Pierre Gramegna, Managing Director of the European Stability Mechanism (ESM), has proposed using the fund’s €430 billion ($514 billion) capacity to support defense spending in eurozone countries.
The move comes as Europe faces Russia’s ongoing war in Ukraine and uncertainty over U.S. support under President Donald Trump.
“It is in the best interests of Europe to use the full potential,” Gramegna told Reuters. He stressed the need for new tools as defense costs rise.
Repurposing the Crisis Fund
The ESM was created during the eurozone debt crisis to rescue financially troubled countries such as Greece. Recently, it has remained largely unused, aside from an unused COVID-19 healthcare credit line.
Gramegna said the fund could now support defense spending, especially for smaller nations with tight budgets. Unlike regular ESM loans, these precautionary credit lines would not require strict economic reforms.
“The fund can support countries in good financial health at a time when U.S.-Europe relations are bumpy,” Gramegna added.
All eurozone members must approve the plan, including neutral countries like Austria and Ireland. Non-euro nations, such as Poland, would not be included.
Potential Challenges
Germany may resist the proposal, as the ESM was never intended for routine use. Rebecca Christie of the Bruegel think tank said the plan challenges the fund’s original mandate and could reopen old political disputes.
The idea echoes a previous proposal by former Italian Prime Minister Enrico Letta, which suggested loans up to 2 percent of GDP at low rates for defense.
Russia and Trump Drive Urgency
Europe’s defense push follows Russia’s invasion of Ukraine in 2022, now in its fourth year. President Trump has questioned NATO commitments, threatened tariffs, and demanded higher European defense spending.
In January 2026, Trump reached an agreement with NATO Secretary-General Mark Rutte. He paused tariff threats and gained U.S. access to Arctic security.
Baltic States at the Front Line
Lithuania, Estonia, and Latvia are most likely to benefit. Since 2022, they have quadrupled defense spending to around 5 percent of GDP.
These nations already tapped EU SAFE loans and face ongoing threats from Russia and Belarus.
Europe’s Defense Momentum
The ESM plan aligns with broader EU efforts. In 2025, NATO members pledged to raise defense spending to 5 percent of GDP by 2035. The EU’s ReArm Europe initiative could mobilize up to €800 billion.
SAFE provides €150 billion in loans, requiring at least 65 percent of procurement to come from European producers.
EU High Representative Kaja Kallas said Europe can no longer rely on the U.S. as its “primary center of gravity” for security.
Industry, Innovation, and Divisions
EU defense R&D spending has risen 90 percent in five years, largely due to Ukraine. France wants €90 billion in loans tied to European weapons. The Netherlands opposes restrictions that could slow aid to Kyiv.
In mid-January, EU Commissioner Andrius Kubilius approved €38 billion in SAFE funding for eight member states. U.S. firms are increasingly sidelined as European policymakers question Washington’s reliability.
Toward Strategic Autonomy
Experts say Europe may need to double aid to Ukraine, from €44 billion to €82 billion annually, if U.S. support falters.
Gramegna compared the situation to WWII lessons, emphasizing that security must come first. Frozen Russian assets and reclassified nuclear investments under EU ESG rules could help fund defense.
Unity remains Europe’s biggest challenge. Disagreements over spending and procurement could slow progress toward strategic autonomy.