PARIS — Britain’s divorce talks with the European Union come at a time when the EU is keen to create a defense research fund, casting a spotlight on London’s expected loss as Brussels seeks consolidation in the defense industry and technology base, analysts say.

A Franco-German plan to lead a study for a new European fighter jet has also raised questions over French ties with Britain, notably the Lancaster House defense treaty and a bilateral project to develop a future combat air system.

It may be too early to identify the detailed consequences of the British exit, or Brexit, but being locked out of that EU fund sends a strong signal of political isolation.

“This fund is part of the dynamics of European defense integration at a time when Britain is pulling out of the EU,” said Jean-Pierre Maulny, deputy director of the French think tank Institute for International and Strategic Affairs.

Howard Wheeldon, a consultant at Wheeldon Strategic Advisory, said it was vital Britain step in with adequate funding of its own.

“As the cards are currently placed, Brexit looks to be bad news for the U.K. aerospace and defense industry, so the most important thing that the U.K. government can do is to provide genuine and fulsome financial support for future research and development technology,” he said.

In Rome, that European defense fund is seen as significant.

“EU funding for defense will give a strong push to industrial collaboration, meaning that EU members should be able to purchase more EU products rather than just, for example, French-German products,” said Michele Nones, a security and defense expert at the Istituto Affari Internazionali, a think tank partly funded by the Italian Ministry of Foreign Affairs.

On the broader budgetary front, departure from the EU after 2019 could hurt British defense spending if Brexit leads to a “significant” fall in gross domestic product, according to Malcolm Chalmers, deputy director of the Royal United Services Institute think tank.

Britain will need to take tough decisions on spending and taxes, which could hit the defense budget, he said June 12 at an air power conference in London.

Running the numbers

Brexit may have relatively limited impact on British firms’ sales, as none of the U.K.‘s top 10 defense companies earns more than 7 percent of annual revenue from the rest of the EU, said Alex Ashbourne-Walmsley, of Ashbourne Strategic Consulting. That is compared to up to 52 percent of revenue from the U.S. and more than 20 percent from the Asia-Pacific market, she added.

EU companies, meanwhile, have major presence in the U.K. aerospace and defense market, with Airbus, Leonardo and Thales leading the way.

A big step for Anglo-French industrial consolidation after Brexit will be a program launch for an airborne cruise missile to succeed the Storm Shadow (or Scalp) missile, said François Lureau, of consultancy EuroFLconsult and former French procurement chief.

“This will be decisive for the future of MBDA and British-French relations,” he said.

The political climate has changed, as countries will no longer consider a program on their own due to budgetary burden. “There is an awareness at the political level,” he said. “It is evolution, maybe a revolution.”

The requirements of the armed forces vary widely, but the chiefs of staff will come under greater political pressure to buy the same kit as other European services, he added.

François Géré, chairman of the think tank Institut Français d’Analyse Stratégique, asserted that the aftereffects of Brexit will be limited, as companies will find a way to work with Britain. The U.K. was outside the euro currency zone, he noted, but that did not hinder business flows.

Warning lights

A failure of Britain and the EU to agree to a free trade deal could disrupt supply chains into and out of the U.K., officials have warned.

In July, EU chief Brexit negotiator Michel Barnier used Airbus as an example of a company that would suffer constraints moving components between its U.K. wing operation and other European sites if a deal was not made.

One relationship Britain hopes will be immune is the tie-up with France, which has yielded operational and industrial benefits since the two sides signed the 2010 Lancaster House defense treaty.

“France remains the U.K.’s most important European defense partner, partly because it is the only other nuclear power in Europe,” Ashbourne-Walmsley said.

The future strength of that relationship was called into question July 13 when France and Germany announced plans to cooperate on a new European fighter, missile and attack helicopter programs.

Trevor Taylor, a senior fellow at the Royal United Services Institute, believes it unlikely the move would derail U.K. defense cooperation with France or Germany.

“Because of the potential of U.K. money to contribute to developmentcosts and the size of the market, Britain will continue to have some attraction as a partner in defense projects,” he said.

In Rome, much hangs on Brexit, as Italy cooperates closely with the U.K.

“Italy will hope the U.K. continues to participate in international missions and programs, and continues to be an open market for EU companies, and vice versa,” said Nones, the security and defense expert.

“Italy has a great interest in such a deal because of its cooperation with the U.K. on aeronautical, helicopter and missile programs,” he added. “It is also unthinkable that we cannot find agreement on the industrial side, given Leonardo’s presence in the U.K.”

There’s consensus on common defense with a rise in “terrorism” and the “Trump effect,” with the U.S. pushing for more defense spending yet showing less interest in the U.K., he said.

In Germany, there is much uncertainty on the Brexit effect.

“Nobody knows how this will end,” said Karl-Heinz Kamp, president of the government’s Federal Academy for Security Policy, based in Berlin. But Brexit helps move Europe toward funding research and procurement for common capabilities, leaving the operational side to NATO and its Article 5,” he said.

In German industry, there is great uncertainty over Brexit concerning tariffs, taxes, market access and supplier networks, according to Karsten Lepper, a defense policy expert at BDSV, a German defense industry association. “This will take time,” he said.

What is clear, analysts say, is that British companies will be unable to tap the European Defense Fund announced last month.

The fact that the fund bars U.K. applicants led to satisfaction among some German politicians who believe London may have hoped for greater leniency in keeping benefits even outside the EU, said Kamp.

In the case of Brexit, Nordic nations have been quick to consolidate military relations with Britain.

In a landmark action, Sweden and Finland joined the U.K.-led Joint Expeditionary Force, or JEF, in June.

“The JEF will complement our bilateral and multilateral cooperation that focuses both on our close vicinity and a broader global agenda,” said Swedish Defence Minister Peter Hultqvist. DN

Andrew Chuter in London; Tom Kington in Rome; Gerard O’Dwyer in Helsinki; and Sebastian Sprenger in Cologne, Germany, contributed to this report.