Europe’s €800bn defence spending splurge – yet it’s a seller’s market if the EU barely borrows together, and buys alone

Europe is supposed to be financing its defence together. It barely is. Of the €800bn announced under ReArm Europe in March 2025, €650bn is not common money. It is an estimate of the extra room governments get under the national escape clause to spend up to 1.5 percent of GDP more on defence for four years. Each country still pays for that spending itself. The room is also temporary: EU Commission simulations suggest that maintaining higher defence spending after 2028 could require additional annual fiscal adjustment of 0.25 to 0.4 percentage points of GDP from 2029. The other €150bn is SAFE, and it is loans, not grants. The EU borrows and lends the money on, and each country repays its share. Grants are small: €1.5bn from the European Defence Industry Programme for 2025-2027, plus the European Defence Fund for joint research. Not every country has used these tools, as Table 1 shows. The Netherlands and Sweden have used neither. Like Germany, which has taken only the clause, they can borrow at least as cheaply as the EU, so SAFE gets them nothing. France has taken SAFE but not the clause, to protect the credibility of its budget plans. Table 1. Who uses SAFE and the national escape clause Source: Council of the EU, European Commission. Data as of 17 October 2026. * Hungary: allocated €16.2bn, now requesting €5.4bn; still pending. ** Italy: the Commission backed its request on 8 October 2026; the Council has yet to decide. Where SAFE does matter is on the eastern flank. Latvia, Lithuania and Estonia can borrow the equivalent of five to eight percent of their GDP, and Poland almost five percent. Graph 1. SAFE loans as a share of GDP, by country (%) Source: Council of the EU, European Commission, Eurostat. SAFE loans only, as a share of 2025 GDP. Amounts approved by the Council, except Italy and Hungary (* revised requests of €8bn and €5.4bn, September 2026). Data as of 17 October 2026. That leaves private money. The European Investment Bank and the European Investment Fund are trying to bring in private investors, partly by removing the reputational stigma of financing defence. But defence is almost a monopsony: the state is nearly the only buyer. Without a clear flow of public orders, private investment will be hard to come by. So Europe barely borrows together. And it buys alone.