EU sets terms for UK and Canada to join €150 billion defense loan program

The United Kingdom and Canada will pay a participation fee to join the European Union’s €150 billion defense loan plan, with the amount tied to the benefits they are expected to receive.

The Security Action for Europe (SAFE) program offers EU members low-interest loans for defense spending and encourages joint arms procurement to secure cheaper prices. Since the UK and Canada have signed defense partnership agreements with the EU, they are eligible to take part in these collective purchases. By doing so, they can pool resources with EU members to acquire weapons and sell arms to European allies.

According to a Commission document shared with EU countries on August 11, both countries must pay an entry fee “commensurate with the expected benefits that the Partner Country [UK and Canada] and their entities will derive from the program.” Documents seen by POLITICO reveal that the fee will also depend on the countries’ GDP, the size and competitiveness of their defense industries, and the extent of cooperation with the European defense sector.

The text suggests that countries with greater access to the EU defense market should contribute more. Details of UK and Canadian participation in SAFE were set out in bilateral agreements with Brussels.

In a move likely to anger Brexit supporters, Brussels also opened the door for the European Court of Justice to ensure that funds are spent appropriately. The final amounts—still unspecified in the document—will be decided after negotiations with Canada and the UK.

France, a long-time advocate of EU strategic autonomy, is expected to back higher contributions from the UK. However, Germany and the Baltic states, facing Russia on their doorstep, are pushing for faster cooperation with London.

Meanwhile, the Commission’s €150 billion defense supply loan will cover acquisitions if at least 65% of the final product’s value is generated in an EU country, Norway, or Ukraine. Access for non-EU firms will be more limited. SAFE rules allow EU members to allocate up to 35% of contract value to subcontractors based outside the EU, Norway, and Ukraine.

For example, an EU country could use the loans to purchase air missiles produced in part by a South Korean subcontractor—provided the final assembly takes place in the EU, Norway, Ukraine, or another partner country. However, non-EU suppliers must already hold contracts with EU firms before SAFE comes into force. Otherwise, they must commit to phasing out the non-EU component within two years.

How subcontractors will be monitored remains unclear. Under “operational arrangements” that detail how member states apply program rules and distribute funds, capitals must inform the Commission of what type of “documentary evidence” they will provide to prove compliance with SAFE eligibility requirements.