The New SAFE Mechanism to Finance Defense in the EU: Another Tool for Exerting Influence on Member States?

The Council of the European Union adopted Regulation 2025/1106 of May 27, 2025, establishing the Instrument for Strengthening Europe’s Security (“SAFE instrument”) by reinforcing the European defense industry. The official purpose of this legal act is to ensure greater strategic autonomy and defense for the European Union and the Member States by funding the closing of gaps and the build-up of their own capabilities in the European defense industry. The Ordo Iuris Institute has prepared an analysis of the regulation concerning the political and legal risk associated with the potential application of the so-called conditionality mechanism in relation to the SAFE Instrument, that is, linking the granting of funds to Member States’ compliance with the “rule of law.”

The essence of the SAFE Regulation is the establishment of an instrument aimed at providing EU Member States with financial assistance enabling them to undertake public investments that support the European defense industry. Under the Regulation, loans may be granted to EU Member States; these loans, in turn, are to be financed from funds borrowed on the capital markets or from financial institutions. These funds will be granted to individual Member States on the basis of applications containing an investment plan that sets out, inter alia, descriptions of the defense-related products, of the planned activities and the estimated expenditures and funding, as well as of the planned measures aimed at ensuring compliance with the provisions of this legal act. Subsequent installments and tranches of the loan are disbursed based on the European Commission’s assessment of the progress made in implementing the plan, and a determination that the plan’s implementation is unsatisfactory results in the suspension of payments of all or part of the loan.

Accordingly, funds are released gradually only after the requirements specified in the submitted application and the loan agreement have been met. This means that a detailed assessment of the linkage between disbursements of individual tranches of funds and the implementation of subsequent elements of the financed projects requires familiarity with the contents of the application and the individual loan agreements.

In their analysis, Ordo Iuris lawyers note that, taking into account the provisions of the SAFE Regulation as well as the provisions of Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality, there are well-founded concerns about the possibility of suspending the disbursement of these funds. In this context, they primarily refer to the provisions of the Conditionality Regulation, which will apply in the case of the SAFE Regulation. The purpose of the Conditionality Regulation is to lay down the rules necessary to protect the Union budget in the event of breaches of the rule of law in Member States.

According to Ordo Iuris lawyers, the possibility of suspending the disbursement of funds to a given Member State stems both from the broad material scope of the Conditionality Regulation and from the explicit reference contained in the preamble to the SAFE Regulation. This means that the disbursement of funds from SAFE may be suspended not only for technical or financial reasons, but also due to the assessment of the state of the rule of law in Poland issued by EU institutions.

The Conditionality Regulation allows protective measures to be applied to a Member State—including suspension of payments, withholding the disbursement of loan installments, or a ban on entering into new financial agreements—if the European Commission determines that violations of the rule of law affect, or pose a serious risk of affecting, the European Union’s financial interests. Of crucial importance in this regard is the very broad definition of a “state governed by the rule of law,”, which includes, among other things, judicial independence, effective judicial protection, and the proper conduct of procedures for appointing judges.

The Ordo Iuris analysis indicates that, for Poland, a particularly significant risk factor is the entrenched and unresolved dispute with EU institutions regarding the judicial system, including the method of appointing judges and the functioning of the National Council of the Judiciary. It is noted that the case law of the Court of Justice of the European Union consistently holds that deficiencies in this area violate EU law and lead to a situation in which certain judicial panels do not meet the EU definition of a “court”. The latest CJEU rulings and the Polish Supreme Court’s responses show that this dispute is not abating but is instead further escalating, deepening legal chaos and increasing Poland’s vulnerability to allegations of systemic violations.

Furthermore, the analysis emphasizes that, from the perspective of the Conditionality Regulation, a key factor is that the Commission is not required to demonstrate actual damage to the EU budget. A finding of a serious risk to the Union’s financial interests is sufficient, while the criteria for assessing that risk remain vague and largely discretionary. The Commission’s Guidelines indicate the particular importance of CJEU judgments as evidence, which in practice significantly strengthens the Commission’s position in any potential proceedings against Poland.

The authors of the Ordo Iuris publication also note that the procedure for applying the Conditionality Regulation is of a highly discretionary nature. The European Commission decides on the initiation of proceedings, the selection of evidence, the assessment of corrective actions, and the scope and severity of sanctions. The Council, when deciding by qualified majority, rarely opposes the Commission’s proposals in practice, as shown by the proceedings against Hungary. The application of the conditionality mechanism to Hungary proves that it is not a purely theoretical instrument but a real tool for interfering with Member States’ access to EU funds.

Read also:

• The EU’s Rule of Law Conditionality Mechanism: A Case for Suppression, Not Reform
• How the New EU Budget Is Set to Become a Powerful Tool for Exerting Influence on Member States
• When Defending the Rule of Law Serves Politics: European Commission’s Report on Poland