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Towards a genuine European defence union ! ?

Economic opinion

The Russian invasion of Ukraine and the return of Donald Trump to the White House make it clear that peace on the European continent and the US defence umbrella cannot be taken for granted. European countries need to substantially strengthen their defence capabilities. Spending on this is competing with equally necessary investments for the green, digital and demographic transition, in a context of precarious public finances in many European countries. Efficiency and proper prioritisation are therefore imperative. This requires a European approach, for financial reasons, but also for operational effectiveness on the field. For the first time ever, the new European Commission (EC) has a Commissioner for Defence. Together with the High Representative/Vice-President, he must strengthen and streamline the numerous existing European initiatives on defence into a true European Defence Union. A first step is a White Paper on the future of European defence. The ambition of the new EC is seemingly less far-reaching than the true, supranational European Defence Community envisioned in a failed 1952 treaty. Its guiding principle remains that member states retain competence over their armed forces.

A true defence community, following the idea of the 1950s, could nevertheless be the better solution for an economically efficient and effective strengthening of European defence capabilities. Especially in this high-tech and fragmented world, security is a collective good that even the big European countries can no longer provide on their own. In economically interdependent - fortunately! - European countries, a purely national security is a relatively empty concept. Shared sovereignty at European level would bring security as a European collective good a step closer and strengthen European strategic autonomy. Today, that does not seem feasible, unless... Perhaps a White Paper on defence evokes memories of the White Paper on the completion of the internal market, which, under the impulse of then EC president Delors, paved the way for the Single European Act in 1985. That treaty amendment gave the then paralysed European Communities new competences and the decision-making power to achieve (among other things) the single market by the target date of 1992. Let that approach be an inspiration in overcoming Europe's defence challenges today.

Paradigm shift on security

According to the World Economic Forum's Global Risk Report 2025 armed conflict between countries is by far the biggest risk for the next two years. The war in Ukraine and a US president with little interest in the EU, but whose statements on Greenland, Canada and the Panama Canal show far-reaching disrespect for (international) law and sovereignty, make the security paradigm shift for Europe painfully clear: war on the European continent is no longer a theoretical notion and the US defence umbrella is leaking. New forms of warfare, including cyber attacks, are meanwhile emerging.

A relatively broad consensus is growing that Europe needs to sharply strengthen its defence capabilities. From an economic perspective, that means, among other things, strengthening Europe's defence industry, often referred to as the European Defence Technological and Industrial Base (EDTIB). It consists of a network of a number of large multinational companies, with medium-sized companies and over 2,000 SMEs1.

Inadequate defence capabilities 

Despite cross-border cooperation and some trans-European companies, these are often national players operating in relatively small markets. Especially in Western European countries, this is characterised by little specialisation and overlap and duplication of production. European countries, for example, build 12 different types of battle tanks; the US only one. 

As a result, economies of scale and associated cost savings remain underused. Measured by turnover, of the 20 largest defence companies, only two are European2. Potential efficiency gains from pooling resources for research and development (R&D) and research and technology (R&T) also remain underused. Yet modern defence systems increasingly require innovative, high-tech applications, which are often developed by SMEs outside the defence industry and do not have access to them3.

The relatively limited development of EDTIB is partly a consequence of the scaling back of European defence spending after the fall of the Berlin Wall (1989) and further in the consolidation of public budgets after the financial and euro debt crisis (2008-2011). EU countries' military spending reached a low of 1.3% of GDP in 2015, the year after Russia's annexation of Crimea4

That event prompted many European countries, especially in Central and Eastern Europe, to increase their defence spending - an increase that accelerated sharply after Russia's 2022 invasion. According to figures from the European Defence Agency (EDA), nine EU countries reached the NATO norm of 2.0% of GDP in 2023. Collectively, EU countries have been stranded at 1.6% in 2023, but the EDA estimates they could reach 1.9% in 20245. By comparison, US military spending has averaged 3.4% of GDP annually over the past decade, while in Russia it has reached 5.9% of GDP in 2023, according to sipri estimates, and could rise further to 9% of GDP by 2025, according to the EC.

The inadequate development of the EDTIB is due not only to the relatively limited overall defence budgets, but also to their predominant use for operational matters (including military pensions). Expenditures were focused more on targeted crisis interventions, rather than large-scale military defence operations, which are looming again today.  Moreover, the money was largely spent outside the EU and thus did not contribute to the development of the EDTIB. 

All this means that Europe faces a triple challenge of  catching up : (1) investments to keep the EDTIB standby (also given the arms deliveries to Ukraine); (2) investments to expand existing capabilities; and (3) modernisation investments.

 

More money for defence

How much money would be needed for this is currently the subject of all kinds of estimates. At the opening of the European Council in June 2024 EC-president Von der Leyen talked about an investment need of €500 billion over the next decade. That corresponds to around 2.5-3.0% of the EU's GDP annually. However, in his hearing before the European Parliament, European Defence Commissioner Kubilius hinted that just building a European anti-missile shield - one of the defence projects of ‘common European interest’ (see below) - could cost €500 billion. While US President Trump repeatedly puts forward a 5% of GDP spending target, NATO Secretary General Rutte stated in the European Parliament on 13 January 2025 that a 3.6% to 3.7% target could be needed. That is significantly more than the 3% figure, which according to a late 2024  Financial Times report, could be the new NATO norm in June 2025. Although Rutte also noted that with joint procurement or for new systems, slightly smaller budgets (but still ‘impressively more than 2%’) could suffice

In doing so, he articulates a crucial point. Defence readiness requires the planning and development of necessary defence assets and strategic resources, including essential technologies. That capability must be procured and kept ready. Its exact meaning and the associated cost is not an exact science and is open to lobbying. It is the result of a risk analysis and is ultimately laid down in a military doctrine. 

What is certain is that additional spending on defence is in competition with the need for more (public) investment for the demographic, green and technological transition, in a context of precarious public finances in many European countries. Efficiency is therefore more crucial than ever. Further Europeanisation of defence can contribute to this by creating economies of scale and avoiding duplication.

Efficiency and effectiveness by Europeanisation

Numerous initiatives have been taken in recent decades to strengthen European defence cooperation. But, as briefly explained above, with inadequate success. Moreover, while higher defence spending is an opportunity to strengthen the European dimension of the EDTIB, it does not guarantee it. 

Indeed, there is a risk that for the sake of perceived economic and/or strategic self-interest, national governments may favour their own industry. Or buy from foreign suppliers for the sake of simplicity or faster delivery times. Between June 2022 and June 2023, EU countries spent 75 billion on defence, 78% of which was on non-EU suppliers, mostly from the US. This is justified when there are no European solutions. But often there are or they can be created quickly, the Draghi report notes. 

Thus, without coordination, increased defence spending can also increase European defence fragmentation or external dependence, resulting in continued incompatibility of defence systems, higher costs and inadequate strategic autonomy. To avoid this, the Draghi report argues, among other things, for the medium-term development of a European defence industrial policy with European funding.

Towards a defence union…

The ambition of the new EC seemingly goes further when it talks about a European Defence Union (EDU). This is reminiscent of the Treaty on the European Defence Community, co-signed in May 1952 by West Germany, Italy and the Benelux countries on the initiative of France. By analogy with the European Coal and Steel Community (1952), these countries were to establish a European army under the authority of a supranational authority, with a European armament plan and financed by a common budget. The plan was killed off in August 1954 ... in the French parliament.

Does the EU's future lie in its past? The EC clearly does not want to go as far as in 1952. In July 2024, (candidate) president Von der Leyen stated in her political guidelines for the new EC that even with an EDU, member states will always remain responsible for their own forces, ‘from doctrine to deployment’. The scope of the EDU she envisages is to support and coordinate the strengthening of the industrial base, innovation and the single market. 

This is the role of the new Defence Commissioner, who, together with the High Representative/Vice-President, is to draft a White Paper on the future of European Defence within 100 days of taking office. This will include an increase in the European Defence Fund, possibly with additional European funding, and a strengthening of the European Defence Industrial Programme. A unified defence market should promote production capacity and common procurement. European flagship defence projects, such as an air shield and cybersecurity, should be established with pooled resources in response to the greatest common and cross-border threats. The white paper dominates the agenda of the informal meeting of Heads of State and Government on 3 February 2025.

... but what defence union?

The latter perhaps goes furthest towards a true defence community, along the lines of the 1950s idea. Given the all in all limited European integration since the failure of that treaty, this old concept could perhaps be the better solution to achieve the strengthening of the EDTIB economically efficient and effective. 

Especially in this high-tech and fragmenting world, security is a collective good that even major European countries can no longer deliver on their own. In economically highly interdependent - fortunately! - European countries, purely national security seems a relatively empty concept. Shared sovereignty at the European level could bring security as a European collective good a step closer and strengthen European strategic autonomy. It would allow Europe to set its own agenda more and could provide longer-term planning for industry. Moreover, a greater focus on European demand could also make the industry less dependent on non-European, sometimes more controversial exports.

Today, that does not seem politically feasible unless...

A white paper on defence evokes memories of the White Paper on completing the single market, which, under the impulse of then EC president Delors, paved the way for the Single European Act in 1985. That treaty amendment gave the then paralysed European Communities new competences and the decision-making power to achieve the single market by the target date of 1992. 

Let that approach be an inspiration in overcoming Europe's defence challenges today. Incidentally, in her political directives, (candidate) President Von der Leyen left the door open for possible treaty change: ‘I believe we need Treaty change where it can improve our Union’. If that is still not possible, developing a European defence industrial policy, as advocated in the Draghi report on European competitiveness in September 2024, coupled with European funding, would already be a step in the right direction.

1 Source: “White paper on the future of European Defence”,Briefing European Parliament, November 2024. In the absence of precise sector classifications, the defence industry can only be mapped approximatively. See among others: Béraud-Sudreau, L. & Scarazzato, L., Beyond Fragmentation mapping the European Defence industry in an era of strategic flux, VUB, Centre for Security, Diplomacy and Strategy, July 2023.

2 Based on figures from the Stockholm International Peace Research Institute (sipri).

3 Deel B van het Draghi-rapport over de toekomst van de Europese Concurrentiekracht contains a detailed summary of the economic inefficiencies in the EDTIB.

4 Source: Stockholm International Peace Research Institute (sipri) and European Defence Agency (EDA)

5 Including Austria, Ireland, Malta and Cyprus which are not NATO members.

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