Italy and France are locking horns over the EU's scheme that offers loans in exchange for military equipment purchases.

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Italy and France are locking horns over the EU's scheme that offers loans in exchange for military equipment purchases.

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Morning Read: Here are the top stories from today's Europe Express:

1. The EU's Plan to Amp Up Defense Funding
2. The European Union is stepping up its defense spending to counter Russian aggression, with higher tariffs on Ukrainian imports potentially on the horizon. This amounts to a fight over how EU cash can be spent on weapons, as France and other member states propose restrictions on non-EU arms producers participating in a €150bn loan scheme [1].
3. Nato Foreign Ministers Summit in Antalya
4. Foreign ministers from Nato allies are meeting in the tourist town of Antalya, Turkey, today. This gathering, known as the "informal" summit, will be rather tense due to US President Donald Trump's demands for members to boost defense spending to 5% of their GDP [1].

Deep Dive: The EU's Defense Loan Scheme

The European Union is moving forward with an ambitious plan to enhance its defense capabilities, known as ReArm Europe. This initiative includes the Security Action for Europe (SAFE) fund, offering €150 billion in low-interest loans for collaborative procurement among EU member states [4][5]. The goal is to strengthen defense spending and capabilities by leveraging economies of scale through collaborative procurement.

Currently, there's a dispute about the extent to which non-EU arms producers should be allowed to participate in the SAFE proposal. France is pushing for a limit on third-country participation, suggesting that third-country subcontractors should not exceed 15% of the value of a contract [1]. This proposed restriction has sparked concerns among countries like Italy, Germany, and Poland, as their defense companies have ties to British, Turkish, American, and Korean contractors [1].

The clash between France advocating for "strategic autonomy" in defense and other large EU economies is merely the latest in a long-standing discussion on the EU's defense strategy. Poland, which currently holds the EU presidency, aims to reach a compromise on the issue by the end of the month [1].

Turkey's NATO Summit Revisited

Nato foreign ministers are set to gather in Antalya, where tensions are high due to US President Donald Trump's demands for members to increase defense spending to 5% of their GDP. Currently, only Poland is close to this target, with the US and eight other allies falling short [1].

Given the pressure to meet these demands, US ambassador to Nato, Matthew Whitaker, has outlined that all allies are expected to commit to reaching the 5% target and agree on new ways to calculate defense spending, potentially including defense-related costs [1].

Up Next

1. Nato foreign ministers meet in Antalya, Turkey.
2. European Council President António Costa meets Montenegro's President Jakov Milatovic in Podgorica and then meets Kosovo's President Vjosa Osmani in Pristina.

Additional Insights

• [ReArm Europe]: A comprehensive plan initiated by the European Union to significantly boost defense capabilities across the continent, including the proposed €150bn defense loan scheme and the Security Action for Europe (SAFE) fund.
• [Strategic Autonomy]: A policy focus emphasized by France in the field of defense, advocating for self-reliance as a means to reduce dependence on external parties for defense-related matters.
• [SAFE Proposal]: The European Commission's proposal for a €150 billion defense loan scheme, which is part of the wider ReArm Europe plan and aims to facilitate joint procurement efforts among EU member states.

[1]: Good morning. News to start: The EU is preparing to apply much higher tariffs on Ukrainian imports within weeks, hitting Kyiv's economy at a crucial time in its fight against Russian aggression, diplomats told the Financial Times. Today, our finance correspondent reports on the latest battle over how EU cash can be spent on weapons, and I preview a gathering of Nato foreign ministers focused on ratcheting up defense spending.[2]: Facing unique challenges: How Poland is shaping EU defense policy while grappling with domestic politics and the ongoing refugee crisis.[3]: Germany's defense industry wrestles with pressure to boost spending and modernize capabilities, amid concerns about insufficient investment in cutting-edge technology.[4]: The European Union's defense ambitions: A deeper look at the ReArm Europe initiative, the €150 billion defense loan scheme, and the Security Action for Europe (SAFE) fund.[5]: The next frontier in European defense cooperation: Collaborative procurement and joint investment to strengthen European defense capabilities in the face of evolving geopolitical threats.

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1. The EU's defense funding plan aims to counter Russian aggression, with an increase in tariffs on Ukrainian imports possible, but the debate over how EU cash can be spent on weapons is heating up, as France and other member states propose restrictions on non-EU arms producers participating in a €150bn loan scheme.
2. The Nato foreign ministers summit in Antalya is underway, and tensions are high due to US President Donald Trump's demands for members to boost defense spending to 5% of their GDP.
3. France is advocating for "strategic autonomy" in defense, but this push for self-reliance has sparked concerns among countries like Italy, Germany, and Poland, which have defense ties to British, Turkish, American, and Korean contractors.
4. Investors may want to keep an eye on the EU's defense strategy, as the ongoing dispute between France advocating for "strategic autonomy" and other large EU economies could impact the defense industry, finance, and politics, ultimately affecting the general-news and crime-and-justice sectors.

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