ReArm Europe – the Big Bang?

Mats Cuvelier – Associate at White & Case

Introduction

In the wake of the United States suspending military aid to Ukraine after an infamous meeting at the White House, EU leaders convened at an emergency summit and agreed that “Europe must become more sovereign, more responsible for its own defence and better equipped to act and deal autonomously”. To put this into action, the European Council endorsed a set of proposals tabled two days earlier by Commission President Ursula von der Leyen. According to the European Commission, the proposals set out in its ReArm Europe Plan would enable EUR 800 billion of additional defence spending.

On 19 March 2025, the European Commission unveiled the measures implementing that Plan, as well as a White Paper on Defence, which was announced already in 2024. This blogpost briefly reviews the three components of the ReArm Europe package and takes a closer look at how the package intends to use the surge in defence spending to boost the European Defence Technological and Industrial Based (EDTIB). This post also offers a critical view of the White Paper, focusing on whether it sufficiently addresses the challenges the European Union faces to be able to deal more autonomously.

What’s in the Package?

The 19 March 2025 defence package has three parts: two measures to enable a surge in EU Member States’ defence spending and a White Paper setting out how this should lead to a stronger EDTIB, while also announcing additional flanking policy measures.

The proposed Regulation establishing the Security Action for Europe (SAFE) Instrument would provide up to EUR 150 billion in financial assistance in the form of loans to EU Member States for joint defence procurement. Following a trend of emergency measures to address health and energy crises identified elsewhere, the proposal is based on Article 122 TFEU, requiring only adoption by the Council. Its scope aligns with the capability gaps identified in the European Council conclusions of 6 March 2025, covering less advanced (Category 1) capabilities, such as ammunition, as well as (Category 2) advanced systems, including air and missile defence. The loans must be used for “common procurement”, meaning by one EU Member State and at least one other Member State, Ukraine or an EEAA country, although procurement by a single Member State is exceptionally allowed in the first year following SAFE’s entry into force. As set out further below, strict eligibility conditions apply to the procurement phase carried out by EU Member States, favouring EU suppliers and products. Assistance to Member States under SAFE would be financed by money borrowed by the Commission but this would not constitute joint debt impacting the European Union’s own resources as was the non-repayable assistance under e.g. the Recovery and Resilience Facility.

As 150 billion is insufficient to achieve the defence spending surge envisaged by the European Council, Member States are also offered leeway to raise national defence spending without triggering budgetary discipline. In a communication, the Commission proposes a coordinated use of the National Escape Clause (NEC) under Article 26(1) of Regulation 2024/1263, setting out the EU’s oversight regime for national budgetary policies. Certain limits would apply.  Surge spending under the NEC would be limited to a deviation of 1.5% of GDP from agreed expenditure paths and would be allowed until 2029 (although further extensions are possible). The additional headroom may only go to expenditure falling within the statistical category of “defence”, which is broader than procurement eligible under SAFE (e.g., pension schemes for military personnel and foreign military aid are covered). There is also no condition that spending under the NEC should go towards EU suppliers and equipment, although Member States are “invited” to do so. Note, however, that a project partly funded with SAFE loans would have to comply with its eligibility criteria, even if the remainder is charged to national budgets.

Underpinning these spending measures is the White Paper on defence, jointly prepared by the EU's first Defence Commissioner and the High Representative for Foreign Affairs and Security Policy (HRVP). Set against the backdrop of the EU’s deteriorating security environment, it set the goal of achieving “defence readiness” by 2030. It outlines public and private spending options to achieve this, coupled with defence industrial policy measures focusing on the capability gaps outlined by EU leaders. As discussed further below, the White Paper announced further policy measures to support the EDTIB, including a Defence Omnibus Simplification proposal. This proposal, as well as measures to encourage the flow of private capital to the EDTIB, nest the White Paper within the Commission’s broader competitiveness agenda.

Buy European

Reflecting the goal to equip the EU to “act and deal autonomously” and “reduce its strategic dependencies” set by EU leaders, a key objective of the package is ensuring that EU defence spending reinforces the EDTIB and no longer flows toward purchases of foreign products, as many EU Member States did when scrambling to beef up defences.

Case in point are the eligibility rules set out in Article 16 the SAFE proposal. EU Member States procuring equipment using SAFE loans would generally be required to buy from (sub)contractors based in an EU Member State, Ukraine or an EEA country, with some exceptions. This “entity eligibility” rule resembles similar conditions set by the Regulations governing the European Defence Fund (EDF), the Act in Support of Ammunition Production (ASAP), and the European Defence Industrial Reinforcement trough Procurement Action (EDIRPA) programmes.[1] Yet with respect to SAFE, it reflects a pure policy choice, as its legal basis (Article 122 TFEU) does not require limiting its scope to the Union industry as does 173(1) TFEU, the legal basis of the predecessor programmes. Importantly, the proposal also sets a “product eligibility” rule as well, providing that:

• for all products (Categories 1 and 2) procured by EU Member States using SAFE loans, the cost of components originating in the EU, Ukraine or EEA countries must represent 65% or more of their value (EU content requirement).
• for Category 2 products, the contractor must additionally hold the authority to decide on the definition, adaptation and evolution of the design of the product without restrictions by a third country (entity) (design authority requirement).

The product eligibility rule under the SAFE proposal thereby combines the EU content requirement found in Article 9(12) the EDIRPA Regulation and the rule proposed by France to replace Article 11(8)(c) of the Commission’s EDIP proposal.[2] By doing so, it abandons rules determining a product’s eligibility based on whether it is subject to third country export control requirements[3], which proved difficult to implement in practice. Nonetheless, the proposed product eligibility rule effectively closes the door on most non-EU equipment, as well as advanced systems produced under license in the EU. Whereas similar conditions may not be imposed for national spending under the NEC, the White Paper sets the goal of also steering EU Member States’ procurement towards the EDTIB by adding a “European preference” in the Defence Procurement Directive as it comes up for review in 2026.

From a legal perspective, the EU faces few constraints in overtly discriminating against foreign goods in defence procurement. Most defence products are not listed in the EU’s goods schedule under the WTO General Procurement Agreement (GPA) and the non-discrimination duty under Article IV therefore does not apply to their procurement. For procurement that might be covered (e.g., constructions services in the context of a military mobility project), the EU could likely rely on the security exceptions under Article III(1) of the GPA, as Article 2(2) of the SAFE proposal requires such procurements to be “necessary for or aimed at defence purposes”. The political picture is a different story. The stalled negotiations within the Council on eligibility rules under EDIP (offering grants up to only EUR 1,5 billion) show that finding a golden rule to select eligible products proves arduous. Many EU Member States’ industries are intertwined with those of third countries and some fear sending the wrong signal to Washington. Yet others disagree that procuring non-EU products necessarily undermines EU autonomy.

Perhaps that is why the White Paper and the SAFE Regulation for the first time proposes a formalised structure for third countries to participate in EU defence industrial programmes. As explained in the White Paper, EU Member States can already work together with third countries in different formats, as exhaustively set out in a recent study. However, Article 17(1) of the SAFE instrument introduces the option of concluding agreements with structure for acceding countries, candidate countries, and third countries with whom the EU has concluded Security and Defence Partnerships granting access to SAFE by opening the eligibility rules for their suppliers and products. The EU has concluded partnerships with Japan and South Korea and eyes a similar deal with the United Kingdom. While the option of including third countries allows for increased flexibility, the Commission would head negotiations, which EU Member States might not be willing to accept. It also remains to be seen to what extent the option could be built into other programmes, such as the EDF (currently undergoing a review process) or EDIP, as the legal basis for those instruments might not allow fully opening eligibility conditions to non-EU industry.

The White Paper

This brings us to the White Paper, which omits any mention of the 2024 European Defence Industry Strategy (EDIS) but should nonetheless be seen as a continuation of that document. In fact, many of the White Paper’s policies to reinforce the EDTIB were first formulated in EDIS while now having received endorsements in the Letta, Draghi and Niinistö reports. But the White Paper also innovates: it dares to prioritise key capabilities, discusses how to fund its ideas, and announces new proposals.

The White Paper outlines seven priority capability domains essential for the ability of the EU to act autonomously: air and missile defence, artillery systems, ammunition and missiles, drones and counter-drone systems, military mobility, AI, quantum, cyber & electronic warfare, and strategic enablers and critical infrastructure protection. By aligning its selection to the European Council conclusions, the European Commission sidestepped the problem of having to prioritize within priorities identified by the European Defence Agency (EDA), whose mandate expressly includes this function and is driven by EU Member States. However, the one-two with the European Council does is not a permanent fix: future updates of the priorities will present the same problem. In fact, when a “Defence Industrial Readiness Board” was proposed as a bridge between the EDA and Commission priorities, EU Member States broadly considered it to encroach on the competences within the Common Security and Defence Policy.

The European Commission and the HRVP also set out funding options for proposals included in the White Paper. In addition to using the NEC and the SAFE proposal detailed above, the White Paper links the EDTIB’s need for private finance with the Savings and Investments Union strategy. However, the White Paper avoids a discussion on the feasibility joint debt (so-called Defence Bonds) not charged to national budgets. Commissioner Kubilius has indicated that interest payments on debt issued for pandemic recovery support is already burdening the EU budget. However, joint debt should have been addressed, as highly indebted EU Member States have flagged they might not be able to benefit from proposals underpinned by additional spending. Looking ahead, the White Paper also fails to stick a number on the projected budget for defence in the next Multiannual Financial Framework currently being prepared.

As for the “common market for defence”, the White Paper shows ambition, announcing further legislative proposals. In June 2025, the Commission expects to present its Defence Omnibus proposal to tweak various pieces of legislation that present regulatory hurdles for the defence industry. These will smooth out specific issues (for example, by harmonising security exceptions to EU chemical safety rules prohibiting substances essential for defence applications) but are unlikely to provide structural change. More important is the announced overhaul of the Directives on defence procurement and intra-EU transfers of defence products, which remain unchanged since 2009 but are fundamental levers to further integrate the EU defence market. However, the European Commission will have to count on the goodwill of EU Member States to seriously move the dial to this area, as they may always invoke the security exceptions under Article 4(2) and 346(1) TFEU. Further coordinating arms export controls is also left of the table, while essential to integrating the defence market.

Disappointingly, the White Paper does not define the roles of the various institutions in carrying out the policies it sets out. As the European Commission takes on a greater role in defence by managing industrial support measures based on shared competences (subject to qualified majority voting), the Common Defence and Security Policy, driven by EU Member States supported by the EDA (subject to unanimity voting), comes under stress. Whilst the urgency of the current moment overshadows this question, resolving the tensions between the intergovernmental and supranational elements of the EU’s defence policy is a precondition to gaining EU Member States’ trust to further integrate the European defence market. On this front, the White Paper is a missed opportunity. This is especially so given the co-authorship of the HRVP, who can speak for the EDA and the European External Action Service (which is the secretariat for the Permanent and Structured Cooperation and incorporates the EU Military Staff).

Conclusion

Overall, this package does not deliver the “Bing Bang” some expected. Among EU leaders, there is consensus that the EU must spend more, most spend on European equipment and do so together (including Ukraine). However, the difficult questions remain. As for budget, the use of the NEC and the SAFE proposal do not provide a magic bullet, as some Member States might already be too indebted to benefit while others do not require budgetary leniency and could lend more cheaply themselves. On spending “European”, consensus appears to evaporate quickly when eligibility rules must be agreed on. On that front, the discussions on EDIP will serve as a bellwether. Most importantly, there is still no clear picture as to who determines what to procure. While escalating capability priorities to EUCO level provides an easy fix, on the long term the roles of the European Commission and EU Member States in the EU’s defence policy will need to be clarified before significant progress can be made.

[1]                Compare Article 9 of Regulation 2021/697 (EDF), Article 10 of Regulation 2023/1525 (ASAP) and Article 9, paragraphs 5 to 12 of Regulation 2023/2418.

[2]                At page 17, the White Paper notes that under SAFE, “complex and high-tech systems, like AI or air defence, would be subject to stricter conditions inspired by the legislative discussions on EDIP, in light of the higher requirements for strategic autonomy”.

[3]                For example, Article 10(2) of the EDF Regulation excludes actions which require “the use of pre-existing information […] subject to a restriction by a non-associated third country or a non-associated third-country entity directly, or indirectly through one or more intermediary legal entities”.