Ukraine to channel up to €1bn in EU loans into joint defence projects

Ukraine is poised to allocate up to €1 billion from its EU loan towards a joint defense program, with a specific emphasis on air and missile defense, drones, counter-drone systems, and ammunition. This funding move would significantly increase the support already provided by the EU, which is part of a larger strategy to integrate defense industries between Brussels and Kyiv, and to increase weapons production.

The Ukraine Support Loan (USL), provided by the EU, is set to dispense €90 billion to aid Kyiv’s military operations in 2026 and 2027. Recognizing the escalating financial requirements of Ukraine, the European Commission recently decided to expedite certain payments to alleviate its budget deficit. Nonetheless, Kyiv is anticipated to transfer “up to €1bn of Ukraine Support Loan funds to the European Defence Industry Programme / Ukraine Support Instrument,” according to a confidential European Commission document that Euronews has acquired.

The instrument, presently valued at €300 million, aims to foster collaborative Ukrainian-European manufacturing through joint ventures and licensing agreements, while also enabling joint procurement involving manufacturers from both regions. This funding enhancement is a component of the EU-Ukraine Strategic Defence Industrial Partnership, established in July 2026 through the signing of a letter of intent.

The Commission is currently drafting a Defence Industrial Pact, for which it seeks authorization from member states. The pact’s primary goals are to expedite the delivery of defense products to Ukraine, while simultaneously augmenting and integrating European and Ukrainian defense industrial capabilities. Apart from strengthening the instrument, the pact intends to explore methods to eliminate regulatory barriers to EU-Ukraine industrial collaboration, such as by concluding overarching agreements on drone and missile technologies.

An additional track intends to encourage member states to utilize the remaining funds under the Security Action for Europe (SAFE) program to finance joint projects with Ukrainian industry, although EU capitals cannot be compelled to do so. The Commission anticipates these measures to establish a "defense window" that enhances EU defense manufacturing in 2027, enabling Kyiv to acquire greater quantities from European producers at reduced costs.

In addition to direct purchases, the document suggests that national governments should be encouraged to deplete their arsenals to maintain the swift and continuous delivery of supplies to Ukraine. EU ambassadors are scheduled to deliberate on the initiative for the first time on Wednesday, with the objective of finalizing the pact by year-end. Following its approval, member states will be required to ratify the final text.