Unpacking ReArm Europe: Breaking Fiscal Taboos After the Trump Re-Election
By: David Genini
On March 19, 2025, the European Union (EU) unveiled the full scope and significance of ReArm Europe—the most ambitious financial program for defense and security in the EU’s history. With the potential to unlock €800 billion over four years, ReArm Europe signals a sharp shift in the EU’s economic and fiscal governance ecosystem, reflecting a newfound urgency in strengthening Europe’s defense capabilities.
In 2025, the EU’s aggregate defense expenditure stood at 1.9% of its gross domestic product (GDP)—significantly lower than that of the United States (U.S.), China, and Russia. This low figure reflects decades of underinvestment, as European states benefited from the post-Cold War U.S. peace dividends and redirected resources toward welfare rather than defense, drifting away from the 3% of GDP defense spending typical of the 1980s. The reelection of Donald Trump and Russia’s full-scale war in Ukraine have exposed Europe’s acute strategic vulnerability. Notably, the second Trump Administration has explicitly threatened to withhold protection from European nations that invest less than 5% of their GDP on defense, prompting a swift reaction from the EU.
This Bulletin post explores the ReArm Europe plan and its impact on the EU’s growing strategic autonomy from the U.S. and progress toward a genuine European Defense Union.
The European Commission has legally classified the combination of the war in Ukraine and the U.S.’s detachment from European security as “exceptional circumstances outside the control of the Member State [which] have a major impact on the public finances of the Member State concerned.” This classification allows EU Member States to temporarily deviate from traditional budgetary commitments and increase defense spending by up to 1.5% of GDP under the “national escape” clause of the Stability and Growth Pact for the period 2025-2028 without facing sanctions. This relaxation of fiscal constraints is particularly beneficial for heavily indebted Member States with a debt-to-GDP ratio higher than 60%, such as Italy, Greece, France, Spain, and Belgium. For comparison, during the COVID-19 crisis, the EU activated the “general escape” clause to address a broader economic impact across the EU rather than on individual Member States. A key signal of this shift is the decision by German Chancellor Friedrich Merz to lift the constitutional “debt-brake”—introduced by Angela Merkel in 2009 after the banking crisis—to allow increased defense investment. This move highlights a broader willingness in Europe to prioritize defense spending over austerity in this historical moment, underscoring the adaptability of EU fiscal rules in times of crisis.
To complement the accommodation of increased national defense spending, the EU has introduced Security Action for Europe (SAFE)—a regulation providing up to €150 billion in financial assistance for joint defense procurement until December 2030. Eligible projects must involve at least two Member States or one Member State and a strategic partner, such as Ukraine or an acceding country. SAFE aims to reduce Europe’s long-standing overreliance on third-country defense suppliers by requiring that at least 65% of the end-product’s value funded through SAFE must originate from the EU, EFTA/EEA states, or Ukraine, with limited exceptions aligned with the EU’s Common Foreign and Security Policy (CFSP). Technically, SAFE is based on the discussed “emergency clause” of EU treaties ex Article 122 TFEU previously used for, inter alia, the joint purchase of COVID-19 vaccines and the SURE program for pandemic-related employment support. SAFE consists solely of loans with favorable conditions: a 45-year maturity and a 10-year grace period. These loans are backed by the EU budget’s ceiling, enhancing the Commission’s borrowing power on capital markets and enabling it to secure more competitive credit terms than those available to individual Member States.
The EU has also proposed broadening the lending mandate of the European Investment Bank (EIB) to cover a wider genus of defense-related products. Following the Security and Defense Action Plan approved in May 2024, the EIB is expected to double its defense-related financing to €2 billion in 2025. Additionally, ReArm Europe seeks to mobilize private capital more aggressively through a revitalized Savings and Investments Union, modeled on the U.S. system. Despite higher savings rates than in the U.S., EU households have lower overall wealth due to limited investment activity. The European Commission hopes to redirect this dormant private capital into defense investments, encouraging a shift toward a more US-style investment culture.
While ReArm Europe reflects a significant policy shift, it remains fundamentally nationally centered. Defense remains an intergovernmental area under the CFSP; defense industrial policy falls under shared competence; SAFE provides loans rather than grants and operates as an extraordinary rather than ordinary measure; and Article 41 TEU continues to prohibit the EU from directly purchasing security products on the market. As a result, the EU can, at best, play a supporting role in defense matters for Member States, with decisions on defense spending and strategy remaining under the control of sovereign national governments.
Despite these structural limitations, ReArm Europe represents important progress toward a more integrated European Defense Union. Militarily, it breaks the historic taboo on defense funding in Europe, enabling Member States to rebuild their military capacity after decades of underinvestment. Financially, SAFE enhances the EU’s budgetary capacity by empowering the European Commission to borrow on capital markets—a significant step toward permanent fiscal integration.
ReArm Europe ultimately seeks to strengthen the EU’s strategic autonomy from the U.S. in defense and security. Between 2022 and 2023, the U.S. alone accounted for 63% of the EU’s total weapons imports. Moreover, the reelection of Trump has brought new tariffs on European products, reinforcing the urgency of reducing dependence on U.S. security guarantees. By increasing intra-EU trade in defense products through the “Buy-European” clause—which ties SAFE loans to products made in Europe—ReArm Europe enhances product interoperability and contributes to the development of a truly functioning European defense market.
ReArm Europe also seeks to fill the gap in military support to Ukraine following the U.S.’s decision to scale back assistance. Member States may use ReArm Europe funds to replenish national stockpiles and meet the EU’s target of supplying two million rounds of ammunition annually to Ukrainian forces under ReArm Europe—thereby strengthening Ukraine’s position in peace negotiations with Russia.
ReArm Europe reflects a logic of power: if the U.S. withdraws its security umbrella, Europe must take greater responsibility for its own defense. Whether the EU can rapidly shift to a wartime production capacity and secure Europe’s defense independently, however, remains uncertain. ReArm Europe certainly marks a bold step toward strategic autonomy—but whether it will be sufficient remains to be seen.
Davide Genini is a PhD Candidate in EU Law at Dublin City University, and a researcher at both the Brexit Institute and the Dublin European Law Institute. His research focuses on European security law, NATO law, and transatlantic relations, and he has published several articles on these topics in peer-reviewed journals.