Why France and Italy are sparring over the EU’s loans-for-arms scheme
Number crunching
The EU’s largest countries are battling over the extent to which non-EU arms producers should be allowed to take part in a €150bn defence loan scheme backed by the EU budget, writes Paola Tamma.
Context: The EU is rushing to re-arm in response to Russia’s invasion of Ukraine and threats by US President Donald Trump that if the bloc doesn’t, he could reduce American security guarantees to the continent.
The European Commission’s “SAFE” proposal, which would provide loans to capitals to spend on weapons, is set to limit non-EU countries’ participation to a maximum 35 per cent of the value of each purchase, unless third countries sign defence-related pacts with the bloc.
But on top of that, France is supporting an additional restriction that would limit the participation of any third-country subcontractor to 15 per cent of the value of the contract, three diplomats and officials told the FT.
That, however, is too restrictive for countries including Italy, Germany and Poland, whose defence companies have significant partnerships with British, Turkish, American and Korean contractors.
There are concerns that some key defence projects in those countries would not qualify for the EU loans if the French threshold is agreed.
The clash is the latest iteration of a long-standing discussion pitting Paris’ emphasis on self-reliance or “strategic autonomy” in the field of defence, against other large EU economies with strong ties to third-country defence contractors which argue for a focus on the cheapest and fastest means of rearmament, regardless of nationality.
Poland, which holds the rotating EU council presidency and thus is tasked with brokering an agreement, is going to make a new proposal to EU ambassadors in the coming days to try to reach a compromise by the end of the month.
“We need to unlock €150bn loans for defence investments as a matter of priority,” Andrzej Domański, Poland’s finance minister said yesterday after discussions with his 26 counterparts on the issue. “We’re really optimistic and we’ll manage to get a consensus on this file during the Polish presidency, hopefully in May.”