Hungary cuts EU defence loan request by two-thirds – could it also bring the euro closer?

Hungary has secured European Commission approval for a EUR 5.4 billion defence investment plan, around one-third of the amount originally sought under Viktor Orbán’s government. The cheaper EU loan could help fund major infrastructure projects, ease pressure on the state budget and potentially make it easier for Hungary to meet the fiscal requirements for adopting the euro.

The European Commission approved the revised plan on 28 October, after raising concerns about Hungary’s original EUR 17.4 billion request, including issues related to procurement costs. The new proposal, worth around HUF 2,000 billion, is part of the EU’s Security Action for Europe (SAFE) programme.

The Commission’s approval is an important step, but the plan must still be considered by the Council of the European Union before Hungary can proceed with the next stages.

If you missed it: European Commission approves Hungary’s EUR multi-billion defence plan

What can Hungary spend the SAFE loan on?

The SAFE programme provides EU member states with access to favourable, long-term loans to strengthen defence capabilities and military readiness. Funding can also cover certain dual-use infrastructure, meaning projects that serve both civilian and military purposes.

According to G7, in Hungary, this could potentially include railway developments, the new Danube bridge at Mohács and improvements to the expressway network, alongside defence-related investments.

The government will still need to decide whether to use the loan for projects already planned or to finance new investments, as well as how quickly to draw down the funds.

Defence Minister Romulusz Ruszin-Szendi said in September that Hungary should take its economic capacity into account when deciding how much to borrow, since the money will eventually have to be repaid. He also suggested that the loan could cover existing defence contracts or bring forward investments originally scheduled for later years.

A smaller loan after concerns over the original plan

The revised request follows concerns raised by the European Commission and Péter Magyar, whose Tisza Party reconsidered the plans after winning the April 2026 election.

Under the original proposal, the funds could potentially have benefited companies linked to major Hungarian business figures, including Jászai Gellért’s 4iG group, which has interests in the defence industry, and construction companies associated with Lőrinc Mészáros and László Szíjj. The concerns centred partly on corruption risks and procurement costs.

Hungary initially sought one of the largest loans among participating countries. With the revised EUR 5.4 billion request, it moves towards the middle of the field.

Poland is the largest prospective borrower, with EUR 43.7 billion, accounting for nearly a third of the programme’s EUR 150 billion lending capacity.

Eight EU member states – Austria, Germany, Ireland, Luxembourg, Malta, the Netherlands, Slovenia and Sweden – have decided not to take up loans under the scheme. This partly reflects differences in countries’ financing options: governments that can borrow cheaply on financial markets may find the SAFE terms less attractive.

Following the Commission’s latest announcement, just over EUR 21 billion remains unallocated. The Commission is expected to offer the unused funds to member states in another application round.

Could the loan ease pressure on Hungary’s budget?

The EUR 5.4 billion loan is equivalent to roughly a year of Hungary’s defence spending, illustrating the scale of the financing compared with the country’s public finances.

Hungary’s planned central budget deficit for 2026 stands at HUF 7,110 billion. Although SAFE funding can be used over several years, it represents a substantial source of financing relative to the state budget.

The loan could help reduce pressure on public finances if the government uses it to fund investments that would otherwise have been financed through more expensive market borrowing. Lower interest costs could, in turn, help reduce the budget deficit.

However, the effect will depend on how the money is used. The loan does not eliminate the cost of investment or the obligation to repay the borrowed funds.

Why the euro could enter the picture

The potential budgetary savings matter because Hungary would need to bring its deficit down significantly to meet the fiscal criteria for adopting the euro.

At the same time, NATO members are expected to increase defence and defence-related spending towards 5% of GDP by 2035, compared with levels of around 2% today.

This creates a challenge for Hungary: it must strengthen its defence capabilities while also putting public finances on a more sustainable footing if it wants to move towards euro adoption.

By providing access to cheaper financing for eligible investments, the SAFE loan could make both objectives easier to pursue. It remains to be seen, however, how the government will allocate the funds and whether the resulting savings will be sufficient to make a meaningful difference to the budget deficit and Hungary’s path towards the euro.