Here’s a breakdown of Council Regulation (EU) 2025/1106 establishing the Security Action for Europe (SAFE):
**1. Essence of the Act:**
The Regulation establishes the Security Action for Europe (SAFE) instrument to provide financial assistance to Member States for urgent and major public investments in the European defence industry. This is in response to the deteriorating security situation in Europe, particularly Russia’s war against Ukraine, and aims to rapidly increase defence production capacity, improve the timely availability of defence products, and accelerate the industry’s adjustment to structural changes. The SAFE instrument will provide loans to Member States to facilitate common procurement of defence products.
**2. Structure and Main Provisions:**
* **Subject Matter and Scope (Article 1):** Establishes the SAFE instrument and defines its scope, focusing on financial assistance to Member States for investments in the European defence industry. It also specifies simplified and accelerated common procurement procedures for defence products.
* **Definitions (Article 2):** Defines key terms such as “defence product” and “common procurement.”
* **Complementary Nature (Article 3):** States that the SAFE instrument complements other Union and Member State measures to support the European defence industry.
* **Conditions for Using the SAFE Instrument (Article 4):** Outlines the conditions under which Member States can request and use financial assistance, focusing on activities related to defence products and common procurements.
* **Form of Financial Assistance (Article 5):** Specifies that financial assistance will be in the form of loans.
* **Maximum Amount of Financial Assistance (Article 6):** Sets the maximum amount of financial assistance available under the SAFE instrument at EUR 150 billion.
* **Request for Financial Assistance and European Defence Industry Investment Plans (Article 7):** Details the process for Member States to request financial assistance, including the requirement to submit a European defence industry investment plan.
* **Decision on the Request for Financial Assistance (Article 8):** Describes how the Commission will assess requests and how the Council will make decisions on providing financial assistance.
* **Borrowing and Lending Operations (Article 9):** Empowers the Commission to borrow funds on behalf of the Union to finance the SAFE instrument.
* **Loan Agreement and Operational Arrangements (Article 10):** Requires the Commission to enter into a loan agreement and operational arrangements with Member States receiving financial assistance.
* **Pre-financing (Article 11):** Allows Member States to request pre-financing of up to 15% of the loan support.
* **Rules on Payments of Instalments and Suspension of Loans (Article 12):** Sets out the rules for payment of loan instalments and the conditions under which loans can be suspended.
* **Prudential Rules Applicable to the Portfolio of Loans (Article 13):** Establishes prudential rules for the loan portfolio, limiting the share of loans granted to the largest Member States.
* **Control and Audits (Article 14):** Specifies that the loan agreement must include provisions for controls and audits.
* **Reporting (Article 15):** Requires the Commission to provide annual reports to the European Parliament and the Council on the use of financial assistance.
* **Eligibility Rules on Common Procurement Supporting Defence Industry Investments (Article 16):** Sets out the eligibility conditions for common procurements to receive support under the SAFE instrument, including requirements for contractors and subcontractors.
* **Conditions for the Participation of Other Third Countries Entities and Products (Article 17):** Allows the Union to conclude agreements with other third countries to open up eligibility conditions.
* **Modification of Framework Agreements or Contracts (Article 18):** Outlines the conditions under which existing framework agreements or contracts can be modified to facilitate procurements supported by the SAFE instrument.
* **Cases Justifying the Use of the Negotiated Procedure Without the Publication of a Contract Notice in the Context of a Procurement Supported by the SAFE Instrument (Article 19):** States that procurements involving Member States receiving financial assistance are deemed to satisfy the condition of urgency resulting from a crisis.
* **VAT Exemption on Importation and Supply of Defence Products (Article 20):** Introduces a VAT exemption for supplies, intra-Community acquisitions, and importations of defence products made under contracts resulting from procurements supported by the SAFE instrument.
* **Application of the Rules on Classified Information and Sensitive Information (Article 21):** Addresses the handling of classified and sensitive information.
* **Information, Communication and Publicity (Article 22):** Outlines the communication activities to be undertaken by the Commission and Member States to ensure the visibility of Union funding.
**3. Main Provisions for Practical Use:**
* **Eligibility Conditions for Common Procurement (Article 16):** These conditions are crucial for Member States and defence companies to understand, as they dictate who can participate in common procurement projects funded by the SAFE instrument. The requirements regarding the location of contractors and subcontractors, control by third countries, and the origin of components are particularly important.
* **Request for Financial Assistance and Investment Plans (Article 7):** Member States need to adhere to the requirements for submitting a request for financial assistance, including the detailed European defence industry investment plan.
* **VAT Exemption (Article 20):** The VAT exemption on defence products acquired under the SAFE instrument is a significant financial incentive and should be carefully considered in procurement planning.
**** This regulation is highly relevant to Ukraine, as it specifically includes Ukraine in several provisions, such as allowing Ukrainian companies to participate in common procurements and considering the involvement of Ukraine in planned activities. This highlights the EU’s commitment to supporting Ukraine’s defence capabilities and integrating its defence industry with the European one.
