MNI: Demand For EU's SAFE Loans Seen Limited To CEE- Officials

Demand for loans from the European Union’s EUR150 billion SAFE loan facility for defence spending looks likely to be limited to states from central and eastern Europe, including Poland and the Baltic countries, European officials have told MNI.

Many countries see no interest rate advantage from SAFE, while those which do lack the fiscal space anyway, they said. The prospects for a surge in additional borrowing by countries taking advantage of national escape clauses from the EU’s fiscal rules also appear to be limited, as, while 16 are applying, many are unsure how much if any they will use of the additional 1.5% of GDP margin, officials said, though they noted that American pressure at next month’s NATO summit could change the outlook.

"A lot of energy and headlines" have gone into these initiatives to boost defence spending, one official noted. "I detect now a loss of momentum. There is not the same urgency as a few months ago.” (See MNI: Additional EU Defence-Financing Prospects Bleak)

Italy, Spain, France and the Netherlands have not applied for escape clauses. Another factor limiting SAFE’s appeal are the “defence plans” which countries must draw up to be eligible.

"The defence plan is a bit of a nuisance for many countries," one source said. "It's partly why a lot of countries do not find it so appealing." 

SAFE NOT SURE

SAFE is drawing unfavourable comparisons with the EUR100 billion SURE programme which guaranteed wages during the economy-wide Covid shutdowns. SURE did not require the milestones and box ticking which slowed the disbursement and absorption of funds from the Covid funds made available via the larger NextGenerationEU scheme.

One big customer for SAFE loans however is likely to be Poland, which in its role as holder of the EU’s rotating presidency has injected considerable political capital into getting the scheme over the line during the past five months.

Following an initial rush of urgency over defence at the start of the year when President Donald Trump threatened to remove the U.S.-backed security guarantee, the bloc has shifted its political focus to securing a trade deal with Washington. 

A satisfactory agreement on trade would allow for a more conciliatory atmosphere at next month's NATO summit in The Hague, officials believe, pushing defence further into the long grass of the next EU long-term budget. 

On the other hand, U.S. insistence that Europe spend more on its own defence could boost prospects for more common EU debt issuance.

"If Americans raise the stakes at the NATO summit it becomes more existential for Europe very quickly,” one official said.