Security Action for Europe: legal architecture, implementation and private capital’s opening
Jason Blick considers the implications of the SAFE regulation for investors and creditors including “third country” entities.
EU defence, in the words of Anduril's executive Greg Kausner, is "having a moment right now". Spurred by deteriorating geopolitics, the EU is urgently re-arming. Since 2020, Defence expenditure has increased by 62.8%, and this trend is continuing. EU defence is set to supercharge 100-fold from a meagre €8bn industry last decade, to an €800bn powerhouse, as stated in Politico. With the flood of capital coming in, supply chains across the EU, European Economic Area (EEA), European Free Trade Association (EFTA), and Ukraine (participating countries) are poised for growth. For investors and creditors, this is a rare moment to embed in a fast-growing (5.51% CAGR 2025-2030) industry, fuelled by significant government funding.
Security Action for Europe
A significant source of funding will come from Security Action for Europe (SAFE), a landmark €150bn AAA-rated debt instrument. Investors benefit from EU-bond rates (currently 3.86% for those over 30 years) over a maximum maturity of 45 years. Member states can escape the 3% GDP deficit limit for defence spending, further fuelling growth. SAFE was launched in May 2025 and oversubscribed in a record five months and talks are already underway "for a second SAFE instrument", according to European Commission (EC) President Ursula von der Leyen. To promote co-operation, SAFE funding is to be used in "Common Procurements", which are procurements between multiple participating states, certain EU candidates and signatories to Security and Defence Partnerships. However, the existence of a Security and Defence Partnership alone does not guarantee participation (discussions for the UK to participate in SAFE have recently broken down, while Canada has been successful). Currently, 19 member states have submitted European Defence Industry Investment Plans (Plans) to access SAFE funds, and the first disbursements are expected in early 2026.
Multiplier Opportunities
SAFE funding is not merely to procure defence products. The EU seeks to onshore and revitalise its defence industry and reduce reliance on third-country defence partners. This change of direction comes in the wake of rumoured "kill switches" baked into US-made weaponry and sold abroad rendering the technology useless. Suggestions by President Donald Trump to downgrade weaponry software by 10% for foreign military sales add fuel to the fire. To this end, the SAFE Regulation requires that manufacturing occurs within, and at least 65% of components are sourced from, participating states. How an entity holds IP used in a Common Procurement, including how it ensures that the entity delivering the project has ongoing access to that IP, may be critical. Building Europe's defence industry means investing in a supply chain ecosystem and the EU is seeking to embed innovative technologies in the process. Since Russia's invasion of Ukraine, more than 230 defence start-ups have been founded in Europe. Advanced technologies (AI, quantum systems, drones and space technologies) are fundamental to the EU's defence strategy. The EC is pushing for start-ups to scale rapidly using private financing, and partner with established actors for impact, which is reassuring news for private creditors.
Structuring Complexities for Third-Country Entities
"Third-country" entities may be eligible to participate in Common Procurements by partnering with a European manufacturer or creating a subsidiary within the bloc. In addition, according to the Armament Industry European Research Group (ARES), this process requires close consideration to ensure regulatory compliance is a fundamental component of any restructure. For third-country manufacturers, there must be a balance between maintaining control over the local entity selling its products in Europe and meeting SAFE's requirements. Fortunately, the EC recognises this. In an innovative move, compliance is determined on a case-by-case basis, allowing for nuances and flexibility. Full design authority only needs to be located within the EU for certain defence products. Third-country entities can also participate in a Common Procurement as a subcontractor, provided they are only allocated between 15%-35% of the value of the contract and they have a partnership in relation to the defence product which pre-dates the SAFE Regulation coming into force, or the contractor investigates replacing the third-country subcontractor within two years. This provides companies which rely on third-country entities in their supply chains flexibility to maintain pre-existing relationships and where new relationships are formed, deliver in the short-term while investigating appropriate alternatives.
Navigating Complexity for Long-Term Gain
When structuring transactions in this ecosystem, it is essential to recognise the forensic detail necessary for regulatory compliance. While there may be limited room for adaptability, there is no leeway for mistakes. However, stakeholders stand to gain enormously from money multiplier effects, diversified supply chains, and first-mover access to the EU market, which is expected to balloon by more than 5% year-on-year until 2030. EU defence is having more than a moment; it is fundamentally transforming, a shift perhaps best reflected in the "unprecedented instrument", that is SAFE.
This article was first published in Butterworths Journal of International Banking and Financial Law, March 2026.
