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From ESM to EDM: An Intergovernmental Blueprint for EU and Non-EU Defence Cooperation

  • Economics & Finance, EU Institutions & Governance, Security & Defence
  • May 29, 2026

Introduction 


The current European defence market remains fragmented, with an overreliance on the United States and a ‘home bias’ in procurement favouring domestic defence firms (European Council, 2025). To remedy these structural weaknesses, the European Commission presented ReArm Europe/Readiness 2030, including the €150 billion Security Action for Europe (SAFE) fund, aimed at promoting joint procurement between Member States and non-EU partners such as the UK (Clapp et al, 2025; European Commission, 2025b and c).


However, SAFE’s effectiveness can be questioned. Its eligibility criteria restrict financial support to EU Member States and only three non-EEA countries, structurally excluding strategically crucial partners such as the UK, accounting for 38% of Europe’s defence industrial capacity (Marsh, Martins and Mawdsley, 2025). This is reflected in the ongoing failure of the EU and UK to agree on terms of British participation within SAFE (Barigazzi, 2025). An intergovernmental mechanism enabling third-state participation in joint procurement is therefore needed. Such a mechanism cannot contravene Union law, particularly Article 125 TFEU, which prohibits the Union and the Member States from assuming one another’s financial liabilities. 


This could be achieved by following the precedent of the European Stability Mechanism (ESM), a non-EU funding body held compliant with Article 125 TFEU (European Parliament, 2019; C-370/12, 2012, para 137). An analogous European Defence Mechanism (EDM) could enable third-state participation while complying with Union law (Wolff, Steinbach and Zettelmeyer, 2025). To assess the proposal’s viability, the EDM’s legal structure will first be examined (section II), followed by the ESM’s compliance with Article 125 TFEU (section III), before applying that reasoning to the EDM (section IV).


The proposed international treaty: the EDM


The 2030 goals stress joint procurement between Member States as essential to strengthen interoperability (Wolff, Steinbach and Zettelmeyer, 2025; Burilkov and Wolff, 2025). However, SAFE provides insufficient incentives for such cooperation, as the associated loan liabilities remain on national balance sheets, discouraging debt-averse Member States from participation (Antinozzi, 2023).  Compounded by unclear third-state participation, this highlights the need for a governance structure incentivising cooperation without imposing additional financial burdens. 


The EDM offers an intergovernmental solution. Unlike SAFE, it would exist outside the Union legal order, analogous to the ESM (Wolff, Steinbach and Zettelmeyer, 2025). Functioning as a ‘exclusive procurement agency’ in designated domains, the EDM would act as a planner, financer and (potentially) owner of such strategic enablers built by common procurement, whilst binding its members to defence-related single market regulations. It would be financed through member capital contributions, capital market borrowing, loan repayments and user fees for jointly owned assets (Wolff, Steinbach and Zettelmeyer, 2025).  


Membership would extend to the UK and other willing non-EU Member States, enabling direct participation in joint procurement without additional bilateral agreements (Wolff, Steinbach and Zettelmeyer, 2025). This would allow British defence firms to compete without disadvantage and access strategic assets alongside EU counterparts, preserving the UK’s industrial influence while enabling the EU to leverage its advanced capabilities and production capacity for broader interoperability (Scazzieri, 2025). 


Having established the EDM’s legal form, it should be emphasised that there could be issues concerning compatibility with Article 125 TFEU, as to whether funding involves joint borrowing or guarantees. The ESM provides a useful precedent and will be examined accordingly.


The ESM as a precedent


In response to the Eurocrisis, a separate treaty concluded outside Union law enabled Eurozone countries to provide capital and guarantees to states unable to secure market financing (Smits, 2012; Flynn, 2019). As a treaty between Member States, it did not affect the institutional balance or alter Union law (Peychev, 2021). The ESM’s legal basis was Article 136(3) TFEU, a provision specific to Euro-area Member States (Borger, 2013). However, questions arose as to whether ESM financial assistance crossed the line into ‘bailing out’, prohibited by Article 125 TFEU (Borger, 2016). 

The Court of Justice of the European Union (CJEU) addressed this in the Pringle judgement, using three strands of reasoning: textual interpretation, purposive analysis and ultima ratio considerations (Borger, 2013). 


On the text of Article 125 TFEU, the Court held that ESM assistance cannot result in a Member State being relieved of its responsibilities towards its creditors (Borger, 2013). However, the ESM ensured against this where the recipient State remained responsible for its debts, the assistance was made subject to strict conditionality and the lender did not assume liability for the borrowers’ debts (C-370/12, 2012, para 137). Secondly, when observing the purpose of Article 125 TFEU, the CJEU framed the obligation to ensure that states maintained sound fiscal policies by being held accountable to market conditions when incurring debt (C-370/12, 2012, para’s 133-136). By ensuring such strict conditionality, the ESM was compliant with this second requirement. The CJEU held that the objective of the ESM was not to serve as a guarantor of the debts of the Member States which received such financial aid, but rather was to support Eurozone countries in severe financial difficulty (C-370/12, 2012, para 138-141). Thirdly, the CJEU ruled that the no-bailout clause also served the broader goal of financial stability (Borger, 2016). Assistance was allowed as an ultima ratio, when necessary to protect that stability (Borger, 2016). By elevating financial stability as the ultimate aim of Article 125 TFEU, the CJEU concluded that Eurozone States can grant assistance through an intergovernmental mechanism such as the ESM (AG Kokott in C-370/12, 2012, para’s 114-15). 


Having established the Court’s three-part reasoning in Pringle, the question arises whether it translates to the EDM, a mechanism focused on joint procurement rather than financial stability.


Compatibility of the EDM with Article 125 TFEU


As evidenced by the ESM, the EU Treaties allow Member States to coordinate economic policy outside the EU framework. This allows for intergovernmental coordination mechanisms, such as the EDM, that operate alongside, but not within, the Union framework.


When considering the analysis of the text of Article 125 TFEU in Pringle, it can be recalled that it permits the extension of loans or other forms of support under strict conditionality, given that the recipient State remains responsible for its own commitments and the assisting State does not become jointly liable for this debt (Hinarejos, 2015). The EDM’s legal structure respects this as assistance is only granted following a stability assessment (regarding lending conditionality) and in a manner in which the beneficiary’s obligation to repay is maintained (Wolff, Steinbach and Zettlemeyer, 2025). The imposition of such eligibility conditions for EDM involvement follows the second strand of the Pringle reasoning, where the purpose of the no-bailout clause was safeguarded due to the conditionality attached to its assistance (Hinarejos, 2015). Moreover, such conditions stress how the EDM would not assume national debts but rather involves co-financing jointly funding procurement initiatives (Craig, 2013). This also remains in line with the Pringle reasoning as this ensures that members which receive funding from the EDM remain liable to their creditors (Hinarejos, 2015).


However, the third strand of the Pringle reasoning can be flagged, concerning the ultima ratio considerations on financial stability (C-370/12, 2012, para’s 135-142, 164). The EDM differs from the ESM in that it responds to security threats by aiming to strengthen the European defence capacity, rather than responding to risks of financial collapse (Wolff, Steinbach and Zettelmeyer, 2025). Whilst defence procurement remains critical for long-term EU security, it likely does not qualify as an immediate ‘exceptional’ threat as that of a sovereign debt crisis during which the ESM was established (Cinnirella, 2025). The third Pringle consideration is therefore not relevant in the context of the EDM, as defence cooperation is not driven by the same urgency. However, this distinction does not automatically lead to a violation of Article 125 TFEU, as the EDM still does not involve any assumption of sovereign liabilities, as it rather focuses on joint procurement which are not contingent upon financial transfers between Member States to cover debts or liabilities (Wolff, Steinbach and Zettelmeyer, 2025). Therefore, it can be argued that a mechanism such as the EDM rather reinforces the raison d’être of Article 125 TFEU, as it avoids debt mutualisation as the debt stays within the EDM’s books and does not incur national debt accordingly (Christie, 2025). Therefore, the EDM remains compliant with Article 125 TFEU, as its structure avoids debt mutualisation whilst facilitating common procurement outside the Union framework.


Conclusion 


The fragmentation of the European defence market calls for common procurement solutions that strengthen interoperability, including with non-EU state such as the UK. Where SAFE falls short incentivising such cooperation, the EDM can be introduced as a viable intergovernmental path to fund such initiatives, structured along the lines of the ESM and consistent with Union law under the Pringle framework. As part of a broader European defence network, the EDM represents one of the most promising routes towards genuine strategic autonomy. Whether European States seize such an opportunity, will shape the security landscape across the continent for decades to come. 

 

References


Primary sources – Treaties:

Treaty Establishing the European Stability Mechanism (2012). Official Journal of the European Union, L91/1.

Primary sources – Council Regulations:

European Union (2025) Council Regulation (EU) 2025/1106 establishing the Security Action for Europe (SAFE) through the Reinforcement of the European Defence Industry Instrument. OJ L, 2025/1106.

Primary sources – Council Conclusions:

European Council (2025) European Council conclusions on European defence, 6 March 2025. Brussels: European Council, 146/25.

Primary sources – European Commission publications:

European Commission (2025a) Acting on defence to protect Europeans. Available at: https://commission.europa.eu/topics/defence/future-european-defence_en (Accessed: 3 April 2026).

European Commission (2025b) SAFE | Security Action for Europe. Available at: https://defence-industry-space.ec.europa.eu/eu-defence-industry/safe-security-action-europe_en (Accessed: 3 April 2026).

Primary sources – European Parliament publications:

European Parliament (2025) Verbatim report of proceedings. Available at: https://www.europarl.europa.eu/doceo/document/CRE-10-2025-03-11-ITM-003_EN.html (Accessed: 3 April 2026).

Primary sources – Case law:

Pringle v Government of Ireland and Others (2012) Case C-370/12, ECLI:EU:C:2012:756.


Primary sources – Advocate General Opinions:

Pringle v Government of Ireland, Ireland and the Attorney General (2012) Case C-370/12, EU:C:2012:756, Opinion of AG Kokott.

Secondary sources – Online articles: 

Secondary sources – Journal articles: 

Secondary sources – Books:

  • Borger, V. (2020) The Currency of Solidarity: Constitutional Transformation during the Euro Crisis. Cambridge: Cambridge University Press.

  • Christie, R. (2019) Safeguarding the Euro in Times of Crisis: The Inside Story of the ESM. Luxembourg: Publications Office of the European Union. Available at: https://www.esm.europa.eu/system/files/document/safeguarding-euro-times-crisis-inside-story-esm.pdf (Accessed: 3 April 2026).

  • Flynn, L. (2019) ‘Article 125 TFEU’ in Kellerbauer, M. (ed.) The EU Treaties and the Charter of Fundamental Rights: A Commentary. Oxford: Oxford University Press.

  • Hinarejos, A. (2015) The Euro Area Crisis in Constitutional Perspective. Oxford: Oxford University Press.

Secondary sources – Policy briefs:

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Emma James

LL.M. Candidate

Current LL.M. candidate in European Law at Leiden University

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