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This article appears in our 2026 Defence Outlook guide, which explores the key trends shaping Canada’s aerospace and defence sectors. Read the full outlook and download our guide here.
Strategic and geopolitical context
President Trump’s return to the White House has reignited tensions within the North Atlantic Treaty Organization (NATO) over the distribution of the Alliance’s financial burden, with the President arguing that the United States shoulders a disproportionate share of collective defence spending. Recently, the Alliance was placed under considerable strain following statements by the U.S. regarding the potential annexation of Greenland, a territory of Denmark (a NATO member), framed in terms of U.S. national security interests. At the same time, the war in Ukraine remains ongoing, conflicts in the Middle East continue to raise concerns about potential regional escalation, and the North American Aerospace Defence Command (NORAD) continues to track Russian and Chinese aviation assets operating in the Alaskan Air Defence Identification Zone (ADIZ) with more frequent occurrences.
Within the context of heightened geopolitical tensions and growing pressure on the rules-based international order, Canada finds itself in an inherently ambiguous position. On the one hand, Canada must continue to collaborate with the U.S., its closest and most consequential ally, in NATO and NORAD. On the other, it must begin laying the groundwork for credible alternatives should Washington pursue a more unilateral disengagement from collective security commitments.
This dual imperative was reflected in the federal budget tabled in November 2025. The Carney government pledged to significantly increase defence spending, with Budget 2025 allocating $81.8 billion over five years to rebuild and reinvest in the Canadian Armed Forces, including over $9 billion for 2025-26, as announced by the Prime Minister in June 2025.1 In March 2025, the European Parliament announced an increase in its own defence spending with €800B in defence spending over four years under the banner of Readiness 2030 (formerly ReArm Europe).2 On December 1, 2025, Prime Minister Carney announced the conclusion of negotiations for Canada’s participation in Security Action for Europe’ (“SAFE”)–a key pillar of the EU’s Readiness 2030 plan–unlocking billions of dollars in potential defence opportunities for Canadian businesses.3
The EU-SAFE Partnership appears to operationalize the political commitments made by Canada and other NATO members to increase their share of collective defence spending. Considering Prime Minister Carney’s speech at Davos on January 20, 2026,4 this partnership may also serve as a means for Canada to diversify its defence relationships beyond the U.S. Prime Minister Carney is taking action through “variable geometry” to build “different coalitions for different issues, based on common values and interests”5 with the aim of strengthening defence-industrial integration with Europe.
The EU-SAFE Partnership: Structure and operation
Background
EU member states have approved a bilateral agreement with Canada under the SAFE regulation. On December 1, 2025, Canada became the first non-European country to join SAFE, a €150 billion defence initiative that helps EU countries invest in shared defence production and key capabilities. The agreement reflects the EU and Canada’s shared goal of deepening security and defence cooperation, as outlined in the Security and Defence Partnership signed at the EU-Canada Summit in June 2025.6
The European Council has emphasized the need for Europe to become more self-reliant in defence, close capability gaps, and strengthen its defence industry to respond quickly to threats. SAFE is the first part of the EU’s ReArm Europe/Readiness 2030 plan. Other measures include increasing national defence funding, making EU financial instruments more flexible for defence investment, leveraging European Investment Bank funding, and mobilizing private capital. SAFE also supports Ukraine’s integration with Europe’s defence industry, boosting collective defence readiness. By the November 2025 deadline, 19 countries submitted their National Defence Investment Plans, which are now being reviewed by the European Commission. The SAFE regulation allows the EU to enter agreements with third countries, like Canada, to extend participation in its defence programs.7
Details of the agreement
SAFE provides up to €150 billion in loans to EU Member States–and eligible partners such as Iceland, Liechtenstein, Norway, and Ukraine–for investments in defence capabilities and joint military procurement. It supports the acquisition of priority defence products divided into two categories.
- Category 1 includes ammunition and missiles, artillery systems (including deep precision strike), ground combat capabilities and their support systems, small drones (NATO class 1) and anti-drone systems, critical infrastructure protection, cyber capabilities, and military mobility including counter-mobility.8
- Category 2 covers more advanced systems such as air and missile defence, maritime surface and underwater capabilities, larger drones (NATO class 2 and 3) and anti-drone systems, strategic enablers like strategic airlift, air-to-air refueling, C4ISTAR systems, space assets and services, space protection, artificial intelligence, and electronic warfare.9
Across both categories, no more than 35% of component costs can come from outside the EU, EEA-EFTA, or Ukraine, and Category 2 projects must meet stricter rules, including the ability for contractors to modify equipment without non-EU restrictions.10 Exceptions can be made through agreements with strategic partners, such as Canada, allowing Canadian entities to participate more fully in SAFE, subject to a financial contribution.11 The partnership is expected to give Canadian contractors significantly improved opportunities to bid for SAFE contracts, representing a major milestone for Canada’s defence industry and potentially affecting European firms working with Canadian suppliers, as well as competitors from other parts of the world.
Benefits for Canada
Canada’s accession to SAFE signals a major strategic milestone. It marks the first time a non-European G7 country has been integrated in to an EU defence-financing architecture. Its entry extends SAFE beyond Europe, suggesting that the EU’s pursuit of strategic autonomy is not isolationist but built around industrial interoperability, shared procurement, and common technology standards with like-minded democracies. For Canada, SAFE offers a way to diversify defence ties beyond the United States, giving Canadian firms access to the €150 billion European market, low-interest EU loans, and opportunities to participate in joint procurements, while strengthening its industrial sovereignty and meeting its NATO commitments in new ways.
SAFE strengthens and reinforces the long standing Canada EU partnership in security and defence. Since 2005, Canada has a Framework Participation Agreement with the EU as well as a security of Information Agreement, which has been in force since 2018.12
The EU and Canada Security and Defence Partnership of June 2025 spans long-term support for Ukraine, including military, civilian, and law enforcement assistance, as well as collaboration in international peacekeeping, crisis management, and conflict prevention. The partnership prioritizes interoperability and the secure movement of personnel, equipment, and supplies, while advancing maritime security, cyber defence, countering hybrid threats, space security, and the responsible development of emerging and disruptive technologies. Beyond immediate operational concerns, the EU and Canada aim to strengthen societal resilience, integrate gender perspectives across all security and defence activities, and address the nexus of climate change, human security, and economic stability.13
Canada’s recent $664.6 million cooperation agreement with the European Space Agency (ESA) further cements the Security and Defence Partnership by laying the groundwork for a defence industrial strategy, including programs that develop technologies and capabilities essential to the advancement of research and development of Canadian-made space technologies for both civilian and defence purposes. Strengthening Canada’s collaboration with ESA will position Canadian businesses to compete for high-value contracts on the European space market and position Canada’s businesses to collaborate with leading European partners.
Implications for the world order
The EU and Canada are committed to comprehensive and multidimensional partnership in security and defence.
What started as a technical funding mechanism is rapidly becoming the backbone of Europe’s defence strategy. Recent developments–Canada joining, the UK leaving, and Türkiye missing the entry window–show that SAFE is evolving into a geopolitical tool, determining who can align with Europe’s defence core and on what terms. These events highlight the political, strategic, and industrial tensions that will influence Europe and Canada’s defence future.14
Politically, the inclusion of a major G7 economy enhances SAFE’s credibility and positions the program as a model for global democratic defence cooperation, potentially attracting other partners like Japan, Australia, and South Korea, and demonstrating that European strategic autonomy can coexist with strong transatlantic and global partnerships.15
Footnotes
1. Government of Canada, “Budget 2025: Protecting Canada’s sovereignty and security,” last modified November 4, 2025.
2. European Parliament, “Briefing ReArm Europe Plan/Readiness 2030,” March 4, 2025.
3. Canada, Office of the Prime Minister, “Prime Minister Carney secures Canada’s participation in the European Union’s SAFE initiative,” December 1, 2025.
4. World Economic Forum, “Davos 2026: Special address by Mark Carney, Prime Minister of Canada,” January 20, 2026.
5. World Economic Forum, “Davos 2026: Special address by Mark Carney, Prime Minister of Canada,” January 20, 2026.
6. Canada, Office of the Prime Minister, “Canada announces new, strengthened partnership with the European Union,” June 23, 2025.
7. European Council, “SAFE: member states endorse agreement on the participation of Canada,” December 19, 2025.
8. European Commission, “SAFE | Security Action for Europe.”
9. European Commission, “SAFE | Security Action for Europe.”
10. European Commission, “SAFE | Security Action for Europe.”
11. European Council, “SAFE: member states endorse agreement on the participation of Canada,” December 19, 2025.
12. Global Affairs Canada, “Security and defence partnership between the European Union and Canada,” last modified June 23, 2025.
13. Global Affairs Canada, “Security and defence partnership between the European Union and Canada,” last modified June 23, 2025.
14. Transatlantic Task Force, “SAFE Mechanism: Reshaping EU Defence Integration,” Beyond the Horizon, December 3, 2025.
15. Transatlantic Task Force, “SAFE Mechanism: Reshaping EU Defence Integration,” Beyond the Horizon, December 3, 2025.
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