SAFE in Europe: Poland stands out

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

We examine which countries have signed up, on what terms, and what impact participation is likely to have on their economies.

The fierce political row surrounding SAFE in Poland is an anomaly. Security – until now seen as largely immune to partisan skirmishes – has become another front in the political contest. Many experts argue that the dispute over SAFE may mark the beginning of a broader polarization of the political scene around Poland’s membership in the European Union.

Poland leads the pack

The intensity of the dispute over SAFE in Poland is a European outlier. The program – designed to support EU member states in defense procurement (to a large extent equipment produced domestically) – has stirred such heated political emotions only in Poland. We take a closer look at the European SAFE map.

Most EU countries have applied to the European Commission for low-interest funding under SAFE. For 16 states, the Commission has approved the spending plans submitted by national governments. Alongside Poland, this group includes Belgium, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, Greece, Spain, Lithuania, Latvia, Portugal, Romania, Slovakia and Italy.

Czechia, France and Hungary are still awaiting approval of their funding.

Poland is set to be the largest beneficiary of the program. A total of EUR 43.7bn is earmarked for equipping the Polish armed forces – nearly one-third of the program’s entire budget.

The second- and third-largest allocations are expected to go to Romania and Italy, at EUR 16.6bn and EUR 15bn, respectively. Romania plans to spend the funds on air defense systems and helicopters, but also on expanding motorway links towards Moldova and Ukraine.

SAFE poses no problem for conservatives in Italy and Hungary

Italy offers an instructive case. Under the government of Giorgia Meloni – a political ally of Law and Justice (PiS), the main opposition party in Poland – the SAFE program has not become a source of contention. The Italian prime minister has stressed the importance of the funds for developing dual-use technologies that can also benefit the civilian economy. On the Apennine peninsula, SAFE loans have not turned into a tool of political mudslinging.

The same broadly applies in Hungary. The government in Budapest has applied for more than EUR 16bn to expand its domestic defense-industrial base. For now, however, the European Commission is holding back approval. The situation is unlikely to change before the April elections. The freeze on SAFE funding for Hungary is a direct consequence of Budapest’s veto of the 20th package of sanctions against Russia. Also on the table is a EUR 90bn loan for Ukraine, which requires approval by the EU Council. Given Viktor Orbán’s anti-Ukraine election campaign, a veto appears highly likely. In the near term, Hungary is therefore unlikely to see SAFE funds.

In France, the sticking point with the Commission is Paris’s refusal to disclose details of national investment plans. In Czechia, the issue is – according to the government – the relatively small allocation under a program negotiated by the previous administration of Petr Fiala.

Germany and Sweden opt out of SAFE, citing cheaper borrowing than the Commission

More intriguing, however, are the countries that have chosen not to participate. Among the largest economies staying outside SAFE are Germany, the Netherlands and Sweden.

Germany’s case has attracted considerable media attention, largely due to anti-German narratives on Poland’s political right. In factual terms, however, it is straightforward. Under Friedrich Merz, Germany has opted out of SAFE because it can borrow on more favorable terms than those offered by the European Commission.

Sweden, which is stepping up its defence engagement, has also decided against participation.

“We are not taking part in this program not because it is flawed, but because – with the third-lowest debt in the European Union – we can borrow on international markets on terms more favorable than those offered by the EU itself,” Sweden’s defense minister, Pål Jonson, said. Sweden is likewise keen to support its already strong domestic defense industry.

In the Netherlands, the previous parliament rejected participation in the ReArm Europe program, citing concerns about an excessive increase in public debt. Opponents of SAFE won a December vote by the narrowest possible margin. Meanwhile, the new government led by Rob Jetten lacks a parliamentary majority. Jetten is broadly sympathetic to SAFE, but, as a matter of principle, opposes financing the public debt of other member states.

SAFE financing will also not be used by Austria, Ireland and Malta – countries with longstanding traditions of neutrality, where increasing defense spending remains politically sensitive. One exception is non-NATO Cyprus, which has applied for SAFE funds. It is worth noting, however, that the island hosts British military bases that were recently targeted by Iranian drones. Cyprus’s situation is therefore unique within the EU.

Canada also among SAFE beneficiaries

The list of SAFE beneficiaries is set to grow. A much wider group of countries will be able to take part in joint defense procurement under the program. These joint purchases are open not only to other EU member states, but also to candidate countries – and, of course, to Ukraine. Canada is certain to join these joint procurement schemes, having paid just EUR 10m for access to SAFE.

By contrast, the United Kingdom is still negotiating access with the European Commission. According to Bloomberg, the Commission’s initial proposal to London amounted to a hefty EUR 4bn. Britain’s defense sector is larger and far more integrated with Europe’s than Canada’s, which helps explain the wide gap in Brussels’ pricing. For now, however, Keir Starmer’s government has yet to reach an agreement with the Commission – though it would be premature to declare the talks over.

As noted, Poland is set to be the largest beneficiary of SAFE in absolute terms. The picture looks different, however, when the loan is measured against the size of the economy. SAFE funds amount to 4.8% of Poland’s 2025 GDP. In five countries, this ratio is higher: Latvia (8.1%), Lithuania (7.6%), Hungary (7.4%), Estonia (5.6%) and Cyprus (5%). Romania is close behind, at 4.4%. In this respect, Poland’s position within SAFE does not materially differ from that of other countries on the EU’s eastern flank.

A similar pattern emerges when the loans are calculated on a per capita basis. For Poland, this comes to around EUR 1,200 (approximately PLN 5,000) per person. In Lithuania, the figure is EUR 2,200, while in Latvia and Cyprus it exceeds EUR 1,800, and in Estonia and Hungary it is above EUR 1,700. Once again, Poland does not stand out within SAFE on this measure.

The president’s economic arguments

Announcing his intention to veto the SAFE bill, President Karol Nawrocki pointed to three economic arguments underpinning his decision. First, he described the SAFE loan as “a massive foreign-currency liability whose cost could exceed PLN 180bn.” While the calculation of the total cost is broadly correct, it says little given the loan’s 45-year maturity (including a 10-year grace period on principal repayments).

To understand the real burden, one must take into account that Poland’s economy continues to grow. This means the ratio of SAFE debt to GDP will decline over time. Naturally, future growth is uncertain. In an optimistic scenario, one might assume real growth of 1.5% and inflation of 2.5%, implying nominal growth of 4% annually. Over 45 years, this would roughly triple the size of the economy. Even in a less favorable scenario – 2% nominal growth (0.5% real growth and 1.5% inflation) – GDP would more than double. In effect, the economy would “grow out” of the debt.

The second argument advanced by the president compares the SAFE loan to Swiss franc mortgages. This can be read as highlighting foreign-exchange risk. Yet the comparison is not particularly apt. Such risk can, in principle, be hedged with appropriate financial instruments. Moreover, the Swiss franc mortgage episode was highly specific. Between 2011 and 2015, the Swiss National Bank maintained a fixed exchange rate against the euro; when it abandoned the peg, the franc appreciated sharply. The euro, by contrast, floats freely, making such a scenario unlikely. In addition, euro trading volumes are roughly six times larger than those of the Swiss franc, which reduces the risk of abrupt swings.

It is also worth noting that concerns over currency risk have not deterred other countries with their own currencies from joining the program, including Czechia and Hungary.

“SAFE at 0%” will not replace the EU’s SAFE

The president’s third argument pointed to an alternative in the form of “SAFE at 0%.” As we have noted before, the proposal put forward by the president and the governor of the National Bank of Poland would not, in practice, be capable of replacing the SAFE program. The main reason is that any proceeds the central bank might generate from gold sales would be inherently unpredictable. It is also doubtful that such a mechanism could raise sums comparable to those available under EU SAFE.

It is worth adding that in other countries with their own currencies, no comparable proposals have emerged to fund defense spending from central bank reserves.

The SAFE loan has a long horizon – 45 years, including a 10-year grace period on principal repayments. With nominal GDP growth of 2–4% annually, this implies that the economy could double or even triple over that period, reducing the debt-to-GDP ratio over time.
SAFE is being rolled out across most EU countries with limited political friction – funding has already been approved for 16 states, while others (including France, Czechia and Hungary) are still awaiting decisions. Poland remains an outlier, where the program has become a focal point of sharp political dispute.
Poland is set to be the largest beneficiary – with EUR 43.7bn, or close to one-third of the total budget. As a share of GDP, however, this amounts to around 4.8%, less than in Latvia (8.1%), Lithuania (7.6%) or Hungary (7.4%). On a per capita basis, it is roughly EUR 1,200 compared with, for example, EUR 2,200 in Lithuania.