David Lammy was all warmth and smiles as he greeted the European Union’s top diplomat in London on Tuesday.

The Foreign Secretary, who has made improving relations with Brussels a top priority, clasped hands with Kaja Kallas outside One Carlton Gardens, his official residence, and hailed “a new era of security cooperation”.

Kallas, the EU’s high representative for foreign affairs and security, said: “The foundation of our relationship is very strong and we need to build on that.”

Yet if Lammy had been banking on an end to Brexit dramas, he was quickly disappointed. Within 24 hours, Brussels – reportedly under pressure from Paris – had pulled the kind of stunt that made people want to leave the bloc in the first place.

A new €150bn rearmament fund was being set up, EU officials announced. But Britain would be excluded – along with the US.

Under a “buy European” clause secured by Emmanuel Macron, the French president, the money can only be spent with contractors in EU member states or those from countries that have defence pacts with the bloc.

This is a club that currently includes Japan and South Korea – both of which lie more than 5,000 miles away and are not Nato members – but not the UK, which is waiting in line.

The price for admission? An agreement on fishing rights for French vessels in British waters, along with a “youth mobility scheme”, EU officials have unsubtly suggested.

If London refuses to give way, defence companies such as BAE Systems and Babcock risk being locked out of the spending bonanza – while rivals such as Dassault, Leonardo and Rheinmetall make hay.

‘Disappointing but not surprising’

The standoff, which comes despite talk from European leaders of the “existential” threat posed by Russia, has prompted incredulity in UK defence circles – as well as some European ones.

A government insider blamed the “astonishing” situation on “puerile” French officials, who have not “grasped the enormity of the moment”, according to the Times.

“I’m disappointed but not surprised,” says Kevin Craven, chief executive of UK defence industry lobby group ADS.

“From an industry perspective, there’s a lot of frustration. It seems obvious that in the circumstances – with what’s happening in Ukraine and the wider discussions around Nato – that there are lots of good reasons for Europe to work with the British defence industry.

“You can’t be in a situation where domestic issues are getting in the way of taking a coherent approach to the security of the Continent.”