Amid austerity, EU agrees to boost defence cooperation
* Cooperation drive is response to austerity
* UK's Cameron says will resist European army
* NATO chief warns U.S., Europe could drift apart
By Adrian Croft
BRUSSELS, Dec 19 (Reuters) - European Union leaders agreed on Thursday to work together more closely on defence and make falling defence budgets stretch further, but British Prime Minister David Cameron said London would resist any attempt to form a European army.
Austerity-hit EU countries have slashed spending in response to the financial crisis, scaling back on ships, tanks and fighter jets and undermining Europe's military strength, much to the concern of the United States, its critical ally.
While Europe still spends about 200 billion euros ($273 billion) a year on defence, experts say it is allotted inefficiently with gaps in some areas and duplication in others.
EU leaders, discussing defence at a summit for the first time in five years, called on member states to work together to spread the cost of developing expensive military kit and urged them to ensure a level playing field for EU companies selling military equipment across European borders.
They pledged to launch projects to develop a European drone and to look into a new generation of government satellite communications.
They also promised to work to increase the continent's air-to-air refuelling capacity, after the 2011 Libya conflict demonstrated a European shortage of tanker aircraft, and to strengthen cyber defence.
Cameron said Britain, one of Europe's most capable military powers but one that has also vastly scaled back spending, would support cooperation but drew the line at a European army.
"It isn't right for the European Union to have capabilities, armies, air forces and the rest of it. We need to get that demarcation correct between cooperation which is right and EU capabilities, which is wrong," he told reporters.
The EU's executive Commission has raised the possibility that the EU itself could buy and operate some equipment needed for military missions, such as surveillance drones.
Britain has always been suspicious of giving too big a military role to the EU, fearing it could undermine NATO.
NATO Secretary-General Anders Fogh Rasmussen, who joined the EU leaders for the talks, said he saw no contradiction between a stronger European defence and a strong NATO.
He urged Europeans to act to strengthen their defence, warning: "Unless we recommit to our own defence we risk seeing America disengage and Europe and America drift apart."
The EU leaders said countries should look into tax incentives to encourage governments to work together on military equipment projects, even though countries such as Poland and Spain fear such cooperation could undermine local industries.
They urged governments to increase spending on cooperative research programmes to strengthen Europe's 96 billion euro a year defence industry which has suffered from the cuts.
EU leaders want to boost the bloc's common security policy by improving its rapid response capabilities and allowing it to deploy civilian advisory missions more rapidly.
The bloc has 7,000 staff deployed around the world in 12 civilian missions and four military operations, including combatting piracy off Somalia and training the Mali army.
France, which has deployed 1,600 troops in Central African Republic to prevent worsening violence between Christian militias and largely Muslim Seleka rebels, wants a permanent EU fund set up to finance military interventions like the French actions in Central African Republic and Mali.
"I have received a lot of support from almost all European governments. And so financing must also follow this political support," French President Francois Hollande said in Brussels.
While some European governments have lent logistical support, the funding proposal has received scant sympathy so far from France's EU allies. A senior German official said this week that European rules dictated that countries carrying out military missions paid for them on their own.
Belgian Prime Minister Elio di Rupo said his country had no plans to send ground troops to Central African Republic for now. "We could examine this but that will be done in a European context and certainly not only in a bilateral plan," he said. (Additional reporting by Paul Taylor, Robert-Jan Bartunek; editing by Luke Baker)