France has raised concerns over the UK's involvement in a €5 billion European Union equity fund targeting technology startups. EU diplomats indicate that this challenge highlights ongoing tensions in negotiations to "reset" relations between the EU and the UK.

The UK, which left the EU six years ago through Brexit, has agreed to provide €150 million in seed funding for the fund, which was established to drive investment in Europe's technology sector. This comes as Europe struggles to compete with the US and China for technological dominance.

In May, Ekaterina Zaharieva, the EU Commissioner for Startups, Research and Innovation, stated that UK participation in the fund was in the "mutual interest of both sides." However, diplomats now reveal that the French government is seeking to impose strict conditions on the agreement.

One EU diplomat stated: "France has raised objections. The French position is that the UK is not an EU member state. Since this program should serve EU members and is an EU initiative, why should we cede opportunities to the UK?"

France, along with some other EU member states, has also argued that a side deal with the UK could weaken their negotiating leverage ahead of a crucial summit this autumn, which aims to finalize a comprehensive "reset" package for EU-UK relations. Another diplomat added: "France is taking a hard line, and three to four other member states are also asking: if we allow the UK to join the European Scale-Up Fund, what do we get in return? Some argue there must be reciprocal conditions."

Diplomats say time is running out to resolve French objections if the UK is to be included in the next cycle of the European Scale-Up Fund, which is set to launch in 2027. French diplomats have stated that Paris is "not opposed" to UK participation in principle but has asked the European Commission to clarify the terms under which the UK, as a non-EU country, can take part. They added: "This is a technical consultation. France has asked the Commission to clarify how the UK's participation rights would be calculated."

There is a 25% cap on the amount any single member state can draw from the fund. Several key issues remain unresolved, including the cap for non-EU countries and how contributions will link to the scale of funding allocated. This dispute is somewhat similar to earlier negotiations over the UK's participation in a €150 billion EU defense procurement fund, which collapsed in November last year after the UK rejected a multi-billion euro demand from the EU.

Following the resignation of UK Prime Minister Keir Starmer, plans for a summit in July to finalize the EU-UK "reset" negotiations were shelved. A new date has yet to be set, though diplomats expect the summit to take place in late October or early November. The UK is seeking several agreements, including eliminating border checks on animal and plant products, re-linking the UK with the EU's emissions trading system, and establishing a limited youth mobility program for people aged 18 to 30. Significant differences remain between the two sides on these issues.

The European Scale-Up Fund will be commercially operated by Swedish private equity firm EQT and is part of the €96 billion "Horizon Europe" research program. The UK rejoined this research program as an "associated country" in 2024. Diplomats say the EU's Directorate-General for Research and Innovation has held "productive" talks with the UK in recent months about joining the fund, but has not yet submitted a formal proposal to allow UK participation.

The fund's current operational cycle ends in 2027. The next cycle will run until 2034, with a total fund size expected to exceed €5 billion. The European Commission will provide €1 billion in seed funding, with the remainder coming from pension funds and other private capital. The UK Cabinet Office has stated that the government will not comment on ongoing negotiations. An EU Commission spokesperson said discussions are still underway and that it is "too early" to judge the positions of all parties.