Safeguarding the Effectiveness of the Security Action for Europe through Soft Law
Mitigating the risks of budget substitution, procurement delays, and legal derogations. A commentary by Edith Wagner
The Security Action for Europe (SAFE) is a new EU financial instrument adopted by the Council on 27 May 2025, designed to support and accelerate the joint procurement of armaments. It authorizes the Commission to borrow up to €150 billion on capital markets, to be made available as loans to Member States. By 30 July 2025, 18 Member States had expressed interest, requesting a combined €127 billion in indicative amounts.
SAFE aims to strengthen the European Defence Technological and Industrial Base, reduce market fragmentation, close critical capability gaps, and ensure the timely delivery of defence products.
The debate so far has focused on the feasibility of these objectives, the instrument’s legal basis, the limited democratic oversight of the European Parliament, and the risk that it could raise prices without improving efficiency.
Less attention, however, has been devoted to the legal and political risks that threaten SAFE’s effectiveness:
- Budget substitution. If fiscally constrained Member States use SAFE loans to freeze their regular defence budgets.
- Procurement delays. If structural weaknesses of national procurement systems persist despite simplified procedures.
- Legal derogations. If Member States invoke Article 346 TFEU despite spending EU-backed loans rather than national resources.
This commentary argues that these risks can be mitigated through soft law instruments— instruments that do not have binding legal force, but guide behaviour, shape expectations, and influence practice: memoranda of understanding (MoUs) to ensure that SAFE loans add to, rather than replace, national defence budgets while incentivizing structural reforms of national procurement systems as well as interpretative guidelines on Article 346 TFEU to clarify the legal requirements for derogations from EU law in the context of SAFE.
Political challenges
Germany’s special defence fund (Sondervermögen Bundeswehr) shows that the risk of budget substitution is real. Chancellor Scholz’s government raised extrabudgetary funds on capital markets to strengthen the German armed forces after years of underinvestment.
Yet, political divisions over fiscal policy led to the freezing of the regular defence budget—a budget transfer which, if replicated by borrowing Member States within the context of SAFE, would lead to budget substitution.
SAFE entails the risk of creating only the appearance of higher defence spending without delivering real increases in investment. Although SAFE loans are intended to be complementary, the SAFE Regulation does not explicitly require borrowing Member States to maintain their pre-loan defence spending levels or to demonstrate progress toward NATO spending commitments.
Several potential borrowers already face considerable fiscal constraints. Among the most exposed—those that may be tempted to freeze defence budgets or obscure insufficient defence spending—are Belgium, France, Italy, Malta, Poland, Slovakia, and Hungary, all currently placed under the Excessive Deficit Procedure.
Germany’s case also shows that simplified and accelerated procedures do not automatically translate into timely acquisitions if structural weaknesses persist within national procurement systems. According to the German Ministry of Defence, major projects face severe delays: the A400M transport aircraft (162 months), the Eurofighter (44 months), and the Eurodrone (10 months).
Although SAFE is primarily a financing instrument, the SAFE Regulation also seeks to accelerate joint procurement by streamlining certain provisions of the Defence Procurement Directive 2009/81/EC.
However, it does not incentivize reforms within the national procurement systems, despite their central importance for ensuring that joint projects can be implemented effectively and without undue delay.
Memoranda of understanding
The Commission could mitigate the risks of budget substitution and procurement delays by concluding Memoranda of Understanding (MoUs) with Member States prior to the disbursement of SAFE loans.
While the Council decides whether such loans are granted, the Commission is responsible for their disbursement. Under Article 10 of the SAFE Regulation, each borrowing Member State is required to conclude both a loan agreement and operational arrangements with the Commission. MoUs—commonly used in EU macro-financial assistance—could serve as such arrangements, providing a flexible yet effective framework for oversight and conditionality.
MoUs could:
- Explicitly state that SAFE loans complement existing defence budgets, for example, by making disbursements conditional on maintaining NATO targets, a defined baseline, or another credible spending threshold.
- Link disbursements to measurable procurement milestones, such as projects launched, contracts signed, or deliveries completed.
- Reserve the Commission’s right to suspend or recover funds in cases of budget substitution or unjustified invocation of Article 346 TFEU.
By linking financial disbursements to measurable performance and compliance criteria, MoUs could ensure that SAFE funds contribute to genuine capability growth.
Legal challenges
Under Article 346(1)(b) TFEU, Member States may unilaterally derogate from EU law—including the SAFE Regulation—to protect essential security interests. To justify such measures, governments must demonstrate that national measures are necessary, meaning there must be no less restrictive but equally effective EU-compliant alternative.
Article 346 TFEU is meant to be an exception, but the provision has been frequently invoked to exempt defence-related procurement from internal market and competition rules. As part of EU primary law, Article 346 TFEU remains applicable within the framework of SAFE, allowing Member States to derogate from obligations under EU law on a case-by-case basis.
In practice, this could enable Member States to:
- Exclude non-national suppliers from SAFE-funded projects on security grounds.
- Award contracts directly to national companies without competitive tendering.
- Subject-specific technologies to national export control regimes or limit the sharing of classified information.
Such measures risk enabling protectionist practices that perpetuate the very market inefficiencies and fragmentation that SAFE is intended to address. Yet, because Member States are spending EU-backed loans rather than national resources, their discretion in determining whether national measures are necessary may be more limited. This underscores the need for a clear interpretation of Article 346 TFEU in the context of SAFE.
Interpretative Guidelines
The Commission should therefore issue interpretative guidelines, building on its 2006 Communication on Article 296 of the EC Treaty, to clarify the legal requirements of Article 346 TFEU in the context of SAFE. Although non-binding, such guidelines would enhance legal certainty, identify issues where litigation before the Court of Justice of the European Union is likely to arise, and help balance national security prerogatives with EU-level accountability.
In particular, interpretative guidelines should clarify:
- Necessity – the relevant point in time for assessing whether derogations from EU law are necessary.
- Standard of proof – the level of evidence required to demonstrate that there is no less restrictive, equally effective alternative to national measures.
- Interaction with Article 4(3) TEU – the limitations to the discretion of Member States arising under the principle of sincere cooperation.
Policy implications and recommendations
SAFE has the potential to strengthen the European Defence Technological and Industrial Base, foster market integration, and enhance collective resilience. Yet without appropriate safeguards, it risks reproducing the very inefficiencies it seeks to correct.
The European Commission should therefore:
- Issue interpretative guidelines on Article 346 TFEU to prevent unjustified derogations from EU law in the context of SAFE.
- Conclude MoUs with borrowing Member States to avert budget substitution and mitigate delays of joint procurement projects.
By deploying these soft law instruments, the Commission can ensure that SAFE is not only ambitious, but also sound—advancing Europe’s defence integration while preserving fiscal and legal integrity.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
