?
Existing EU programmes and initiatives have already displayed their potential:
- Total EU investment in defence research and development accounts for €8 billion (2021-2027) with the Commission having already committed €5.4 billion since the start of the European Defence Fund.
- €513 million has been leveraged for ramping up ammunition production (ASAP), with EU annual shell production capacity projected to reach 2 million by the end of 2025.
- €310 million having been already allocated for common procurement of defence platforms and systems (EDIRPA).
The EU boosts defence cooperation through efficiency gains, encouraging solidarity and generating cross-border cooperation. Each project of the European Defence Fund brings on average 17 entities from 8 Member States, for instance.
The EU’s action in defence supports the development of critical capabilities that Member States alone would not finance, therefore contributing to Europe’s sovereignty and fulfilment of Member States’ NATO targets. The Commissions actions in defence create an incentive for Member States to align their national defence planning, converging towards common capability development and promoting long-term budgetary planning.
The EU’s action in defence also adds value in ensuring a consistent approach in making sure that systems and platforms work for all Member States. EU defence industry programmes promote interoperability and standardisation. They can foster the implementation of NATO standards when they exist or initiate pre-standardisation with EU industry where are no existing standards.
The EU’s actions in defence take advantage of the size of the EU domestic defence market to create both economic growth through cross-border business opportunities and economies of scale.
The European Defence Agency helps Member States to identify capability shortfalls and priorities at EU level. It supports Member States in initiating new capability projects, starting with harmonisation of requirements. It supports the aggregation of demand and can undertake joint procurement on behalf of Member States.
Is this the beginning of the EU Army?
Nothing in the White Paper nor in the ReArm Europe Plan/Readiness 2030 relates to the foundation of an EU army. This is not an objective of the European Commission or of the Union more generally.
Furthermore, all initiatives reflected in the Defence Package aim at strengthening national Armed Forces, improving their interoperability in line with NATO standards.
Member States will always be responsible for their armed forces. Defence is and will remain a national prerogative.
How does the White Paper help Ukraine?
The Defence Package helps Ukraine by outlining concrete ways in which the EU and its Member States can step up support to Kyiv, so that the latter can achieve a just and lasting peace.
The White Paper outlines a vision to increase direct military assistance and to associate Ukraine in its development and procurement of defence capabilities.
Integration of the Ukrainian defence industry into the European Defence Technological and Industrial Base is also part of the overall ambition. This will be supported through the eligibility of Ukrainian defence firms under the SAFE procurements, alongside the industries of EU Member States, as well as the adoption and implementation of the Ukraine Support Instrument under EDIP and the expansion of the mandate and staff of the EU Defence Innovation Office.
How does the White Paper support the European Defence and Technological Industrial Base?
The White Paper recognises the European defence industry as a strategic resource. It proposes the following ways to support it:
- A massive industrial production ramp-up to address the critical capability gaps identified.
- Simplification, harmonisation of rules which can ease and speed up industrial defence production. For this the Commission will propose a Defence Omnibus Simplification regulation and a strategy to deepen the EU-wide Market for defence products and services.
What is the Defence Industry Output Plan?
The Defence Industry Output Plan is a document that will be issued by the Commission, in close coordination with the European External Action Service, the European Defence Agency, Member States and defence industry.
The plan would provide European defence industry with an increased demand predictability and allow the EU to better tailor and target its support measures.
This document will outline industrial production targets to address identified capability gaps as well as identify priority areas for industrial investment.
The identified needs may receive EU support, i.e. incentives for common procurement under EDIP or the SAFE instrument and incentives for production ramp-up under EDIP.
The EU Military Staff and the European Defence Agency will provide their expertise to this process, e.g. as regards capability shortfalls, aggregation of demand and harmonisation of requirements, and joint procurement.
What is the Single Market for Defence?
A Genuine Single Market for defence could be described as a market where purchasing across borders within the EU is seen as equivalent to purchasing nationally. And this at the level of both final users but also across the supply chains.
Building a true Single Market for defence products would allow the EU defence industry to benefit from a bigger market, gaining in efficiency but also improving access to innovation.
This however requires Member states to cooperate more and refrain from following exclusively national approaches that are at the origin of the fragmentation of the market.
The Defence Package offers a strategy to achieve a true Single Market for defence, encompassing both defence procurement and intra-EU technology transfers.
How does the White Paper relate to the Strategic Compass, EDIS and EDIP?
The European Defence Industrial Strategy stemmed from the need to have a more structured approach to support defence industry.
The White Paper has a much broader scope focusing on the future of European defence. It is meant to frame a new approach towards defence and help readying Member States for the most extreme military contingencies.
It builds on EDIS (e.g. The need the objective to spend more, better, together and European) as well as the Strategic Compass and the Defence Investment Gaps Analysis. However, it will go beyond that to pave the way towards a European Defence Union.
How would the White Paper impact the relation with NATO?
The closer and more synchronised the international cooperation, the more effective our response will be.
The European Union will continue working closely with NATO and our partners in NATO, just as we have done over the years.
What will happen after the publication of the White Paper?
The White Paper opens a new strategic sequence on how to bring forward European Defence. It will be the basis for in-depth discussions with Member States and relevant stakeholders.
The European Council is expected to deliberate on proposals at its upcoming meetings, on 21 March and 26-27 June, which should lead to concrete commitments to materialise the vision outlined in the White Paper.
The European Commission will urgently proceed with initiatives proposed by the White Paper, such as the Defence Omnibus regulation.
Source – EU Commission
Questions and answers on ReArm Europe Plan/Readiness 2030
Brussels, 19 March 2025
What is the ReArm Europe Plan/Readiness 2030?
As announced by President von der Leyen, the ReArm Europe Plan/Readiness 2030 outlines concrete legal and financial means to support the defence investments of Member States. It is an ambitious defence package providing financial levers at the immediate disposal of EU Member States to quickly and significantly increase defence investment and defence capabilities.
What are the main objectives of the ReArm Europe Plan/Readiness 2030?
The pillars of the ReArm Europe Plan/Readiness 2030 are designed to utilise all immediately available levers to mobilise up to €800 billion for defence investments, structured around the following:
- Unleash the use of public funding in defence at national level
- A new dedicated instrument for Security Action for Europe – SAFE – to carry out urgent and massive defence investment through common procurement
- Leveraging on the EIB Group and mobilising private capital by accelerating the Savings and Investments Union
What is the Security Action for Europe – SAFE initiative?
The Security Action for Europe – SAFE is a new EU financial instrument which will provide Member States with up to EUR 150 billion of loans backed by the EU budget. This will help Member States to boost their defence capabilities through common procurement.
Buying together will ensure interoperability for Member States’ armed forces and predictability for European defence industry, reduce costs, and create the scale needed to strengthen the European defence industrial base. It is key for both competitiveness and readiness of the European defence industry.
Why did the Commission decide to use loans?
The proposed instrument is set up to provide Member States with advantageous financing conditions, leveraging the EU credit strength and market access. This will support a swift response to the current defence needs.
Could the EUR 150 billion amount be increased if needed?
Similarly to all other financial support programmes, the maximum size of loans to be provided to EU Member States under the new instrument will be fixed in the regulation of the new programme.
Why are loans backed by the EU budget more attractive than Member States issuing their own loans?
The new instrument will provide long-maturity loans (with a maximum duration of 45 years and a 10-year grace period for principal repayments) which are competitively priced, and well structured. They will be funded by EU borrowing, making them often a more cost-effective source of funding for public investments than national borrowing.
Loans will benefit from advantageous financing terms, stemming from the EU’s high credit rating, the high liquidity of EU Bonds, and the high market demand for EU issuances.
How will Member States ask for the loans and get access to funds?
The allocation of the EUR 150 billion envelope to Member States will be demand-driven. There will be no allocation keys. Member States wishing to receive loans will have to submit a European Defence Industry Investment Plan to the Commission. The plan will need to include a description of the activities, expenditures and measures for which the Member State requests a loan, the defence products it intends to procure, and, where relevant, the foreseen involvement of Ukraine in the planned activities.
The Commission will assess the plans, which will include the size of the loan and pre-financing. Pre-financing will ensure that support is paid already in 2025, covering the most urgent needs, and will constitute up to 15% of the loan.
As a rule, Member States will implement the plans through common procurement that would include at least two Member States (or at least one Member State and Ukraine, or one Member State and an EFTA/EEA country), and concern products and service providers based within the territory of the Union, Ukraine and EFTA/EEA countries. As a transitional derogation, Member States may use the loan for national procurement of priority capabilities provided it is open to other countries and that all necessary steps are taken to extend the benefit of the contract to others.
Member States will need to report every six months on the progress of the implementation, which is also when they will be able to present payment requests. The last approval for disbursements can take place until 31 December 2030.
How is the loan guaranteed?
The EU Bonds issued to finance the loans will be backed by the EU Budget headroom under the 1.4% EU GNI own resources ceiling.
The headroom is the difference between the own resources ceiling of 1.40% EU GNI (i.e. the maximum amount of resources that the Commission can ask Member States to contribute in a given year), and the actual revenue necessary to finance the annual EU budget.
How quickly can the Commission raise the funding needed?
The Commission will raise the funds under its established unified funding approach, issuing single branded “EU-Bonds” and “EU Bills”, and allocating proceeds to policy programmes funded through issuances.
The unified funding approach gives the Commission the flexibility to use short-term and long-term funding across the yield curve to raise the funding at the right time. Thanks to this sovereign-style issuance, the Commission is able to plan, execute and communicate all issuances in an agile and coherent way.
The disbursements under the programme will depend on the needs of Member States, with 31 December 2030 being the deadline for approval of the last loan disbursements. The required amounts will hence be smoothly integrated in the EU’s funding planning alongside existing needs (e.g. financing NGEU and support for Ukraine) allowing the Commission to meet disbursement needs as these arise.
Which areas are supported by the loans?
The loans can support common procurement of defence products, including manufacturing capacities, preparation of infrastructure. The focus should fall on seven priority areas of investment, in line with the most pressing capability priorities identified at EU level (and consistent with NATO defence planning process).
- air and missile defence;
- artillery systems;
- missiles and ammunition;
- drones and anti-drone systems;
- strategic enablers and critical infrastructure protection, including in relation to space;
- military mobility;
- cyber, artificial intelligence and electronic warfare.
How would this common procurement work?
The loans will allow budgetary synchronization required to place joint orders, through common procurement by at least two partner countries. Member States are free to decide about their acquisition strategy, including the use of procurement agents for their procurement projects.
The instrument will strengthen the European Defence Technological and Industrial Base (EDTIB) by ensuring that orders are placed with companies established, and which have their headquarters in the Union (or EEA EFTA States or Ukraine). In addition, certain defence-specific security-based conditions need to be met.
As a transitional derogation, Member States may use the loan for national procurement provided it is open to other countries and that all necessary steps are taken to extend the benefit of the contract to others.
Are third countries allowed to participate?
EEA/EFTA countries and Ukraine can participate in the common procurements, but they will not be able to receive the loans. In addition, common procurement may include; acceding countries, candidate countries, potential candidates, and other third countries with whom the Union has entered a Security and Defence Partnership.
Will there be a “Buy European” clause for the spending? Will Member States be able to use the loans to buy products not made in Europe?
Member States should purchase eligible products from entities established and headquartered in the EU, EEA/EFTA States and Ukraine.
For war consumables (non complex products), Member States will have to ensure that components representing 65% of the costs of the end product originate from the Union/EEA EFTA countries/Ukraine.
For complex systems, the same rule will apply, combined with the need for Member States to ensure the contractors fully control the design of the defence equipment. This to ensure we do not create new dependencies for complex systems.
What does the new instrument mean for the Commission’s funding planning for the remaining first half of 2025? What would it do for upcoming funding semesters?
The Commission’s funding planning for the first half of 2025 (€90 billion of long-term funding) does not change. Beyond this first half of 2025, amounts for the new programme, will be integrated into the Commission’s funding planning for all EU programmes.
The Commission will be able to accommodate disbursement needs to support the new programme with the flexibility provided by its unified funding approach. This will limit the changes to its envisaged bond issuance through 2025 and 2026.
Will the Commission be issuing “Defence” bonds?
No, the Commission will not be issuing specifically labelled Defence bonds. Funding for the new programme will be provided under the Commission unified funding approach where conventional EU-Bond and EU-Bill issuances are used to support a range of programmes as agreed by Member States.
What is the legal basis used for the new financial EU instrument?
This new EU Instrument will be established under Article 122 of the TFEU, providing Member States with loans backed by the EU budget.
- Many of the crises we have faced during the 2019-2024 mandate also required exceptional responses under Article 122 TFEU. This allowed the Union to react swiftly to the problems we faced, such as the Joint purchase of COVID-19 vaccines and gas or the lending component of SURE, among others.
Do these loans go against Article 41 TEU which excludes ‘expenditure arising from operations having military or defence implications’ from being charged to the EU budget?
The new instrument will provide loans to Member States to strengthen Europe’s defence industry. The loans will not implement the Common Foreign and Security Policy (CFSP), and do not constitute expenditure arising from CFSP operations having military or defence implications within the meaning of Article 41(2) TEU.
These loans are provided on the basis of Article 122 TFEU, as financial assistance to Member States who are threatened with severe difficulties caused by exceptional occurrences related to the geopolitical situation.
Is issuing EU Bonds under the new programme consistent with the EU as issuer of NGEU Green Bonds?
There is no contradiction between the issuance of conventional EU bonds to finance Member States’ expenditures (including defence spending), and with the issuance of dedicated NGEU Green Bonds. Sovereign issuers finance diverse spending needs – including climate transition and defence – through their capital market funding programmes.
What matters most for investors is that they can be sure that the proceeds of NGEU Green Bonds are used exclusively for agreed climate transition purposes. The Commission is able to do this because there is an underlying pool of green expenditures linked to these green bonds, which allows the Commission to match NGEU GB issuance with validated climate transition related expenditure.
NGEU Green Bonds will continue to be issued in line with the reported green expenditure from Member States under the well-established NextGenerationEU programmme. This will continue to include investors receiving annual allocation and impact reporting on the use of NGEU Green Bonds proceeds used to finance climate-transition relevant expenditures under the Member States’ National Recovery Plans.
National Escape Clause What is the National Escape Clause (NEC) and where is the legal basis for the establishment of the NEC?
The National Escape Clause allows a Member State to deviate from its net expenditure path as set by the Council in the context of its medium-term fiscal structural plan, in case of exceptional circumstances outside the control of the Member State’s authorities and which have a major impact on its public finances. Such deviation should not endanger fiscal sustainability over the medium term.
The legal basis for the activation of the National Escape Clause is Article 26 of the preventive arm Regulation, which is part of the new Economic Governance Framework.
How does the NEC differ from the General Escape Clause?
The National Escape Clause differs from the General Escape Clause in two main ways:
- First, the General Escape Clause is meant to address a severe economic downturn in the euro area or the EU as a whole, whereas the National Escape Clause is meant to address exceptional circumstances at Member State’s level.
- Second, the General Escape Clause applies to the entire EU, whereas the National Escape Clause is applicable to individual Member States based on their request.
In this particular case and given the size of the challenge for European security, the Commission invites Member States to coordinate their requests for triggering the National Escape Clause to the extent possible.
What are the conditions for the NEC’s activation?
In general, for the activation of the national escape clause, three conditions have to be fulfilled:
- there are exceptional circumstances outside the control of a Member State;
- these exceptional circumstances have a major impact on the public finances of the Member State concerned;
- the deviation under the national escape clause does not endanger fiscal sustainability over the medium term.
The Commission has to assess that the three conditions for the activation of the NEC are fulfilled for each Member State that requests its activation.
What is the procedure for the NEC’s activation?
The procedure starts by a Member State requesting the activation of the NEC. Once it does so, the Commission assesses whether the aforesaid three conditions for the activation of the NEC are fulfilled. Based on this analysis, the Commission makes a recommendation to the Council for activating the NEC.
The Council may then, within four weeks of the Commission recommendation, adopt a recommendation activating the NEC.
This decision is taken by qualified majority voting.
The Council should also specify a time limit for the activation of the NEC. At the end of that period, the Council may choose to extend the period of application of the NEC at the request of the Member State concerned, provided that the exceptional circumstances persist. An extension would cover an additional period of up to one year but can be granted more than once.
When are Member States able to activate the NEC?
As soon as a Member State requests the activation of the NEC, which it is free to do at any time, the Commission will swiftly undertake the assessment set out above and make a recommendation to the Council.
The Council should decide within four weeks of the Commission recommendation to adopt a recommendation activating the NEC.
What does the Commission mean by proposing to activate the national escape clause ‘in a coordinated manner’?
The national escape clause can only be invoked at the request of a Member State. In this particular context and given the extraordinary security challenges faced by the EU as a whole, the Commission is giving an upfront signal to all Member States to consider activating the NEC temporarily, in a controlled, targeted and coordinated manner.
Given the extraordinary security challenge that Europe faces, the Commission invites Member States to make use of this possibility to boost their defence expenditure and drastically reinforce the EU’s defence capabilities and increase investment in the defence industry, which also has a potential of reinforcing Europe’s competitiveness and boosting jobs creation.
Once the requests are received, the Commission would formally assess that the above three conditions for the activation of the national escape clause are met for each individual Member State.
How can the €650 billion fiscal space, announced by the President, be achieved with the activation of the NEC?
The EUR 650 billion fiscal space is an estimate. It is calculated upon an assumption that all EU Member States gradually and steadily increase their defence spending, reaching the maximum of 1.5% GDP by the end of the four-year NEC activation period. If Member States boost their defence expenditure more rapidly, the total amount could be larger than EUR 650 bn. This can in particular be the case for Member States which take up the SAFE loans, due to their attractive financing terms.
What is the timeframe for the application of the National Escape Clause?
The flexibility under the national escape clause for defence expenditure would be available for four years, starting from 2025. Increases in defence expenditure would be calculated compared to the level of defence expenditure in 2021.
Member States would have to prepare to sustain a structurally higher spending level after that four-year period. It should be done through a gradual re-prioritisation within their national budgets to safeguard fiscal sustainability.
Does increasing defence spending under the NEC put debt sustainability at risk?
The 1.5% GDP cap to the flexibility provided by the activation of the NEC is designed to ensure that fiscal sustainability is preserved. This is one of the conditions for the activation of the NEC and will be part of the Commission’s assessment of Member States’ requests. The assessment will be done for each individual Member State. The Commission will closely monitor the implementation of the NEC to ensure that fiscal sustainability over the medium-term is preserved.
What expenses are considered defence spending under the NEC?
The flexibility under the NEC would cover the increase of total defence expenditure, including both investment and current expenditure. This will build on the entire statistical category of ‘Defence’ in the classification of the functions of government (COFOG), while also considering the NATO definition.
The COFOG category of ‘Defence’ includes the purchase of military equipment and infrastructure, dual use goods and services when used by armed forces, expenditure on military personnel and their training, as well as military aid to Ukraine.
The expenditure financed by loans provided by the new SAFE instrument will automatically benefit from the flexibility.
COFOG data are based on national accounts principles and are therefore consistent with the other statistical data used in economic and fiscal surveillance (notably government deficit and expenditure).
These data are collected by EUROSTAT. Member States will also have to include in their reporting to Eurostat expenditures made under the SAFE Instrument. Eurostat will continue to cooperate with the national statistical authorities to ensure the availability of the necessary data.
Will loans from SAFE benefit from the NEC? How are they going to weigh on the public debt levels?
The expenditure financed by loans provided by the new SAFE instrument will automatically benefit from the flexibility.
These loans will increase public debt levels, but they would generally allow for interest savings due to the Union’s very favourable credit rating compared to situations where Member States would have to ensure individual financing on the markets.
More information
Joint press release on Commission presents ReArm Europe Plan/Readiness 2030 and the White Paper for European Defence – Readiness 2030
Source – EU Commission