Negotiations are set to commence regarding the participation of British firms in EU-funded military projects supported by European defence loans.
The European Commission is formulating plans to allocate billions in loan capital to EU member states, facilitating collaborative arms procurement initiatives.
UK ministers are aiming to finalize an agreement in the coming weeks, enabling UK-based enterprises to engage in contracts financed by these loans.
The impending agreement will establish parameters for the extent of British firms’ involvement, alongside a stipulated entry fee payable by the UK for participation.
The Security Action for Europe (SAFE) initiative, unveiled in March, constitutes a component of the broader EU strategy to bolster its defence capabilities in response to Russia’s full-scale invasion of Ukraine.
Under this scheme, the European Commission intends to borrow up to €150 billion (£130 billion) to provide long-term loans in support of joint defence ventures.
Eligible projects necessitate that an EU member state receiving a loan collaborate with another EU nation, or with Ukraine, Iceland, Liechtenstein, Norway, or Switzerland.
The initiative seeks to stimulate defence expenditure by enabling EU countries with elevated borrowing expenses to leverage the Commission’s advantageous credit rating.
These loans are intended to facilitate the acquisition of essential equipment, encompassing ammunition, artillery, missile defence systems, and military-grade drones.
While the UK is ineligible to apply for these loans directly, a defence pact secured with the EU in May has paved the way for UK defence contractors to contribute to projects funded through this mechanism.
Following formal authorization of negotiations by EU ministers on Thursday, officials will now deliberate on a supplementary agreement delineating the specifics of British participation.
Alongside the UK’s entry fee, discussions are anticipated to focus on defining the upper limits of contributions from British firms to participating projects.
Currently, UK defence entities are restricted to supplying a maximum of 35% of the total value of a completed defence product.
This ceiling is subject to potential adjustment during the impending talks, although reports suggest that France is advocating for limitations on the extent to which non-EU companies can benefit from EU-backed loans.
Defence Secretary John Healey has previously stated the UK’s willingness to contribute its “fair share” financially to access the scheme, while emphasizing the importance of having “a say” in program design and safeguarding UK intellectual property rights.
Nick Thomas-Symonds, the minister responsible for EU relations, recently articulated his ambition to have an agreement in place to facilitate British firms’ participation in the initial round of bids, with applications due by the close of November.
Nineteen of the 27 EU member states have submitted loan applications, with disbursements projected to commence in early 2025.
Poland has been earmarked to receive the largest allocation, amounting to €43.7 billion, followed by Romania at €16.6 billion, and Hungary and France, each with €16.2 billion.
The UK government has expressed its endorsement of the commencement of discussions, affirming that collaboration is in the mutual interest of both parties to “bring together our unique capabilities and expertise to make Europe a safer, more secure, and more prosperous place.”
Canada is also engaged in negotiations aimed at enabling its companies to participate in the initiative.
Sign up for our Politics Essential newsletter to keep up with the inner workings of Westminster and beyond.