EU's £134bn defence loan: A strategic shift towards autonomy
The European Commission has published a draft regulation introducing a 134 billion-pound loan instrument for defence. European companies are expected to benefit primarily from this, while others will be allowed only if their countries enter into a "security and defence partnership" with the EU.
On Wednesday, the EC published a draft regulation establishing a loan instrument worth 134 billion pounds (SAFE) and the so-called white paper on defence. The proposal will be discussed by the leaders of the 27 member states at a summit in Brussels on Thursday.
Brussels aims for loans to support the growth of the European defence industry. As a result, the draft regulation specifies that joint public procurement contracts should mandate that at least 65% of the estimated costs of the final product come from components sourced within the EU, EFTA-EEA countries, or Ukraine.
USA and the UK excluded?
Non-EU countries entering into a "security and defence partnership" with the EU will be able to participate in procurements. Candidate countries for the EU, such as Turkey, will also be admitted. The Financial Times highlights that restrictions apply to the United States and the United Kingdom, among others. These countries will not be considered without signing a partnership agreement.
The project allows flexibility in this area for some defence products whose core technologies are not widely available in the EU. Substituting them on a large scale may be tricky. The EC proposed two categories of products in this regard; the degree of flexibility will depend on assigning a product to one of them.
The first category concerns less complicated products, such as ammunition, while the second includes complex systems, such as anti-missile or anti-drone arrangements. Products from the second category may be financed with loans, among other conditions, provided that "member states' forces are ensured freedom regarding these products without restrictions imposed by third countries."
The FT explains that, in principle, the fund would exclude all advanced weapons systems in which a third country (outside the EU) would have "design rights"—restrictions regarding the construction or use of specific components—or control over their final use. This means, among other things, that American Patriot air and missile defence batteries would be excluded.
Member countries must present an investment plan for the defence industry to acquire loans. Ukraine can also benefit from them but must apply to another member country. Loans for joint defence procurements will be disbursed until 2030. An exemption from VAT will encourage member countries to implement them within the SAFE framework.
Financial Times: Triumph for France
The Financial Times comments that Brussels's approach presented on Wednesday is a victory for France and other countries that demanded a "buy European" approach to investments in European defence. This approach is the result of concerns about the long-term reliability of the U.S. as a partner and supplier in the field of defence, triggered by President Donald Trump.
