Estonia plans to borrow up to 3.6 billion euros ($4.1 billion) with European Commission support to boost defense capabilities through joint arms purchases with allies.

The loan would help finance medium- and short-range air defense missiles, artillery shells, infantry fighting vehicles, and other equipment, according to Tallinn’s Ministry of Finance.

The plan is part of a European Commission proposal to borrow up to 150 billion euros ($174.2 billion) on behalf of EU countries and lend it to them for defense spending. By pooling them together, member states can obtain better interest rates than if they took out loans individually.

State Treasury Department Director Janno Luurmees told Estonia’s state-owned broadcaster ERR that the latest initiative could be worth at least 2 billion euros ($2.3 billion) in borrowing, with a term of up to 45 years.

He said the exact borrowing amount and term are still undecided, but commission backing could cut interest costs, saving the Baltic state about 4 million euros ($4.6 million) annually for every 1 billion euros ($1.1 billion) borrowed.

“The Ministry of Defence has drawn up an initial loan interest request and submitted it to the European Commission, but the entire process is still in its relatively early stages,” Luurmees said.

“The final interest rate will, of course, be determined at the time we take out the loan. But if you look at the current difference in interest rates between Estonia’s ten-year bond and the European Commission’s ten-year bond, it’s roughly 0.4 percent. The benefit would likely be around that.”

Blueprint by November

Kalle Kirss, head of the NATO and EU department at the Estonian defense agency, said the loan would also fund the Baltic Defense Line, expand the navy fleet, and increase ammunition stocks.

Most acquisitions are planned through joint procurement, as seen in Estonia’s past purchase of IRIS-T medium-range air defense systems with Latvia and Germany.

The government has until the end of November to present a detailed spending plan to the Commission.

$11B Military Upgrade By Decade’s End

Estonia’s loan plan announcement follows a July decision by Defence Minister Hanno Pevkur approving a four-year, 10-billion-euro ($11.6-billion-dollar) development plan for fiscal years 2026 to 2029.

The program prioritizes air defense, including the establishment of a new brigade, the acquisition of IRIS-T, Piorun man-portable air-defense systems, and Mistral infrared homing multipurpose short-range air defense systems. It will also conduct market research for ballistic missile defense.

Funding for the volunteer Defence League, Tallinn’s voluntary national defence organization, will also rise from 240 million to over 314 million euros ($278.8 million to $364.7 million), improving infrastructure and training.

A quarter of all investments will be allocated to bolstering ammunition reserves.

“With the new development plan, we will create a strengthened deterrence together with our allies by 2029, and we will have a modern defence force that, with the support of the defence industry, can influence the enemy even before they reach Estonian territory,” Pevkur explained.