LONDON — The European Commission is unlikely to reach an immediate deal on allowing third-party entry to the EU’s flagship loan program for defense, after talks between London and Brussels ran aground over financial issues. 

The EU is negotiating with the U.K. and Canada over access to the EU’s €150 billion Security Action for Europe loans-for-weapons initiative, which allows EU member countries to take low interest loans and then jointly procure weapons systems. Gaining access was once trumpeted by PM Keir Starmer as a key target for a “reset” of post-Brexit relations with the EU.

The Commission set an informal deadline of Wednesday evening to reach an agreement, but now does not expect to reach a deal imminently, according to one person familiar with discussions.

Major differences remain between the two sides over the level of financial contributions the U.K. would need to make and the minimum mandatory share of components produced inside the EU, with senior British figures signaling they would not seek entry at any price. The U.K. and Canada would not be able to take loans, but are negotiating whether their industries can play a greater role in supplying the weapons systems.

Two EU officials – granted anonymity like others in this article to speak freely, and who are involved in discussions with London –characterized the mood as tense.

However, a Commission spokesperson sought to smooth the waters, saying: “We welcome the U.K.’s interest in negotiating a higher participation in SAFE. The Commission remains open to negotiate with the U.K., but the contribution has to be proportionate to the benefits the U.K. gains from its participation.”

Brussels has asked for a contribution of between €4.5 billion and €6.5 billion, according to three diplomats close to negotiations, while the U.K. has proposed a much lower figure of €200 million to €300 million; some officials said that the U.K.’s initial offer was even smaller — in the order of tens of millions of euros.

Diplomats said talks with Canada are much smoother. 

France has been among those pushing to limit U.K. participation so that only 50 percent of components can be made outside the EU. However, other countries like Germany and the Netherlands are keen on the U.K. being allowed to take part.

U.K. Defence Secretary John Healey told journalists at a press conference Wednesday: “We’ve always made clear whilst we were willing to pay a fair share of the costs of this program, any deal had to be good value for money for our British taxpayers.”

Sandro Gozi, a member of the European Parliament who chairs the EU-U.K. Parliamentary Partnership Assembly, confirmed to POLITICO that “we want to reserve high percentages” of projects for EU defense industries, adding this was “not to put other partner in an uncomfortable position” but to develop strategic autonomy.

Hopes remain high that the U.K. will find an agreement with the EU before the end of November, but officials from both camps warn that the outcome may be more limited than was first envisaged when Starmer and Commission President Ursula von der Leyen exchanged warm words in May.

A U.K. official said London’s view was that the sum ought to reflect administration costs and the cost of guaranteeing the loans, adding it was “not reasonable to pay the EU just for the privilege of access.”

They stressed the U.K. was taking “a pragmatic approach”, and that the EU-U.K. relationship would sit alongside bilateral partnerships with member states as “valuable pieces of the puzzle” in strengthening Europe’s defense. 

Under SAFE’s current rules, components from non-member countries can make up 35 percent of a product to qualify for the loans. Expanding that to 50 percent or more would allow a greater participation for the U.K., which has one of Europe’s largest and most advanced defense industries.

Jon Stone contributed to this report.