EU, UK defense talks stall over major financial disagreements

Following a stalemate in talks between London and Brussels over financial issues, it seems unlikely that the European Commission will immediately reach an agreement regarding the participation of third parties in the EU’s defense credit program.

The EU is negotiating with the United Kingdom and Canada on its arms procurement initiative for the €150 billion European Security Action loans, which allows member states to receive low-interest loans to jointly purchase weapons systems.

Access to this program was declared a key objective by British Prime Minister Keir Starmer for “resetting” relations with the EU post-Brexit.

The Commission had set an informal deadline of Wednesday evening (November 19) to reach an agreement, but a source close to the talks indicated that a deal is not imminent.

Significant differences remain between the two sides regarding the level of financial contributions Britain must make and the minimum mandatory share of components produced within the EU. Senior British officials have signaled they will not join the program “at any cost.”

Britain and Canada will not be eligible for loans but are negotiating whether their industries can play a larger role in the supply of weapons systems.

Two EU officials involved in the talks with London, who wished to remain anonymous, described the atmosphere as tense.

Meanwhile, a Commission spokesperson attempted to de-escalate the situation, stating, “We welcome the United Kingdom’s interest in negotiating further participation in SAFE. The Commission remains open to negotiating with the United Kingdom, but the contribution must be proportional to the benefits the United Kingdom would gain from its participation.”

According to three diplomats close to the negotiations, Brussels is demanding a contribution of between €4.5 billion and €6.5 billion, while the United Kingdom has proposed a much lower figure of €200 million to €300 million. Some officials noted that the UK’s initial offer was even lower, in the tens of millions of euros.

The diplomats stated that negotiations with Canada have been much smoother.

France is among the countries pushing to limit the United Kingdom’s participation, demanding that only 50% of components can be produced outside the EU.

However, other countries, such as Germany and the Netherlands, are receptive to the United Kingdom joining the program.

At a press conference on Wednesday, UK Defence Secretary John Healey said, “We have always been clear that we want to pay a fair share of the costs of this program, but any deal must represent value for money for the British taxpayer.”

Sandro Gozi, Chair of the EU-UK Parliamentary Partnership Assembly and a Member of the European Parliament, told POLITICO, “We want to reserve a high percentage of the projects for the EU defense industry,” adding that this was to enhance strategic autonomy, “not to put other partners in a difficult position.”

Hopes are high that the United Kingdom will reach an agreement with the EU by the end of November, but officials on both sides warn that the outcome may be more limited than anticipated when Starmer and European Commission President Ursula von der Leyen exchanged warm words in May.

A British official stated that London’s view is that the contribution should reflect administrative costs and the expense of guaranteeing the loans, adding that “it is not reasonable to simply pay the EU for the privilege of access.”

They emphasize that the United Kingdom is adopting a “pragmatic approach” and that the EU-UK relationship will exist alongside bilateral partnerships with member states as “valuable pieces of the puzzle” in strengthening European defense.

Under the current rules of SAFE, components from non-member countries can constitute up to 35% of a product to qualify for loans. Increasing this ratio to 50% or more would enable greater participation from the United Kingdom, which has one of Europe’s largest and most advanced defense industries.