Photo: Two patches on the arm of an American crew member of a NATO Boeing 707 E-3A AWACS. Credit: NATO via Flickr.

A Grand Bargain to Reset the Transatlantic Alliance

As the US and Europe surge military spending, there are dangers in division and opportunities in unified action.

April 29, 2025

Both sides of the North Atlantic Ocean are thinking hard about defense. Europe now seeks a new Strategic Autonomy as the US talks America First, with the clear risk that these visions will nudge them apart, just as increasing common threats necessitate unity.

Fortunately, still more unites than divides Atlantic democracies, and that presents a powerful opportunity. Today, we have all the ingredients for a US-Europe grand bargain on defense production that could reinvigorate, replenish, and perhaps forever redefine the Arsenal of Democracy.

NATO was founded in 1949 to ward off a common threat for the common benefit.

These common threats to US and European interests show no sign of abating. See Russia’s ongoing illegal occupation of and war on Ukraine, using unconscionable methods and cross-border hybrid warfare. Note also an increasing “adversary alignment” with coordinated hostile action by China, Iran, and North Korea (which announced on April 28 that it had indeed sent its troops to fight Ukrainian forces). At the same time, the forward areas of the battlefield increasingly rely on linked sensors and data flow, a concept that can only be properly accomplished through close cooperation in defense design and production.

It would be wasteful and shortsighted to lose seven-plus decades of US-Europe unity and interoperability when such trends demand more cross-border agreement.

Unfortunately, it is at precisely this moment that the European Union (EU) and the US have, during the past month, released new policy guidance primarily dedicated to their respective defense sectors, further fueling recent narratives of fraying US-Europe ties.

An encouraging aspect of the current debate is the sheer amount of money being pledged to Western defense budgets. The Trump administration has promised $1 trillion in defense spending next year, a rise of at least 10% that Congress may increase even further. The EU estimates its additional defense spending will amount to around $900bn, and Germany alone is pledging another $570bn on defense in the coming years.

But duplication and a failure to agree on standardization remain obstacles. So too is inward contemplation, combined with day-to-day uncertainty about tariffs — real or threatened — that might dampen hope for a serious near-term renewal of last summer’s Washington Summit commitment to “Enhance defense industry across the alliance by fostering cooperation.”

However, closer inspection and a re-centering on the “why” of an alliance reminds that not only are US and Europe’s interests still fundamentally aligned and intertwined, but the stage is actually set for what could be a massive — even historic — grand bargain. Both parties need to lift their gaze to the common horizon and take advantage of four dynamics that together suggest Transatlantic defense production is ripe for a huge deal.

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First, 23 of the 30 European NATO allies now spend 2% of national wealth, or GDP, on defense. That number has been swiftly (if belatedly) rising, with Spain and Italy notably announcing they will reach the target this year. Meanwhile, the EU has this year committed or renewed pledges toward levels of defense spending unseen for decades.

And while EU defense fund reform proposals on April 22 prioritized enhancing Europe’s Defence Technological and Industrial Base (EDTIB), this lacks even a fraction of the capacity required to meet Europe’s rising defense needs.

A Europe serious about rearmament will recognize that the substantial US Defense Industrial Base (DIB) must remain central in the European market, at least for the next decade. This is not US flag waving, it’s a fact. There’s simply no alternative, unless Europe wants to seek arms from China or Russia.

Second, as the US DIB aims toward its own ramp-up both in quantity of companies and overall output, integration with European industry can complement the US by helping to overcome critical component shortfalls. Look, for example, at Avio, an Italian maker of solid rocket motors. It is now tripling its production as part of a deal with Raytheon of the US to develop new prototypes because the US producers are struggling to meet demand. In such cases, Europe provides supply chain breadth and resilience.

Third, as evidenced in an Executive Order signed earlier this month, the Trump Administration is moving to continue and improve on several Biden-era Foreign Military Sales reform efforts — which would be aided by an increased and steady demand signal from foreign customers, a perfect match for Europe’s growing needs.

Finally, beyond the economics, modern warfare is comprised of seamless information sharing between nations and platforms fighting together — not just for communication, but for targeting and programming autonomous systems at speed, which underscores the importance of close coordination in developing early-stage requirements.

A promising example is the Pentagon’s Combined Joint All-Domain Command and Control (CJADC2), designed to ensure friendly networks speak to one another, even as a recent report assesses CJADC2 is far from operational. And while NATO’s acquisition earlier this month of Palantir’s MAVEN technology is encouraging, such harmonized purchases can and should become the rule, not the exception.

Amidst today’s front-page intra-alliance differences, as real and potentially damaging as they are, and recent policy moves that could be viewed as protectionist and divergent, leaders in both the US and Europe have an opportunity to preserve and enhance peace through strength, to forever redefine the Arsenal of Democracy, and even create large numbers of jobs — on both sides of the Atlantic — while they’re at it.

Such a move, to search for strength where you have weakness, is not based on sentimentality or softness, but rather clear-headed recognition of where lie the technological and industrial resources you need. This requires agreement on many elusive details to secure a common benefit, but that’s fundamentally what alliances are for. Amid today’s common threats, this could be what’s needed to keep the transatlantic alliance in good health.

Jason Israel is the Auterion Senior Fellow for the Defense Technology Initiative at the Center for European Policy Analysis (CEPA). He has twice served the White House National Security Council, most recently as Special Assistant to the President and Senior Director for Defense Policy & Strategy. He is a Captain in the US Navy Reserve.

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.