Defence, deal to include UK in EU’s $150bn rearmament fund scuppered

Brussels – Paying almost £6 billion to participate in the EU defence fund? London won’t go for it. According to rumours circulating in the British press in recent hours, Her Majesty’s government has responded in spades to the European Commission’s request to access the SAFE facility, which is supposed to support the re-armament of the Twenty-Seven. 

The details of the affair are still not entirely clear, as negotiations are still ongoing. But already today (11 November), news broke of the disrespectful refusal by the executive led by Labour PM Keir Starmer to Brussels’ request to cough up a GBP 5.94 billion (€6.75 billion) “share” to join the maxi-continental rearmament fund.

 “We will only accept agreements that bring value to the UK and British industry,” reads a government statement. “Nothing has been agreed and we will not provide live commentary on the ongoing talks,” the note added. British sources described the Commission’s demands as “unreasonable” and exaggerated, confirming Downing Street’s negative response. 

In reality, the proposal put forward by the EU executive is nothing more than the result of an iron tug-of-war between the Twenty-Seven. Some member states, led by France, have reportedly taken a more intransigent position, while another group led by Germany would like to lower the bar to avert the risk of London calling it quits. According to several officials involved in the discussions, the negotiations will continue apace in the coming days.

The SAFE instrument (an acronym for Security Action for Europe) is one of the pillars of the ReArm Europe strategy, announced by Ursula von der Leyen last March to make the Union “militarily ready” in the face of possible aggression from Russia. It goes hand in hand with the commitment made by Brussels to loosen EU defence borrowing constraints to 1.5 per cent of GDP, activating the safeguard clause of the Stability and Growth Pact (SGP) to mobilise something like 650 billion in investment. 

The endowment of the fund is €150 billion—fully subscribed last August, according to the Berlaymont—and will be used to finance joint defence projects, including for the production of drones and missiles, the development of cyber defence capabilities, and the construction of a European air shield, through loans (Italy
should be entitled to just under 15 billion). The mechanism provides for countries involved to associate in consortia and participate in joint procurement, both for the purchase and sale of weapons. 

Now, SAFE’s door has always also been open to non-EU partners, but not for all under the same conditions. Ukraine and the members of the European Free Trade Area (EFTA)—Iceland, Liechtenstein, Norway, and Switzerland—participate fully as the Twenty-Seven. Third countries, such as the United Kingdom, Canada, or Turkey, on the other hand, have to negotiate their involvement with the Commission, subject to the conclusion of a bilateral security cooperation pact. Each chancellery must then pay a variable membership fee calculated according to the size of the national arms industry and the potential benefits of association with the EU maxi-fund. 

Moreover, under the “buy European” clause, for any procurement project, the value of products from third countries may not exceed 35 per cent of the total. According to reconstructions, the Berlaymont had proposed a compromise to Downing Street to adjust this figure to 50 per cent in exchange for the payment of €6.5 billion plus 250 million in administrative fees.

And it is precisely on this point that discussions seem to have heated up, putting both sides in an awkward position. On the one hand, the dispute further complicates the complex process of post-Brexit rapprochement between the UK and the EU. The same agreement on access to SAFE, concluded last May, is part of the relations “reset” between London and Brussels, which Starmer has championed. On the other hand, it risks damaging the Old Continent’s credibility while attempting to build its own military deterrence.

But this is not the only problematic aspect of SAFE. Particularly tangled, especially between the chancelleries of the Twenty-Seven, remains the financing node: the so-called “frugal” front has always opposed the issuance of new common debt, so defence loans will have to be supported by the EU budget. 

On the other hand, the EU Parliament took issue with the same legal procedure used to set up the giant fund. The use of Article 122 of the Treaty on the Functioning of the EU (TFEU), the MEPs argue, is unjustified because that legal basis presupposes requirements of urgency which would not exist. Thus, in August, they brought the Member States before the Court of Justice of the Union, which will have to rule on the matter in the coming months. In the meantime, governments wishing to do so can apply for SAFE loans until 30 November.