EU defense budget plan excludes Israel’s arms industry

Israel could find itself excluded from the list of countries eligible for contracts financed by the EU’s new €150 billion loan fund under its Rearm Europe Plan ‘Readiness 2030’, according to the draft proposal unveiled in Brussels yesterday.

In the past few months, behind the scenes, there has been a tug-of-war between France and Germany on the question whether the money from the fund – which represents a revolution in the amount EU countries will budget for defense – can be spent on buying equipment manufactured outside the EU. The French, who have a developed arms industry, demanded that the fund should be invested entirely within the EU. The Germans, who have bought Israel’s Arrow 3 air defense system and leased UAVs from Israel to the tune of billions of euros, and have announced an intention to buy Patriot air defense systems from the US, demanded that only part of the fund should be allocated for purchases within the EU, and that the rest should be allowed to be spent in other countries.

The draft proposal released yesterday shows that the French have prevailed. The headlines in Europe proclaimed that the decision excludes the US, UK and Turkish arms industries from European procurement in the billions of euros, but Israel too will be outside the fence.

According to the proposal, 65% of the cost of procurement of defense systems must be spent in countries in EFTA (the European Free Trade Association), which consists of the EU countries plus Norway, Iceland, Switzerland, and Lichtenstein, and also Ukraine.

The remaining 35% can be spent in other countries, but only if they have signed a security and defense partnership agreement with the EU. South Korea, Japan, and the UK are expected to sign such agreements, but the US is not, because of the fear that they will not allow countries to bar the sale of certain weapons systems.

Israel and its defense companies are liable to find themselves torn between the EU requirements and the security alliance with the US, which will prevent the signing of such a strategic agreement and deny them billions of euros in potential sales. The EU plan also excludes the possibility of European countries buying weapons systems entirely designed in a country that is not in EFTA or has not signed an agreement.

The plan is currently for a loan fund of €150 billion for defense spending, but there are those who see it expanding to €500 billion or more.

The proposal as presented is not final, and in addition to Germany, whose representative told European media yesterday that “we don’t want to give the impression we are seeking to decouple ourselves from the US,” Poland too is opposed to the “buy European” approach. France and Italy, on the other hand, welcomed the compromise, and said that buying “Made in Europe” defense systems would help the continent to develop military capabilities rapidly, and would assist in the necessary process of consolidation in the continent’s defense industry. “We must buy more European. Because that means strengthening the European defense technological and industrial base,” EU Commission president Ursula von der Leyen said in presenting the Readiness 2030 White Paper.

EU countries currently spend almost 80% of their defense procurement budgets outside the EU, largely in the US. The EU plan as presented is not final, and may undergo changes before it is put to the vote of the block’s 27 member countries.

Published by Globes, Israel business news – en.globes.co.il – on March 20, 2025.

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