The key facts

  • Ukraine will channel up to €1 billion from the EU loan into the Ukraine Support Instrument, whose budget will grow more than fourfold from €300 million
  • Priorities are air and missile defence, drones, counter-drone capabilities, and ammunition
  • The European Commission is preparing a Defence Industrial Pact; the goal is to complete it by the end of the year, and EU ambassadors will discuss the initiative on Wednesday

Reallocation of loan funds

Ukraine intends to transfer up to €1 billion from the EU loan (Ukraine Support Loan) to the European Defence Industry Programme / Ukraine Support Instrument. This is stated in a confidential European Commission document obtained by Euronews. The instrument, currently valued at €300 million, will receive more than four times as much funding; it is designed to stimulate joint Ukrainian-European production through joint ventures and licensing agreements, as well as to facilitate joint procurement by manufacturers on both sides. Priority areas are air defence and missile defence systems, drones, counter-drone capabilities, and ammunition.

Funding context

According to Euronews, under the Ukraine Support Loan the EU is providing €90 billion to support Kyiv in 2026 and 2027. As Ukraine's funding needs grow, Brussels recently agreed to accelerate part of the payments to help cover the budget deficit. Nevertheless, Kyiv is expected to channel part of these funds back into the European joint production programme.

Defence pact and next steps

The funding increase is part of the EU-Ukraine Strategic Defence Industrial Partnership, launched in July 2026 with the signing of a letter of intent. On this basis, the European Commission is preparing a Defence Industrial Pact and seeking a mandate from the member states. The document circulated to EU countries states that the central tasks of the pact are 'to support faster deliveries of defence products to Ukraine, while simultaneously scaling up and integrating European and Ukrainian defence industrial capacities.' The pact is also expected to propose ways to remove regulatory barriers, including 'comprehensive' agreements on drone and missile technologies.

A separate track via SAFE

According to the document, a separate track envisages encouraging member states to use a new round of untapped loans from the Security Action for Europe (SAFE) programme to finance joint projects with Ukrainian industry, although EU capitals cannot be obliged to do so. The Commission expects the initiatives to create a 'shield window' that boosts EU defence production in 2027, allowing Kyiv to purchase large volumes from European manufacturers at lower prices. National governments are also being asked to reduce their own stockpiles so that supplies to Ukraine remain fast and uninterrupted.

What's next

EU ambassadors will discuss the initiative for the first time on Wednesday. The goal is to finalise the pact by the end of the year, after which the member states will have to approve the final text. For now, this is the European Commission's plan, not an adopted decision: the document is confidential, and final approval depends on the EU countries.