EU countries reach deal on new defence funding programme

BRUSSELS (Reuters) -European Union governments have reached an agreement on a 1.5 billion-euro ($1.73 billion) EU scheme to fund defence investments, although some complained that its 'buy European' provisions are too restrictive, diplomats said on Wednesday.

Governments have wrangled for more than a year over the European Commission's proposal for a European Defence Industrial Programme (EDIP), part of a broader drive to re-arm sparked by fears of Russia following its 2022 invasion of Ukraine.

Much of the debate focused on eligibility. France pushed for strict 'buy European' rules to boost European industry while countries such as the Netherlands argued for more flexibility to buy arms from the United States, Britain and other nations.

Under the final compromise, at least 65% of the costs of the components of an item funded under the scheme must originate in the EU or certain associated countries, with some exceptions.

Ambassadors from the EU's 27 countries are expected to approve the deal on Monday, diplomats said on condition of anonymity. It will then be the subject of negotiations with the European Parliament before it can enter into force.

A group of 10 countries - the Netherlands, Estonia, Latvia, Lithuania, the Czech Republic, Bulgaria, Romania, Croatia, Slovakia and Finland - argued that the rules should have taken more account of an urgent need to boost Europe's defences.

"We fully support the goal of enhancing European security and resilience through increased defence cooperation and investment," they said in a joint statement. "However, we face an urgent threat to European territory and interests."

They said the EU defence industry "still depends - especially in the short to medium term - on critical components, technologies and know-how from like-minded third countries, in particular transatlantic allies".

Despite their objections, the countries said they did not want to stand in the way of starting negotiations with the European Parliament.

EU officials said the 1.5 billion euro budget for the programme is modest for the defence sector but the criteria were fiercely fought over as it may receive larger funding in future.

($1 = 0.8678 euros)

(Reporting by Andrew GrayEditing by Gareth Jones)