EU unveils $162B defense loan plan, US and UK sidelined
The European Commission has published a draft regulation introducing a $162 billion loan instrument for defense. This initiative is expected to benefit European companies, and others will be allowed to participate only if their countries enter into a "security and defense partnership" with the EU.
On Wednesday, the EC released the draft regulation establishing the $162 billion loan instrument (SAFE) alongside a white paper on defense. On Thursday, leaders of the 27 member states will discuss the proposal at a summit in Brussels.
Brussels wants the loans to support the development of the European defense industry. The draft regulation states, "Therefore, joint public procurement contracts should include a requirement that the costs of components originating from the Union, EFTA-EEA countries (part of the European Free Trade Association and the European Economic Area), or Ukraine should not be less than 65% of the estimated costs of the final product."
USA and the UK excluded?
Non-EU countries entering into a "security and defense partnership" with the EU can 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 certain defense products whose core technologies are not widely available in the EU. Substituting these products on a large scale may be tricky. The EC proposed two categories of products in this regard, with the degree of flexibility depending on how a product is classified.
The first category concerns less complicated products like ammunition, while the second includes complex systems, such as anti-missile or anti-drone technologies. Products from the second category may be financed with loans, provided that "member states' forces are ensured freedom regarding these products without restrictions imposed by third countries."
The Financial Times explains that, in principle, the fund would exclude all advanced weapons systems in which a third country (outside the EU) has "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 defense batteries would be excluded.
To acquire loans, member countries must present an investment plan for the defense industry. Ukraine will also be able to benefit, but it must apply jointly with another member country. Loans for joint defense procurements will be disbursed until 2030, and the incentive of VAT exemption under the SAFE framework will motivate member countries' participation.
"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 defense. 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 defense, concerns triggered by President Donald Trump.
