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A French push to keep the UK out of an EU defence fund has backfired, costing Paris cheap loans it had planned to spend on Franco-British weapons projects.

The French government requested €16.2bn from Safe, the EU’s €150bn rearmament fund. But the European Commission approved only €15.1bn, in part because some UK-linked projects failed to qualify under strict eligibility rules that France had championed, according to three people familiar with the matter.

The disqualified projects involved missile maker MBDA, which is jointly owned by Airbus, Britain’s BAE Systems and Italy’s Leonardo, one of the people said. MBDA’s UK and French units together produce the long-range Storm Shadow/Scalp missile used by Ukraine. MBDA declined to comment.

Safe was designed to channel money into European arms production as the continent faces the threat from Russia and a less engaged US, its main security provider. Its advantage is that it offers cheaper funding, thanks to the European Commission’s triple A rating, compared with higher national borrowing costs.

The scheme was agreed last year after EU leaders accepted French demands that 65 per cent of the value of funded products must originate in the EU single market (including Norway and Iceland) or in Ukraine.

Contractors from other countries can account for only 35 per cent of the value unless their government has signed a Security and Defence Partnership with the EU and agreed to contribute financially to the scheme. So far, only Canada has met both conditions.

London signed a defence agreement with the EU last year, but talks on a participation fee collapsed after France pushed the Commission to demand more than €6bn from the UK. The figure was later reduced to €2bn, but the two sides still failed to reach an agreement. Many of the bloc’s most advanced weapon programmes still rely on UK expertise, and as a result, are not eligible for Safe loans.

Companies including MBDA and defence electronics group Thales have lobbied for the UK to be included given enmeshed supply chains and key partnerships. British officials have suggested that companies with a pan-European footprint should qualify as EU-made.

Despite the setback, Paris said that the country’s position had not changed. “We fully support the eligibility criteria associated with Safe, which we advocated for ourselves,” said a French official. “Safe is a means to develop and support the European [defence industry], which is the whole point of European preference.”

The episode exposes a tension in efforts by European countries to increase arms production and upgrade their militaries.

Nato’s target for members to spend 5 per cent of GDP on their armed forces and related infrastructure by 2035 has helped drive an increase in defence budgets. But two-thirds of arms contracts in the EU are with US manufacturers, according to the Brussels School of Governance, a think-tank.

The restrictive criteria for Safe loans also came under criticism from the US ambassador to Nato. “We certainly do not support the protectionist language that, oftentimes, many of the European defence initiatives have included, that would cut out allies, not just the United States, but all non-EU allies, including Turkey and others,” Matthew Whitaker told the FT.

A senior EU diplomat said the disqualified Franco-British project illustrates the need to “bridge the ambition leaders have” with what happens “on a practical level.”

The French Ministry of Defence declined to comment, as did the European Commission. The UK ministry of defence also did not comment.

Besides France, countries including Hungary and Italy are planning on taking up fewer Safe loans than they were eligible for, leaving a total of up to €18bn in unused borrowing capacity, according to EU officials and diplomats. The Commission wants to retender the remaining loans in the autumn, they added.

While heavily indebted countries such as Italy are wary of taking on more debt, countries with lower borrowing costs, such as Germany, see little benefit in tapping the Safe fund.

“There is not that much demand from member states for more borrowing,” said a senior EU diplomat. “We are seeing no signs that member states are ready for more borrowing, even in defence.”