Estonia to use EU SAFE loan to strengthen defence capabilities

The current European security environment requires Member States to rapidly strengthen their defence capabilities, while Europe's defence industry is simultaneously expanding its production capacity. In the coming years Estonia has decided to allocate annually more than 5% of GDP to defence , enabling the defence investments set out in development plans to be implemented faster and on a larger scale.

"The SAFE loan is a prudent way to finance the strengthening of Estonia's defence capabilities. As a large issuer, the European Union is able to borrow on more favourable terms than Estonia, helping to reduce borrowing costs," said Janno Luurmees, Head of the State Treasury Department at the Ministry of Finance.

According to Luurmees, the 45-year maturity of the loan allows repayments to be spread over a longer period. "When borrowing, it is beneficial to combine different instruments, sources of financing and maturities to achieve the most favourable conditions. This enables us to make the necessary investments in defence while reducing the burden on future state budgets," he added.

"Europe's rapidly changing security environment requires stronger defence capabilities and faster action from the entire Alliance. Estonia's historic decision to allocate more than 5% of GDP annually to defence, combined with the European Union's SAFE loan mechanism, will allow us to implement critical investments foreseen in NATO defence plans and Estonia's development plans significantly faster and on a larger scale," said Kadri Peeters, Undersecretary for Defence Capabilities at the Ministry of Defence. According to Peeters, large-scale procurements in the coming years will have a direct impact on the security of Estonia and the wider region.

SAFE is part of the European Union's ReArm Europe package, which aims to accelerate the strengthening of Europe's defence capabilities. Under the SAFE instrument, the European Union will raise up to EUR 150 billion from the capital markets and lend the proceeds to Member States as long-term loans for defence investments.

One of the conditions of the SAFE instrument is joint procurement. To support the development of the European defence industry's production capacity, at least 65% of the final components of procured products must originate from the European Union.

The Ministry of Defence will use the SAFE loan, among other purposes, to strengthen Estonia's air defence, procure military vehicles, artillery shells and other ammunition, and support Ukraine through the provision of unmanned aerial vehicles.

Estonia submitted its final SAFE application, in the form of a Defence Industry Investment Plan, to the European Commission in November 2025. Procurements and deliveries under the plan must be completed by 2030.

Estonia has previously borrowed EUR 230 million under the European Commission's SURE instrument to retroactively finance the Government's extraordinary expenditure incurred in 2020 to mitigate the impact of the COVID-19 pandemic.

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