Up to €1bn of EU loan earmarked for joint defence production

The plan

According to a confidential European Commission document obtained by Euronews, Ukraine intends to transfer up to €1 billion from the Ukraine Support Loan (USL) into the Ukraine Support Instrument / European Defence Industry Programme. The instrument is currently worth about €300 million; the move would more than quadruple its funding.

The focus is joint Ukrainian–European production of air and missile defence, drones, counter-drone systems and ammunition through joint ventures, licensing and joint procurement.

USL and the pact

The USL is a €90 billion EU loan supporting Ukraine in 2026–2027. Some payments were brought forward to ease Kyiv’s budget gap. The transfer sits inside the EU–Ukraine Strategic Defence Industrial Partnership (letter of intent signed in July 2026) and a forthcoming Defence Industrial Pact for which the Commission seeks a member-state mandate.

The pact aims to remove regulatory barriers, including overarching deals on drone and missile technologies, and to encourage capitals to use unspent SAFE loans for joint projects with Ukrainian industry.

Next steps

EU ambassadors were due to discuss the initiative for the first time on Wednesday. The goal is to conclude the pact by year-end, after which member states must approve the text. The Commission also wants allies to destock arsenals for faster deliveries.

Why it matters

Shifting loan money into joint production strengthens both Europe’s industrial base and Ukraine’s factories — critical as direct U.S. military aid has shrunk.