Sovereignty on Credit: Readiness 2030 and the Birth of Europe’s Debt-funded Defence Policy

Introduction

Europe’s accelerating transition from a market-driven defence ecosystem to a debt-funded, state-coordinated model marks a profound redefinition of the Union’s strategic and fiscal identity. In light of Russia’s war against Ukraine and the incremental consolidation of defence cooperation under PESCO (Permanent Structured Cooperation), the emergence of an ambitious initiative such as Readiness 2030 is hardly unexpected. What is more striking is the mechanism through which the Union seeks to realise it: a far-reaching relaxation of fiscal constraints that relocates defence readiness from the domain of collective capability planning into the realm of sovereign borrowing.

This new package builds on a line of regulations—from ASAP to SAFE—and Readiness 2030 marks only one additional step in structural defence integration and in creating an unprecedented Union-wide defence investment by 2030. The package’s effectiveness, however, depends on the National Escape Clause (NEC), which allows members fiscal derogations under the condition of military spending.

This paper traces Readiness 2030’s position in the European defence regulation, and analyses the regulation’s use of the NEC, shedding light on a weakness of the proposal and the risks this poses for the Union’s defence and fiscal ambitions.

Regulatory Lineage: From ASAP to SAFE to Readiness 2030

The creation of the Common Security and Defence Policy (CSDP) in 2009 marked a shift in the EU’s mandate, from a primarily monetary union into a security and defence actor. Readiness 2030 fits within this narrative. This initiative follows a regulatory path that began with the Act in Support of Ammunition Production (ASAP) and continued with the Security Action for Europe (SAFE), each addressing different aspects of Europe’s defence and technological industrial base (EDTIB) (Clapp et al., 2025; European Commission & High Representative of the Union for Foreign Affairs and Security Policy, 2025; (European Parliament & Council of the European Union, 2023).

ASAP Regulation (EU) 2023/1525, adopted in July 2023 in response to Russia’s invasion of Ukraine, was a short-term emergency measure aimed at accelerating the production of ammunition and missiles. The limited €500 million budget and a two-year mandate meant a narrow and temporary scope, but it funded industrial reinforcement and relieved logistical and procurement bottlenecks.  ASAP is generally part of an increased role of the EU in economic intervention to pursue political goals, specifically in defence (European Parliament & Council of the European Union, 2023).

SAFE Council Regulation (EU) 2025/1106, adopted in May 2025, extended ASAP’s principle into a long-term regulation. It shifted from grants to a large EU-backed loan facility, with a budget of up to €150 billion, and the goal of expanding production capacity, securing manufacturing slots, and building stockpiles across a wider range of defence products. This means that funding capabilities increased significantly. SAFE transformed ASAP’s limited nature into a structural industrial policy, laying the groundwork for the more ambitious Readiness 2030 package by incorporating diversified funding mechanisms, pre-financing, and VAT exemptions (European Commission, 2025a; Council of the European Union, 2025). 

Readiness 2030 

The Readiness 2030 White Paper, also known as the ReArm Europe Plan/Readiness 2030, is a comprehensive plan proposed by the European Commission in March 2025 (Clapp et al., 2025). Its primary goal is to increase defence spending through investment to establish a robust European defence posture and credible deterrence by 2030 at the latest (European Commission, 2025a; Council of the European Union, 2025).

Readiness 2030 is based on five financial pillars, used to leverage an unprecedented amount of defence spending.

First, the plan is anchored in the coordinated activation of the National Escape Clause (NEC), allowing all member states to deviate from their net-expenditure requirements to allow for higher defence spending. This exemption could free up to €650 billion in additional expenditure over four years, a significant increase from the last four years (European Commission, 2025a; European Commission, 2025b).

Second, the framework increases flexibility within existing EU cohesion funds, enabling national authorities to redirect funds toward defence-related industries (European Commission, 2025a). 

Third, the European Investment Bank is asked to expand its role by doubling annual lending for defence projects up to €2 billion and easing its eligibility criteria for dual-use technologies (European Commission, 2025a). 

Fourth, the Commission wants to mobilise private capital through the Savings and Investment Union, aiming to lower regulatory and ESG barriers that have historically constrained defence-sector financing (European Commission, 2025a).

Finally, these measures build on the previously mentioned SAFE instrument, which provides large-scale EU-backed loans to strengthen production capacity and secure long-term procurement pipelines, thereby anchoring the industrial dimension of Readiness 2030 (European Commission, 2025a).

The National Escape Clause

The National Escape Clause (NEC) is the fiscal backbone of Readiness 2030, while also being its main vulnerability. By design, the NEC suspends the central enforcement mechanisms of the reformed Stability and Growth Pact. Deviations from the net expenditure path are not recorded in the control account, and high-debt states are shielded from the automatic initiation of an Excessive Deficit Procedure, even when deficits exceed 3 per cent of GDP. This creates the fiscal space required for an immediate and collective surge in defence expenditure. Still, it does so by temporarily neutralising the discipline that underpins the credibility of the EU’s fiscal framework. In other words, the NEC creates temporary fiscal or budgetary freedom for higher defence spending by suspending the usual EU budget-discipline rules, based on the SGP (Clapp  et al., 2025; European Commission, 2025b).

For low-debt states, the NEC is largely redundant, as EDP activation is already conditional on an assessment of “relevant factors,” including defence investment. For high-debt states, like Italy, France, Belgium, Spain, Portugal, and Greece, the clause represents a significant relaxation of constraints. These governments may now increase their defence spending by up to 1.5 per cent of GDP per year without accruing control-account deviations or facing EDP escalation (Clapp et al., 2025). In essence, the commission has taken the “driver’s seat” in defence policy (Witney, 2025).

The economic incentive, however, is ambivalent at best. High-debt governments must weigh the opportunity presented by the NEC against the risk of a sharp deterioration in their fiscal positions and trajectories once the derogation expires. Nothing in the reformed SGP guarantees that the elevated defence spending enabled by the NEC can be absorbed into future medium-term adjustment plans without substantial consolidation. The Commission’s assurances that NEC-enabled spending “must not endanger fiscal sustainability over the medium term” do not really function as an actual fiscal rule, but instead project the political message that it will not escalate the EDP and implicitly that the ECB stands ready to stabilise markets should risk premia rise (European Commission, 2025b; Pench, 2025).

The NEC is indispensable for achieving the scale of investment envisioned in Readiness 2030, yet it relies on a temporary suspension of fiscal discipline that may itself undermine long-term sustainability. High-debt states are encouraged to undertake significant additional borrowing precisely when their debt positions remain fundamentally fragile. In other words, governments may be, or should be, concerned about the additional fiscal room, since markets might react negatively (by asking for higher interest rates), since increased indebtedness raises questions about debt sustainability. The risk of market backlash being high, coupled with low electoral yields, makes individual national spending risky, politically and fiscally  (Pench, 2025).

Besides, underinvestment in other areas of public interest might weaken continued investment in the military industrial sector. For instance, insufficient climate investment and weakening democratic stability both threaten Europe’s long-term ability to maintain sustainable public debt (Zenios, 2022; Ajovalasit et al., 2025). At the same time, directing security investments toward high-growth sectors like renewables can strengthen the economy and make public debt easier to sustain (Möller & McCutcheon, 2025). 

The Union thus finds itself dependent not on a durable fiscal settlement, but on the credibility of the Commission's restraint and the expectation of ECB intervention - a bet one shouldn’t necessarily take (Pench, 2025). This is indeed the main problem of Readiness 2030: Are we sacrificing medium-term fiscal stability for achieving a NATO 5% benchmark by 2030? And, by investing heavily in the military domain, are we neglecting other sectors that might be more in need of investment, or even contribute to a more resilient society in the face of war? That is a question for the policymakers to answer. 

Conclusion

Readiness 2030 is a consequential shift in EU defence policy and financing since the establishment of the CSDP. Extending a regulatory line from the ASAP and SAFE, ReArm Europe, as it is also known, aims to fund and expand a European military industrial base by 2030. The package also contains an important caveat: the national escape clause. This clause is the fragile fiscal backbone enabling fiscal derogations that are anchored in the Stability and Growth Pact. This creates unprecedented room for investment—with the assumption of ECB support in case of failure—but risking long-term fiscal stability for short-term security pressures. Moreover, diverting investment away or not providing it in the first place to sectors such as climate resilience, social cohesion and digital autonomy might also weaken the continent’s security and debt sustainability. 

Whether Readiness 2030 can mobilise enough funds to protect Europe without coming at the expense of fiscal stability is therefore a fine line for policymakers to walk, and depends on finding new investment strategies that go beyond the NEC. Is Europe’s stability borrowed, or can it be built sustainably and for the long term with due consideration for fiscal discipline and societal resilience? The longevity of a secure Europe might hinge on which way the Union decides to go.