The continent’s defense, technological and industrial capacity should be strengthened quickly using the leverage of the European Union’s regulatory power and its enormous market. To drive this, governments will need to increase national spending and borrow collectively to meet growing defense demands.
At the same time, the financial sector must be persuaded to shift its perception of defense investments and recognize them as an ethical public good after Russia’s aggression against Ukraine exposed the inadequate capacity and fragmentation of Europe’s defense industry.
This critical vulnerability was highlighted in 2024’s Draghi report, which urged the European Commission to act fast to address the shortfall.
Commission President Ursula von der Leyen has made security and defense top priorities for her second mandate, creating the first commissioner for defense and space, and setting the goal of establishing a single European defense market.
This will be far from simple, as member states fiercely guard defense as a core element of national sovereignty, but the fact Russia is expected to rebuild its armed forces within three to five years, and threaten NATO even more directly, leaves no option but to strengthen production collectively. And that means large, long-term contracts for manufacturers.
To achieve these goals, the Commission must focus on closing Europe’s most critical capability gaps, such as long-range missiles, air and missile defense systems, strategic airlift, air-to-air refueling and cyber defense.
It must also strike a balance between acquiring these capabilities from non-EU suppliers, where no European option is rapidly available, and building a more self-sufficient and resilient European defense industry in the long term. That will include decisions on how far to include the UK, a significant defense industrial power, and other non-EU countries like Norway.
Estimates of Europe’s defense investment gap range from €300bn to €500bn ($315bn to $525bn). Clearly, the €1.5bn proposed by the European Commission under the European Defence Industrial Programme (EDIP) will not be sufficient to stimulate joint procurement.
While the program correctly aims to encourage EU governments to purchase collectively, and focus on European-made solutions, the funding falls woefully short of the scale needed to close the gap.
One key obstacle remains the European Investment Bank’s (EIB) reluctance — backed by cautious finance ministers — to fully embrace the defense sector. Lending is still limited to dual-use projects, excluding arms or ammunition, and signals that the continent is not yet serious about addressing its own security needs.
To shift this mindset, EU leaders must send a clear signal that defense investments are not only necessary but also ethical and moral.
By framing defense as a public good, Europe could help attract private investors who have long viewed the sector as risky, opaque and offering uncertain returns. Just as European governments collectively borrowed money to address the COVID-19 crisis, they should consider issuing joint bonds to fund vital defense needs.
If fiscally conservative countries like Germany and the Netherlands continue to resist and pro-Russian governments such as Hungary and Slovakia threaten to veto EU borrowing, a coalition of willing states should come together to issue bonds to develop specific shared capabilities and contribute to defense investment.
The upcoming White Paper on the Future of European Defence is set to outline solutions to some of the bloc’s most pressing security challenges. It will address the need to sustain military support for Ukraine, close critical capability gaps, and propose funding mechanisms to drive a much-needed surge in European defense spending.
These could include a mix of existing funds, greater flexibility in EU fiscal rules, reforms to the EIB’s lending policy, and joint borrowing.
The greatest obstacle remains the lack of political will among west European member states to significantly boost defense spending despite pressure from the US. Divergent threat perceptions and a naïve belief that any ceasefire in Ukraine will secure peace in Europe, risk undermining efforts to improve defenses.
Achieving NATO’s target of 300,000 troops at high readiness will also require comprehensive reform of recruitment, plus more attractive reserve service and conscription where needed. And that will need decisive political leadership.
European governments must confront the reality that President Vladimir Putin’s imperialist ambitions extend far beyond Ukraine.
Too often, the EU responds to crises only once they are unfolding — whether it is a financial crash or a pandemic. This reactive approach is no longer tenable.
Waiting for war to force a policy shift is a gamble Europe cannot afford, and one that could ultimately unravel the Union.
Juraj Majcin is a Policy Analyst with the European Policy Centre. He works mainly on European and transatlantic security and defense cooperation, as well as hybrid threats. He is also a 2024 James S. Denton Fellow with the Center for European Policy Analysis (CEPA.)
Paul Taylor is a Senior Visiting Fellow with the European Policy Centre. He worked for nearly 40 years for Reuters, the international news agency, as a foreign correspondent, bureau chief and editor in Europe and the Middle East, specializing in transatlantic diplomacy and defense.
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.
