Photographer:Victor Sokolowiczi/Bloomberg

Italy Said to Press for EU Defense Incentives in Wake of Brexit

  • Proposal calls for tax breaks, funding for firms, ministries
  • Juncker to address pan-European defense cooperation Wednesday

Italy has asked the European Union to boost financial incentives for the defense industry as it seeks closer EU military cooperation in light of the U.K.’s decision to quit the bloc.

The proposal is contained in an Italian government document obtained by Bloomberg News detailing plans for the defense industries that has been circulated to Berlin, Brussels and Paris ahead of a Sept. 16 meeting of EU leaders in Bratislava. European Commission President Jean-Claude Juncker is expected to touch on the paper’s contents Wednesday in his annual “State of the Union” address to the European Parliament in Strasbourg, France, according to a person familiar with the matter.

Among the measures outlined are recommendations by Prime Minister Matteo Renzi’s government that the EU change its rules to allow the following:

  • Giving defense ministries and firms access to European Investment Bank financing as well as to new research funding
  • Removing value-added sales tax charges from purchases
  • Removing some big item spending from deficit calculations to encourage more member-state spending
  • The development of new pan-European military programs and the pooled purchasing of equipment for the bloc’s armed forces.

Italy, which is home to Leonardo SpA, formerly known as Finmeccanica, advocates loosening the constraints faced by the European defense industry. The document cites “the increasing and unpredictable threats to the security of EU citizens, territory, institutions, and society.”

The Defense Ministry in Rome confirmed in an e-mail that Italy had put forward “a series of proposals to certain EU countries and to the European Commission,” without commenting on the nature of the proposals. Defense News first reported aspects of the Italian document earlier. 

Push for Cooperation

Germany and France have already drawn up plans for closer defense cooperation, Munich-based newspaper Sueddeutsche Zeitung reported on Sept. 9, citing a position paper by German Defense Minister Ursula von der Leyen and her French counterpart, Jean-Yves Le Drian. The paper includes plans for common headquarters, use of European satellites for surveillance, synchronizing financing, planning and procurement, and allowing EU member states to accelerate cooperation at different paces.

The push for closer cooperation on defense has intensified after Britain -- historically opposed to the creation of an EU army and reluctant to relegate its relationship with the U.S. -- voted in a June to quit the 28-nation union.

That decision could lessen Britain’s willingness to spend on European products or commit to developing new joint programs, according to London-based independent consultant Alex Ashbourne-Walmesley.

“Britain was a very good industrial partner because it happened to buy the products,” she said in an interview. “If the U.K. Brexits, and there is no obligation on the U.K. to buy from European companies, then the likes of Leonardo will see a loss of a very big part of its market.”

Europe has had a mixed history of success when it comes to cross-border defense programs, with even its most successful joint program, the Eurofighter Typhoon built by BAE Systems Plc, Airbus Group SE and Italy’s Leonardo, prompting France’s Dassault Aviation SA to spin off and create its own program. The resulting fighter jet, the Rafale, has since damaged its rival’s sales prospects in India and the Middle East.

The pan-European A400M turned into Europe’s most expensive program after a string of technical problems, including the crash of one of its test craft. Even the U.K.’s Type 45 frigate was initially born of an attempt in the 1990s to develop a cross-border warship, before Britain pushed ahead with its own design.

Existing bilateral agreements, such as the Anglo-French design of a unmanned combat air vehicle, wouldn’t be affected under the proposals made, the person said.

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