Ukraine to channel up to €1bn in EU loans into joint defence projects
Ukraine is set to redirect up to €1 billion from its European Union loan funding into joint defence-industrial projects with European partners, according to a confidential European Commission document. The plan would focus on air and missile defence, drones, counter-drone systems and ammunition, and is intended to deepen cooperation between Kyiv's defence sector and manufacturers in Europe. It comes as Ukraine continues to seek ways to strengthen weapons production while managing mounting financing pressures linked to the war effort.
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The document says the money would go to the European Defence Industry Programme / Ukraine Support Instrument, which is currently worth €300 million. That would more than quadruple the instrument's funding and expand its role in promoting joint ventures, licensing arrangements and joint procurement between Ukrainian and European manufacturers. The Commission has also brought forward some payments under the wider Ukraine Support Loan, or USL, after agreeing that Kyiv's financing needs are increasing.
The broader framework is the EU-Ukraine Strategic Defence Industrial Partnership, launched in July 2026 with a letter of intent. Under that partnership, the Commission is drafting a Defence Industrial Pact and is seeking a mandate from member states to move it forward. The document shared with EU countries says the central aim is to speed up deliveries of defence products to Ukraine while integrating European and Ukrainian industrial capacity more closely.
The proposal matters because it links wartime financing directly to industrial cooperation, rather than treating the loan only as budget support. It also reflects a wider European effort to expand defence production capacity at a time when Ukraine is trying to sustain its military needs and Europe is looking to strengthen its own industrial base. By tying funding to joint projects, the plan could help create longer-term supply chains for systems that are in demand on both sides.
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The Commission is also looking at ways to remove regulatory barriers to cooperation, including possible overarching agreements on drone and missile technologies. In parallel, it wants member states to consider using unspent loans under the Security Action for Europe programme to back joint projects with Ukrainian industry, although capitals cannot be forced to do so. The aim is to create what the Commission describes as a defence window that would lift EU production in 2027.
What remains unclear is how much of the proposed funding will ultimately be approved and how quickly it could be transferred. It is also not yet clear which member states will support the wider package or whether the separate SAFE track will attract enough participation. The next stage will depend on negotiations with EU governments and on how the Commission turns the draft pact into formal policy.
