Policy
31.01.2025

Don’t put the cart before the horse: The need for a strategic vision for EU security spending

On February 3, European Council President Antonio Costa will host the EU’s national leaders, UK Prime Minister Keir Starmer and NATO Secretary-General Mark Rutte to discuss European defence and its financing. While there exists a shared understanding of the need for increased defence funding in Europe, the EU and its member states struggle to determine which defence
needs to ‘Europeanise’. This policy paper argues that the exact amount of allocated funds is of secondary importance. The EU must first articulate a comprehensive security strategy to answer the most fundamental question: whom does the EU aim to defend itself against?

Introduction1

Russia’s 2022 invasion of Ukraine marked a turning point for European security policymaking. Despite Russia’s invasion of Georgia in 2008 and its invasion of Ukraine in 2014 clearly revealing its geopolitical ambitions, it was only in 2022 that EU member states fully grasped the seriousness of Russia’s ambitions. After decades of neglecting to invest in military capabilities and declining defence expenditures, member states have, in recent two years, rapidly increased their defence budgets. Between 2014 and 2023, the number of NATO members that met the 2% defence expenditure guideline rose from three (France, Greece and the US) to ten. By 2024, 23 of NATO’s 32 member states, including 16 EU member states, have achieved the 2% target. At the European level, the EU increased its military financing instrument, the European Peace Facility, from €5.7bn to €17bn and introduced new instruments, such as the Act in Support of Ammunition Production (ASAP) worth €500mn and the European defence industry reinforcement through common procurement act (EDIRPA) worth €300mn.

And yet, decades of under-investment mean that significant capability gaps remain. Russia’s continuing invasion of Ukraine and calls by old and new US President Donald Trump for Europeans to increase their NATO contributions to 5% put EU member states under significant pressure to spend more on defence. But while there is a shared understanding of the need for increased defence funding, there is little consensus on whether it should be done at national or European level and, if the latter, through which instruments, for what purpose and under what governance. The informal leaders’ retreat on 3 February, when EU leaders will discuss the topic, will show how much convergence exists between the member states when it comes to EU-level spending on common projects.

This policy paper argues that while the discussions on defence spending at the European level is important, the EU must first articulate a comprehensive security strategy. This process must begin with the EU articulating a comprehensive security strategy. At its core, this strategy should answer the most fundamental question: whom does the EU aim to defend itself against? Only then can the EU accurately identify its defence-critical needs. Without a common risk assessment and strategic vision, the debate on defence spending risks remain futile. This strategy must include five aspects that have hitherto been neglected: threat-based security assessment, force structure, hardware needs, military training and exercises, and military mobility.

EU-level defence spending: state of the debate

National governments have, after decades of under-investment, in recent years started to boost their defence budgets. The European Union began to take on a greater role in the field of defence and security. While this field has traditionally been the responsibility of national governments and NATO, one argument for greater coordination at the European level is that ‘a more integrated market for defence products would lead to greater economies of scale, resulting in lower prices and more defence readiness‘. It could also lead to more synergies and better interoperability between the member states as well as avoid free riding by individual governments.

Since Russia’s invasion of Ukraine in 2022, the EU has enhanced its defence funding instruments. First, it raised the budget of the European Peace Facility, a military aid funding mechanism, from €5.7bn to €17bn and authorised its first use to supply lethal weapons to Ukraine. Second, it established the EU Military Assistance Mission (EUMAM) to train Ukrainian soldiers within the territory of EU member states. In 2022-2024, EUMAM Ukraine, with an initial budget of €106mn, trained approximately 70,000 service members and has recently been extended until November 2026. Third, the Union introduced two new funding mechanisms, ASAP, worth €500mn, and EDIRPA, worth €300mn, designed to boost Europe’s joint defence production and procurement. These programs were initially designed to help Ukraine address emerging battlefield needs but became institutionalised over the following three years. Some of these ad hoc solutions evolved into integral components of the recently presented European Defence Industrial Strategy (EDIS) and its financial leg, the European Defence Industrial Programme (EDIP). In essence, the EDIS and EDIP established an institutional framework for the ‘Europeanisation’ of the defence industry, with the Multiannual Financial Framework is to provide the necessary funding.

Yet, the gaps in the Union’s demands for defence funding remain substantial. Boosting EU defence industry production alone is projected to require a €100bn fund starting in 2028, according to former Internal Market Commissioner Thierry Breton. In 2024, European Commission President von der Leyen estimated that additional EU defence investment needs would amount to €500bn over the coming decade. This is almost as much as Austria’s gross domestic product in 2023. The newly appointed EU Defence Commissioner, Andrius Kubilius, later stated that the purchase of common air defence systems alone would cost approximately €500bn, with an additional €200bn needed to upgrade military-critical infrastructure over the next decade.

But while there exists a shared understanding of the need for increased defence funding, as illustrated by the Versailles declaration, the way forward is less clear, not lastly because the options on the table to boost defence spending at the European level come with significant legal, political or economic constraints. At the same time, the debate cannot be postponed until the next Multiannual Financial Framework (MFF) in 2028. Delaying action would signal that European defence remains a secondary priority, even amid the ongoing Russo-Ukrainian War. Rather, it is necessary to develop interim instruments already during the 'bridge period' of 2025–2027, which should then be integrated into the MFF 2028–2034 as permanent features. The ideas currently discussed can broadly be categorized in the following categories: re-allocating existing funds, increasing existing defence programmes, issuing EU defence bonds, and increasing defence spending within the next MFF.

One idea currently floated is to redirect funds from underutilised programmes, such as EU Invest, the Cohesion Fund, or the European Social Fund in order to unlock resources for defence and dual-use projects. The European Commission is currently reviewing the possibility of redirecting unused cohesion funds, which are often underutilised. Between 2021 and 2024, only about 5% of these funds have been spent, with major beneficiaries such as Poland, Italy, and Spain spending even less. Hence, the European Commission is considering negotiating with member states to reallocate unused funds earmarked for cohesion projects to address urgent defence needs, including military-grade infrastructure improvements. For instance, Germany has €39 billion earmarked in cohesion funds by 2027, compared to just €1.7 billion allocated in the current EU budget to strengthen ‘dual use’ infrastructure across the entire Union. Redirecting cohesion funds to improve regional military infrastructure would also promote regional development and territorial cohesion by investing in improvements of regional infrastructure assets.

Another idea is to increase the budget of existing defence programmes. During the MFF 2021–2027 negotiations, the budgets for the European Defence Fund (EDF) and the Military Mobility Programme were significantly reduced, from €13bn to €7bn and from €6.5bn to only €1.5bn, respectively. These cuts should be reversed. As argued by Germany’s and France’s central bank governors, a higher common budget for defence will enhance Europe’s resilience and contribute to a Franco-German revival. The EDF needs increased funding to foster joint research and development of advanced defence technologies, enhancing interoperability among member states. Similarly, military mobility initiatives require greater investment to upgrade dual-use infrastructure, enabling faster deployment of forces across the Union. The European Peace Facility’s repeated budget top-ups between 2022 and 2024, from €5.7bn to €17bn, highlight the need to strengthen the Union’s ability to provide military aid to partners if it seeks to stabilise regions critical to European security.

A third idea is to issue EU defence bonds. During the COVID-19 pandemic, the EU demonstrated its capacity to respond to crises by adopting emergency measures, including suspending fiscal rules and raising debt through the €750 NGEU recovery plan. The current geopolitical reality, exemplified by the Russo-Ukrainian War, represents an emergency of even greater scale. The EU should not shy away from financing joint defence-critical projects through EU debt outside strict fiscal rules.

There are already multiple proposals exist outlining how the EU could implement this solution. First, defence bonds could be issued through existing EU funding mechanisms, such as the European Defence Fund to target defence R&D, ASAP and EDIRPA to enhance production and joint procurement, or the European Peace Facility to strengthen the EU ability to respond to external crises. Second, the EU can set-up a defence fund, similar to the pandemic-focused Recovery and Resilience Facility. This mechanism could provide low-interest loans and grants for willing countries, thus avoiding the challenge of achieving consensus between among all member states. Third, a new off-budget instrument could be established to manage defence bonds, with participation from willing member states. A variation of the third proposal involves creating a €500 billion intergovernmental special purpose vehicle to issue jointly underwritten AAA-rated bonds for funding defence equipment aligned with NATO’s force requirements. These loans could be reimbursed through the future defence budgets of participating states and partially from future EU budgets under the new MFF.

The question is whether political support across the EU can be gathered for this idea. EU High Representative for Foreign Affairs and Security Policy, Kaja Kallas, has expressed support for the idea of raising €100 billion via this mechanism. EU Defence Commissioner Andrius Kubilius has also proposed borrowing against future national defence expenditures. However, despite its initial support, France has reportedly developed doubts about the initiative. These doubts play into the hands of the EU’s ‘frugal five’ member states: Austria, Denmark, Finland, the Netherlands, and Sweden, which have opposed the issuance of EU defence bonds from the outset. However, their frugal stance has become less debt-resistant in recent months, particularly in Denmark and Finland. This confirms that opposition to issuing EU defence bonds is largely political. Legally and economically, the idea could be feasible. It is also possible to establish a coalition of the willing countries within the EU, who would provide guarantees for the bond issuance. This coalition might also include EU partners, such as the UK and Norway. Neutral EU member states could be granted an opt-out to accommodate varying levels of participation.

Lastly, discussions how to increase defence spending within the Multiannual Financial Framework 2028–2034 will start soon. The upcoming MFF offers a critical opportunity to realign EU funding priorities to address urgent defence needs. To maximise its effectiveness for defence-critical projects, the EU should introduce greater flexibility into budget allocations, allowing for rapid responses to emerging threats. Expanding dual-use funding categories to include infrastructure, cyber defence, and space technologies would further enhance both civilian and military capabilities. This is especially important in light of the legal limits posed by the Treaties: Article 41.2 of the Treaty on European Union (TEU) restricts the use of EU budgetary funds for procuring military equipment, thus limiting the scope of EU spending significantly. Any mechanism the Union establishes within these legal constraints is thus insufficient to effectively address existing security challenges beyond the industrial focus. To circumvent Article 41.2 limitations, the EU should focus on funding not purely military but also defence-critical, dual-use projects. Integrating such initiatives into the existing budget framework will help strengthen overall civilian and military preparedness and readiness. Additionally, creating a dedicated defence reserve within the MFF would provide a financial safety net to address urgent security requirements during crises.

The problem is, however, that these ideas are not embedded in a broader debate on a comprehensive European security strategy. EU security and defence initiatives continue to be disproportionately focused on the ‘survival’ of national defence companies, as opposed to a comprehensive threat-based security and defence readiness. Often reacting to ad hoc crises, the EU has established a capability planning process described as ‘neither cyclical nor linear, and […] difficult to comprehend because it lacks a name and no formal document fully explains it’. The market-oriented overemphasis on supporting European defence producers came at the expense of the EU’s broader foreign and security policy objectives, ultimately undermining the Union’s role as a geopolitical power.

The need for a comprehensive security strategy

Establishing sustainable funding streams is essential to ensure Europe’s security and defence readiness. However, the exact amount of allocated funds is of secondary importance if there is no clear plan on what it should be spent. Defence budgets do not win wars: ‘trained, equipped and motivated armed forces, organised around coherent operational plans within broader strategic frameworks do’. This challenge highlights why the European Union and its member states struggle to determine which defence needs to ‘Europeanise’, that is, to produce domestically within the EU, and how to finance this process effectively. Instead, the EU must begin by articulating a comprehensive security strategy. At its core, this strategy should answer the most fundamental question: whom does the EU aim to defend itself against? This requires a strategic vision on five essential points: conducting a threat-based security assessment, recruiting personnel, producing hardware, conducting training, and providing adequate infrastructure. Only if the EU and its member states have a common vision for these priorities, can the question of defence-critical needs, and consequently funding needs, be answered.

Threat-based Security Assessment

Formulating a new common security strategy for the EU requires a comprehensive revision of the EU Strategic Compass for Security and Defence. This document was intended to establish a common strategic security vision but was rendered outdated almost immediately by Russia’s 2022 invasion of Ukraine. The updated Strategic Compass should follow an approach that Sauli Niinistö, the former president of Finland, calls a Preparedness Union. In his recent report, he calls for replacing the current defence-industry driven approach to European security with a comprehensive strategy aimed at strengthening Europe’s civilian and military preparedness and readiness. In other words, the EU must ensure that its defence industries align with and support the Union’s foreign and security policy priorities, rather than dictating them.

Updating the Strategic Compass must start with a comprehensive, threat-based security assessment. Threat perceptions among EU member states are not uniform: some prioritise Eastern European stability and the Russian threat, while others focus on risks emanating from the Mediterranean, including migration and instability in North Africa. However, as the 2003 European Security Strategy rightly noted, “no single country is able to tackle today’s complex problems on its own.” Therefore, a sharper, more focused Strategic Compass should identify and prioritise shared, cross-regional threats, while leaving specific national concerns to individual member states. It must also clearly define what the EU is prepared to defend: whether it is solely EU territory, its external interests, extra-regional balance of power, or international public goods. Achieving an EU-wide alignment on security risks will help narrow the scope of security scenarios the EU must prepare for. This, in turn, will enable the identification of specific hardware, personnel, infrastructure, and other requirements that require financing, ensuring that EU defence funds are allocated effectively. Once a new threat-based Strategic Compass is formulated, the EU can translate it into effective defence planning processes, ensuring the right people, the right equipment, and the right readiness are in place at the right time.

Force Structure

Today’s European armies are unable to sustain a protracted, high intensity conflict. On paper, European NATO allies have 1.9mn troops (1.33mn in the EU alone), seemingly enough to counter Russia’s 1.1 million soldiers and 1.5 million reservists. In reality, however, most European armed forces would struggle to field more than 300,000 troops in a conflict, as recently acknowledged by NATO. For instance, defending Europe against a potential Russian attack would require between 35 and 50 additional brigades, each comprising between 3,000 and 7,000 troops.

The recruitment and retention of military personnel is ultimately a national issue. However, the ability of member states to maintain sufficient military forces directly impacts the EU’s foreign and security policy objectives. For instance, one key goal is the capability to deploy a modular force of up to 5,000 troops as early as 2025. To meet such objectives, the EU needs its member states to have military force structures with the ‘strategic endurance to remain in the fight, and the ability to expand, transform and win’. Insufficient national forces also place the EU and NATO in direct competition for a limited pool of European military personnel. Under the new NATO Force Model, member states are required to deploy "well over 100,000" Tier 1 forces within ten days, "around 200,000" Tier 2 troops within 10–30 days, and "at least 500,000" Tier 3 forces within 30–180 days. However, as of 2024, NATO has identified existing shortfalls in the readiness to deploy even Tier 1 and Tier 2 troops.

The EU must help its member states coordinate how to enhance both the quantity and quality of national military forces to reconcile these competing interests. Taking responsibility for aligning force structures among member states and coordinating EU-NATO personnel requirements will necessitate the hiring of EU-funded specialists with relevant expertise.

Hardware needs

The EU’s objective to expand the scale and variety of Europe-manufactured weapons systems and ammunition is understandable. Currently, European armed forces rely heavily on the United States across all military domains. In the air domain, F-35 fighters serve as the cornerstone of NATO Europe’s tactical air power. Europe also faces significant shortfalls in airborne early-warning and control aircraft, tanker aircraft, and tactical and strategic airlift capabilities. In the land domain, Europe remains heavily dependent on US systems, such as multiple launch rocket systems and the MIM-104 Patriot surface-to-air missile system. The lack of these capabilities means that European countries cannot conduct successful military operations against peer or near-peer adversaries without US support. Closing these capability gaps with Europe-produced weapons systems and ammunition may seem like a logical step toward strengthening European defence capabilities.

There is one critical caveat, however. Increasing domestic production of weapons systems and ammunition requires European defence producers to scale up their procurement of critical raw materials (CRM). In the defence sector, 39 raw materials have been identified as essential for producing subsystems and components, 22 of which are classified as critical. In 2020, the EU estimated that 98% of its supply of rare-earth elements came from China. Expanding domestic defence production without diversifying CRM sources risks significantly increasing Europe’s dependency on China.

Europe’s reliance on foreign-origin raw materials is also expected to grow due to its priorities in green and digital transformation. CRM demands across sectors such as energy, defence, transport, and digital technologies, combined with defence industrial needs, will further drive up raw material prices, which have already risen significantly over the past three years. The EU faces similar dependencies in semiconductor production, where the US, Taiwan, China, South Korea and Japan dominate various stages of the supply chain. To address these challenges, coordinated European efforts are essential to align the Union’s goal of increasing defence production with the simultaneous onshoring and friendshoring of CMR and semiconductor sources. The EU must integrate these policy objectives in its foreign and security strategies in the coming years.

Military Training & Exercises

The Europeanisation of defence production must be complemented by the Europeanisation of military training and exercises. The EU has substantial experience in organising international military training missions in Niger, Mozambique, the Central African Republic, Somalia, and the Military Assistance Mission in Support of Ukraine. The EU should leverage this expertise to develop EU training initiatives aimed at enhancing interoperability and cohesion among EU member states’ armed forces. Once an agreement is reached on the nature and frequency of EU-led training missions and military exercises, their costs should be incorporated into EU defence spending.

Military Mobility

Alongside questions of how quickly Europe can (re)start production lines and (re)build its stockpiles of military materiel, the EU must improve its preparedness and response capabilities, “arguably Europe’s main strategic problem”. This includes the ability to respond rapidly to crises by rapidly relocating large-scale amount of military personnel, materiel, and assets, across the Union.

European militaries rely heavily on civilian infrastructure, with a 93% overlap between the military network and the trans-European civilian transport network. As a result, investments in dual-use transport infrastructure are crucial for enhancing military mobility. However, EU efforts in this area, initiated in 2017, have fallen short. Funding for military mobility projects during the 2021–2027 period was a mere €1.7bn, far below what is needed. Germany alone, with its central role in Europe’s transportation network, requires an estimated €88bn to cover the cost of the most urgent repairs by 2027. A recent study highlighted the poor state of German infrastructure: 23% of tracks are in "extremely bad condition," along with 48% of signalling control centres, 42% of level crossings, over 25% of switches, and 22% of overhead lines. This resulted in one in three trains being delayed on average in 2022. The EU must put a plan in place to address the structural and logistical weaknesses in military mobility by offering targeted investments to its member states and streamlining the coordination of cross-border projects.

Conclusion

The debate on defence spending at the European level is gaining ever more urgency. While ideas about new defence-financing instruments abound, the EU should be careful not to put the cart before the horse. The current shared understanding that higher defence budgets are needed are not yet underpinned by a shared understanding for what such funds would be spent and at which level. While there is an argument to be made for more EU-level spending, including scale, interoperability, global competition and the avoidance of free-riding by individual governments, such spending must be underpinned by a common security strategy. The EU and its member states thus should first clearly identity their defence-critical needs, including personnel, hardware, training and infrastructure, before engaging in discussions how to finance them. At the end of the day, defence budgets alone do not win wars: personnel, equipment and strategies do.

1For this paper, an expert workshop was held in September 2024. I would like to thank the workshop participants for their time and insights, as well as the other experts and decision-makers from EU institutions and member states with whom I talked. I would like to especially thank Alicia Monsefi-Pour and Thu Nguyen for their support in preparing this paper. The views and opinions expressed in this policy paper are solely those of the author.

 

Photo: CC Camerauthor Photos, Source: Unsplash