Ecaterina MATOI
Introduction
The invasion of Ukraine by the Russian Federation is arguably the most significant geopolitical turn for Europe since the beginning of 21st century. While it aimed to stop a vigorous Euro-Atlantic influence from expansion eastwards, it also triggered a rearmament race in both Europe and the United States (US).
As of May 2026, European countries pursue individual militarization plans, bilateral or Union-wide programs, reportedly aiming to ready Europe for military conflicts, after a period of peace secured by the US-led Cold War victory against the Soviet Union. Particularly, the proponents of an Euro-Atlantic security architecture, that omit growing rifts between the US and European powers, envision a so-called three-theater world (Saxer, 2025), that is expected to unite traditional dominant powers against competing emerging powers.
The ReArm Europe Plan/Readiness 2030 agenda was presented in March 2025, and aims to “leverage” EUR 800 billion in defense spending, introduce an EUR 150 billion loan instrument called Security Action for Europe (SAFE) and amass further funding for defense investment (EUR PARL ReArm, 2025). While this plan is obviously justified by the invasion of Ukraine, and US hegemonic aspirations over territories such as Greenland underlines Europe’s military lethargy, details such as financial implications have surfaced in the aftermath of presented plans.
This paper analyzes Europe’s strive to rearm, particularly in the context of SAFE program, in order to identify the constraints of Europe’s bid to gain military prominence in the context of an expanding superpower competition and the challenges the Old Continent faces in terms of energy security, industrial capacity and financial independence.
The SAFE program: an overview
The SAFE credit facility, i.e. financial instrument, was adopted by the Council of the European Union (EU) in May 2025, and provides two funding lines: one for urgent military equipment procurement and another one for developing military capacity. Potential applicants include EU member states, candidates and potential candidates (such as Ukraine), and countries with EU security and defense partnerships: Albania, Canada, Japan, Moldova, North Macedonia, Norway, South Korea, and the United Kingdom (UK) (EU Commission, 2026). The plan does not mention countries such as the US, Switzerland, or Türkiye. This represents a departure from existing cooperation and solidarity lines in European defense, and Germany is not a major recipient of financing.
The official report cited above identifies allocations per country, with Poland (EUR 43.73 billion), Romania (EUR 16.68 billion), France (EUR 15.09 billion), and Italy (EUR 14.9 billion) topping the list (as depicted in figure 1), while Hungary’s EUR 16.22 billion allocation is reportedly under evaluation (EU Commission, 2026).
*Projected amount allocated in September 2025 based on expression of interest
Figure 1. Allocation of funds in SAFE program based on submitted defense plans by applicant countries (EU Commission,2026).
In short, the European Commission (EC) is expected to sell EU-bonds, which under the January 2023 decision to unify bond’s sale are normal EU bonds, and pass the loans to SAFE program’s applicants on the conditions the EU obtains from creditors, conditions that are considered better than those of certain countries. The loans are subject to Commission’s approval of the rearmament plans.
Europe’s SAFE rearmament plan has been advertised by the European Commission as a grand strategy for Europe’s quick military buildup, but at the same time, questions have been raised by various parties at the general and detail levels. The European Parliament voted in 2025 to sue the European Commission at the European Court of Justice (ECJ), questioning Commission’s invocation of Article 122 of the Treaty of the Functioning of the European Union (TFEU) when bypassing the European Parliament’s democratic role based on the claim of immediate emergency (S&D Legal Affairs, 2025). The court challenge questions the exceptional circumstances invoked by the European Commission under Ursula von der Leyen to bypass legislation process, for a financing plan that might span up to 45 years.
At national level, the SAFE program determined political scrutiny in the two major recipients Poland and Romania. An official report by the Chancellery of the Prime Minister of the Republic of Poland (Chancellery of the Prime Minister, Republic of Poland, 2026) states, among other things, that SAFE is supervisory and anti-corruption in nature, and that <89 % of the funds will remain in Poland. Despite a spat related to delivery of 155 mm artillery shells (delivery blocked by South Africa involving Rheinmetall’s manufacturing subcontractor), the German military giant Rheinmetall`s advanced cooperation with Polish defense companies PGZ and SATIM
(Rheinmetall PGZ, 2025) (Wight, 2025).
In Romania, amid declarations by Defense Minister Radu Miruță, the Romanian government was reportedly accused of favoritism and lack of competition when selecting Rheinmetall as a “pre-selected winner” (valahia.news, 2025). According to the same source, Romania’s leading arms manufacturer Romarm was left out of SAFE program. Further Romanian media sources claim that out of EUR 8.3 billion, Romania is passing EUR 5.7 billion to Rheinmetall, and in the particular project of Lynx vehicle purchases, worth EUR 2.598 billion, only 40 % of production is localized in Romania, at company Automecanica Mediaș, owned by Rheinmetall, a list of acquisitions from Rheinmetall is presented in the report (Cozmei, 2026).
The SAFE program is thus contested at multiple levels, not necessarily because of its scope, but because of the manner in which it is implemented. According to preliminary data, the presence of German companies in top recipients countries such as Poland and Romania partially explains the lack of financing for Germany.
Two additional elements are also considered in order to detail the context of SAFE program: the state of European military complex, and the financial process employed by the European Commission for rearming Europe.
A brief review of European “military industrial complex”
In comparison to the United States Military Industrial Complex (MIC), the European defense companies form a more heterogenous and overall smaller entity. Furthermore, despite traditional companies and a history of military experience, it also lacks leading positions in drone and similar new technologies developed by countries like Türkiye. However, none of these disadvantages matches the financial dependence on American capital and associated influence, that despite claimed political will to render European defense independent, may impact secondary effects that can be easily overlooked, particularly when parliamentary debate is bypassed for long-term processes.
According to various reports, the ownership of Rheinmetall shares is dominated by American institutional investors and mutual funds. The largest share as of February 2026 was held by BlackRock Inc. (7.19 %), followed by the Vanguard Group Inc. (4.29 %) and FMR LLC (Fidelity) (3.07 %). Other top American shareholders include Morgan Stanley, Bank of America Corp., various Vanguard investment branches, iShares with smaller positions held by UBS Asset Management AG (Switzerland) and Norges Bank Investment Management (Norway) (investing.com Rheinmetall, 2026).
A similar situation can be identified in the case of BAE Systems (UK), Rolls Royce (UK), Leonardo S.p.A. (Italy), Safran and Thales (France): American investors are leading shareholders, despite strategic control of some companies being held by indigenous capital. BlackRock, Vanguard, Capital Research & Management, Fidelity, TCI Fund Management, Harris Associates, among others, invested significant capital in fast-growing European defense companies that both appreciate in value and pay higher dividends when compared to American counterparts after 2022. In 2025, the Rheinmetall stock reportedly increased with 152 %, Leonardo with 93 % and Thales with 69 % (dividendes.ch (Jerome), 2026).
The dividends paid by Rheinmetall to investors increased from a low of EUR 0.3 per share in 2015 to EUR 3.3 in 2022 and EUR 11.5 announced for 2026 (to be paid on May 15th, 2026) (investing.com Rheinmetall, 2026). Leonardo’s dividend payment increased with 100 % from 2023 (EUR 0.14) by 2024 (EUR 0.28), and increased again substantially in 2025 (EUR 0.52) (stockevents.app, 2026).
Consequently, the European MIC follows to a certain extent the capitalization pattern of its American counterpart, with American investors placed in leading positions during a military economic boom that generates, besides European security, historic stock appreciation and soaring dividends.
European Commission’s increasing role as credit facilitator
The prioritization of military spending at EU central level develops despite an energy crisis, rising inflation, and a chronical Europe-wide population decline. The European Commission debuted in the past decade as a central bond issuer based on Article 122 of TFEU by issuing “Coronabonds” (Meyer, Trebesch, & Horn, 2020). While the exercise demonstrated the principle that served as the basis for the EU-financed rearmament program, based on an emergency justification. Back in 2020, the German Federal Constitutional Court ruled that the European Central Bank’s quantitative easing conflicted with Germany’s Constitution, a decision that was assessed in literature as a burden for efforts to tackle the coronavirus pandemic (Moehr, 2020). While the German court found lacking a proper proportionality assessment (Article 5(4) of TEU). Infringement procedures against Germany were launched immediately for overriding EU justice at national level, but these were subsequently abandoned (EU LAW Live, 2021).
In the SAFE program framework, the European Commission mentions “competitively priced and attractively structured long-duration loans” (EU Commission, 2026), which is a fair but relative claim. In the unified funding approach, the EC issues bonds and benefits from a AAA rating from Fitch and Moody’s, but S&P Global rates it AA+ (EU Commission Rating, 2026).
In order to assess this advantage, the 10-years yield is employed as comparison criterion. On May 5, 2025, a 10-year EU bond, which is assumed to be a unitary bond, and is therefore applicable also to a SAFE-funding bond, was carrying an interest rate of 3.449%.
While this is well below the interest rates that Poland (5.812 %) and Romania (7.4 %) pay, the interest is higher than what Germany pays (3.0759 %), and significantly higher than Japan’s (2.506 %) or Switzerland’s (0.416 %) (Trading Economics 10Y Bond, 2026). Hence, from a pure financing perspective, passing EU loans to Poland and Romania, or even France (3.755 %) and Italy (3.935 %) represents a loan interest advantage, but considering that the approval is subject to military spending conditions, adds another political layer to the interest rate. Furthermore, the current EC interest rates are significantly higher than those during the coronavirus pandemic, when interest rates were hovering around 0 %.
As 26.6 % (EUR 3.56 trillion) of EU outward Foreign Direct Investment (FDI) (EUR 13.4 trillion) is held in the US as of December 2025 (European Council FDI, 2025), the EU’s rearmament program, combining acquisition of weapons and industrial development relies strongly on American capital. Certainly, the US holds also a EUR 3.557 trillion FDI stock in Europe, but the military power balance is asymmetrical.
There were two concerns mentioned in the literature, in connection with EU’s financially consequential role in emergency funding: the proportionality of the response to invoked crises, and bypassing Parliament for long-term consequences, including the financial ones. Given the confirmed pattern of emergency crises substantial financing directly by the European Commission, the question becomes which future major crisis the Commission will consider as basis for offering loans, combined with derogations from spending deficit regulations, amid already heavy financial burdens many European states face.
Conclusion
This article analyzed the European Commission’s ambitious project of rearming Europe, amid a new trend of issuing EU bonds based on the TFEU Article 122, i.e. emergency conditions. The analysis identified that selected major European defense companies are financed, as of 2026, primarily by influential American institutional investors.
The list includes, among others, Rheinmetall, a company with major investments in and expected contracts from countries that were allocated record SAFE loans such as Poland and Romania.
The European Commission is championing an ambitious development plan, but its bypassing of European Parliament is contested at the level of political discourse and in the court. The disagreement does not relate to the stated problem’s essence, but the roles institutions are expected to play. While the EU holds a credit rating superior to East-European countries, it still does not match borrowing conditions/advantages of countries such as Germany, Japan or Switzerland. However, irrespective of EU’s credit rating, the interest rates and inflation in Europe turn the overall long-term credits into expensive investments, that are financed with interest-carrying bonds and pays dividends to defense companies’ shareholders.
In the wider context of consolidation attempts of an emerging economic bloc, long-term competitiveness remains an underlying challenge that still demands fundamental innovation, and acceleration of productive infrastructure at great power level, should Europe maintain the goal to co-defining a future long-term global order. While increasing military capability increase is indeed an emergency in the context of “Zeitenwende”, many economic sectors are also requiring urgent modernization, and funds. Thus, European institutions have the historical task to coordinate among short-term and long-term emergencies, and with partners in an ever more demanding international environment.
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Cover image credits: Guillaume Périgois via Unsplash. For illustrative purposes only.
Ecaterina MATOI is the President of Strategic Dialogue for Global Affairs Initiative.