Key messages
- Strategic autonomy for the EU is no longer optional: the current geopolitical context demands robust European defence capabilities backed by common fiscal instruments.
- The EU’s 2025 ‘Readiness 2030’ and the White Paper on Defence are major steps towards a more integrated European defence policy that must be followed through.
- The EU must bridge internal divides and invest in both immediate capabilities and long-term industrial autonomy to assert itself as a credible geopolitical actor.
- PESCO should be made the financial and political anchor for EU-wide defence cooperation, enabling flexibility while ensuring common EU-level standards and funding access.
- Spain should position itself as a strategic bridge –not only within Europe but towards Latin America and the Global South–, promoting a rules-based order through expanded partnerships beyond the North Atlantic.
- Institutionalising EU-NATO political coordination through a permanent EU-NATO Security Council should be considered in order to reduce the reliance on fluctuating transatlantic dynamics.
Analysis
1. Summary
Over the next years, the future of both Ukraine and the EU are at stake as is their survival as geopolitically relevant and independent actors. The key puzzle for Europe remains the lack of effective defence capabilities to guarantee its own security. This analysis looks at the various routes to gather sufficient fiscal and financial capacity to fund a rebuilding of such capabilities, which remains a sine qua non condition for a strategically autonomous EU. It takes stock of two plans agreed upon in 2025 to invest in EU defence capacities, and what they mean for the build-up of strategic autonomy, and evaluate the options available to mobilise the necessary budgetary capability.
There is (finally) a growing realisation in the EU that ‘strategic autonomy’ is not a luxury but a necessity and that it must be achieved at a European level. This global context is key, as is the absence of scale: even the largest of the 27 member states are too small to decisively influence the international order at a time of increased Great-Power competition, structured around the rivalry between the US and China and the (re)emergence of other powers with global reach and/or large military capabilities, such as Russia and India. An autonomous and more integrated EU defence has been discussed since at least the end of the Cold War. However, there has not been enough progress as regards financing the long and expensive process to make such an autonomy a reality.
Rethinking the fiscal and financial capacity for European defence is more than just money or the next EU budget. These plans have a political meaning: they are about the EU finally providing a viable framework to finance capabilities that ensure Europe’s security and strategic autonomy in a rapidly evolving global order and its own role as a significant actor. The plans approved this year are EU-wide in conception but their implementation still remains to a large degree a matter for each member state. The question is whether the EU’s inner divisions will constitute a serious obstacle to Union-wide goals.
2. The current global and European context: the forging of a new order?
The EU context of 2025 is one of economic stagnation, reeling from the COVID-19 and Ukraine crises. Furthermore, the ‘peace dividend’ of the post-Cold War now seems to be over, given a combination of several factors: a war in Europe with few real signs of ending; a greater US reluctance to underpin European security; and an increased protectionism (not least from Washington), that badly affects a bloc that relies heavily on free trade for its economic growth. In such a context, it should be mentioned that the EU has backed its rhetorical support to Kyiv with both heavy sanctions to Russia and massive financial help to Ukraine. By May 2025 the EU’s financial commitments to Ukraine since the Russian invasion totalled over US$158 billion in financial, military, humanitarian and refugee assistance, of which 65% was provided as grants or in-kind support and 35% in the form of highly concessional loans. Furthermore, in February 2024 the EU established the Ukraine Facility, committing up to around €50 billion in grants and loans from 2024 to 2027 to support Ukraine’s recovery, with the second payment of close to €4.1 billion having been approved by the European Council last December.
Compounding economic clouds, the desire for change in the transatlantic alliance is now very clearly being formulated on the other side of the Atlantic. Into the second Trump presidency, persistent doubts over the continuation of the US security guarantee over Europe have increased. Since 1949 the Washington leadership within the transatlantic alliance had reflected a trade-off between security and autonomy: it agreed to cover most military costs and resources in exchange for guiding the alliance’s general policy. However, Washington has become increasingly unwilling to fully accept this unwritten agreement, made evident by years of US complaints about what was perceived as a lack of ‘burden-sharing’ by Europe; namely, the failure of most countries to reach 2% of GDP in defence spending. It is crucial, in today’s context, to recall that these complaints predate Trump and can be traced back to at least Robert Gates, Secretary of Defense under Presidents George W. Bush and Barack Obama.
The current US foreign policy shift might prove durable, much in the same way as it could be argued that there is more foreign policy continuity between Obama, Biden and Trump than often recognised; the Obama presidency was the starting point of a greater reluctance to be the ‘global policeman’ as well as to pivot towards Asia. That shift is in many ways defined by the US priority, now bipartisan, to shift its geopolitical focus to Asia-Pacific and to contain its hegemonic rival: China. There may be some truth in conceptualising the shift in the US foreign policy of the past two decades as a natural correction following two decades of overstretching after the Cold War victory –termed ‘liberal interventionism’ by its supporters or ‘empire’ by detractors–. The point remains that the shift still has a direct impact on European security and that US strategic planning for the next two decades might be driven even less by European concerns and priorities.
3. How to (re)build a European defence? Analysing the proposed plans to finance a strategically autonomous EU
Since the beginning of February 2025, Finance Ministers have held discussions on how to adapt EU ‘red lines’ regarding fiscal rules with the (urgent) need to support increased defence spending. After two European Councils in March, the first concrete steps were approved by the heads of government in the form of two key plans: (a) the ‘ReArm Europe/European Readiness 2030 plan’; and (b) the White Paper on European Defence; both released in March 2025.
The ‘ReArm Europe/European Readiness’ 2030 plan focuses –since the invasion of Ukraine– on investing in defence capabilities and building on an increase of over 30% in many member-states. But while the latter’s defence expenditure reached €326 billion in 2024, it is still below 2% of the EU’s GDP, at 1.9%. There are five main pillars of the plan: (a) a new instrument (SAFE) to provide up to €150 billion in loans to member states guaranteed by the EU budget to invest in defence and security; (b) the activation of the national escape clause of the Stability and Growth Pact –unlocking a further €650 billion in spending–, which is meant to be temporary and ‘up to a maximum of 1.5% of GDP for each year of activation of the national escape clause’ for a period of four years; (c) the use of the EU budget to boost defence-related investments in Europe, which it is hoped will inform the negotiations for the upcoming multiannual financial framework (2028-35); (d) a more active role of the European Investment Bank (EIB) to unlock funding; and (e) private capital mobilisation through the completion of the Capital Markets Union along the lines of an upcoming Communication on a Savings and Investments Union.
The strategic goals are that the EU, up to 2030, should effectively possess a greater cohesion, resilience and strategic autonomy. The political significance of these plans is difficult to overstate: the EU is rethinking the capacity needed to become a polity with a greater political integration and efficiency in an area of ‘high politics’, where member-states have been reluctant to cede sovereignty. This, it is hoped, should allow the EU to have a greater global influence in an increasingly multipolar world –using the possibilities afforded by existing treaties and institutions–. On the latter point, the White Paper mentions a contributing role for the European Investment Bank and similar lines of credit such as those established for the European Stability Mechanism after the pandemic crisis. The total funds required for such a radical transformation in European defence capabilities are difficult to estimate, but some initial calculations have been attempted. As Commission President von der Leyen said in early March, if member states were to increase their defence spending on average by 1.5% of GDP, there could be a fiscal space of close to €650 billion over a period of four years.
The second major plan released by the EU to support a rebuild of European Defence is the White Paper on European Defence. The White Paper highlights seven ‘critical capacity areas’ of investment, identified with member-states: (a) air and missile defence; (b) artillery systems; (c) ammunition and missiles; (d) drones and counter-drone systems; (e) military mobility; (f) AI, quantum, cyber & electronic warfare; and (g) strategic enablers and critical infrastructure protection. The White Paper further expands upon last year’s decisions, when on 19 November the 2024 Coordinated Annual Review on Defence (CARD) report was approved by Defence Ministers with the signature of letters of intent by member states to invest in four areas: (a) integrated air & missile defence; (b) loitering munitions; (c) electronic warfare; and (d) combat surface vessel. On the latter area, Spain participates with six other member-states including Italy, Portugal and the Netherlands. These areas were chosen with a view to redressing the EU’s shortfall in investment on R&D compared with China and the US –last year, investments in R&D and procuring new defence capabilities were expected to have risen from around €59 billion in 2021 to €102 billion in 2024–.
The White Paper is essentially about devising a route towards strategic autonomy for the EU, going beyond the admittedly crucial question of the future of Ukraine. It could be a starting point for a geopolitical polity that can project power in a multipolar and increasingly fragmented international order. This raises several long-term questions: will defence remain a matter of coordination between sovereign member-states? Should the priority be to acquire capabilities faster or to develop a European industrial capacity? And, can the EU and its member states mobilise funds to finance this long-term effort?
When it comes to financing an EU-wide process of rebuilding EU defence, the debate has focused on how to finance the new EU capabilities that are required to be a strategically autonomous actor. However, it could be argued that these investments merely seek to align the EU’s capabilities with its ambitious goals: a self-proclaimed ‘geopolitical Commission’ should be judged on whether it provides such an alignment over the next decade. As Krotz & Maher argued back in 2011, ‘today’s European governments face a decision similar to the one that the United States faced in the 1940s: increase their strategic means to meet their collective foreign policy goals or reduce their ambitions to adapt them to their limited capabilities’.
In the past year, several proposals have been made to bridge the well-established division between the so-called ‘frugal states’ –Germany, the Netherlands, Finland, Austria and Poland– and the southern states regarding the necessary disbursements and investments, a debate in which Spain has played a role. According to Spain’s Economy Minister, Carlos Cuerpo, in early 2025, the EU has two main options to develop funding mechanisms for a strategically autonomous Union. From the outset of negotiations the Minister favoured ‘a form of Next Generation EU for this public good’, with a second-best option being the relaxation of EU fiscal rules to allow for increased defence spending –thereby helping to provide the security guarantees for Ukraine that the Trump Administration may be unwilling to offer–. A way forward might be to use the already available PESCO framework and provide EU funds to projects under that EU umbrella. It would contribute to defence capabilities within a cooperation model that still allows for flexibility (as participation in a PESCO project is always optional). It could also address some concerns in EU capitals over a further transfer of power to Brussels: member-states would retain the power to decide to allocate more of their EU funds to the PESCO projects of which they are already part.
Both plans stress the need to address strategic long-term issues as well as to respond to the short-term urgency of supporting Ukraine. In the longer term the goal is to create ‘an EU-wide market for defence equipment’ and therefore reduce the dependence on other actors’ industrial bases –whether the US or (depending on which member state is asked) non-EU members of the transatlantic alliance–. Such a goal, which if implemented would create jobs and investments in the EU, can be supported by traditionally ‘frugal’ countries, including member states in Eastern Europe and the new German government. Even if the shift in Washington proves to be temporary, the EU must take the task of (re)building its security and defence capabilities seriously.
Two long-term additional considerations should be made. One is that for any plan to succeed in rebuilding European defence, industrial autonomy is a requisite. The current context is already one in which the EU can no longer rely on cheap energy from Russia or on emerging economies like China being consumers more than competitors –contributing to two consecutive years of economic recession in Germany, the bloc’s economic engine–. Added to this deteriorating picture prior to the current year, there is the looming potential of a commercial conflict with the US. The issue of the lack of scale in each member state should be restated and the old French idea of ‘European champions’ has some merit to bridge the gap with other global powers. Beyond new initiatives, concrete advancements on already started projects such as the Future Combat Air System are required and these should benefit from the funds raised under the new plans. A model in which different European companies align on a flexible basis –if needed under the PESCO umbrella– and benefit from EU funds is the pragmatic way to proceed.
Furthermore, while not directly connected with investments in European security, the Mercosur agreement remains part of a broader search for permanent relationships beyond the traditional transatlantic alliance. This is a strategic route which Spain has a leading political role in promoting. On the difficulty of finalising such an agreement, European divisions, rather than transatlantic divisions, are the obstacle: France (particularly) but also Poland and Ireland remain opposed to ratifying the deal, which has been under negotiation for almost a quarter of a century. For Spain it will also be an opportunity to establish a fruitful permanent strategic cooperation between Europe and Latin America in support of a rules-based order. Madrid can become the future hub of links that mutually benefit both sides and now include the South Atlantic rather than just the North –finally institutionalising the ‘other transatlantic relationship’–.
4. Remaining divisions between European countries
As would be expect with such strategic discussions that interfere with matters of national sovereignty, inner EU divisions between member states remain. There was even a political debate regarding the plan’s name, with both Spain and Italy arguing in favour of having a less charged appellation than ‘ReArm’, leading to it being called ‘Readiness 2030’. Apart from that, the Spanish government has also made the case that the concept of defence should be redefined to include infrastructure and environment. The plan released so far, states that the national escape clause should include an ‘increase in defence expenditure only, taking as a starting point the statistical category “defence” in the classification of the functions of government (COFOGs)’.
However, it is arguable that Madrid has a solid case, as the German €500 billion fund approved this year (to be spent over 12 years) focuses on these two categories, along with defence capabilities. Since these plans are political in nature, support from Germany is vital as the EU’s central power has traditionally been more reluctant to deviate from NATO. Just after his election victory, the transatlantic-minded new German Chancellor Friedrich Merz said that Europe must defend itself as the US ‘does not care’. While the last two Chancellors made similar declarations, the new majority has already delivered on a long-standing reform –requiring two-thirds of MPs– of Germany’s fiscal rules. Defence spending over the constitutionally agreed maximum debt levels –above 1% of Germany’s GDP– is now effectively exempt from the country’s ‘debt brake’.
Another debate concerns how inclusive these transformations and investments should be regarding countries outside the EU. The White Paper mentions the need to not only ‘further enhance the EU-NATO partnership’ but also calls for an enhanced EU-US dialogue on Security and Defence, which could be difficult under the current Administration and particularly namely with the backdrop of the negotiations between US and Russia on Ukraine. A way out of this conundrum might be to institutionalise the future NATO-EU relationship so that it is less dependent on bilateral ties, creating a Permanent Political Coordination mechanism, likely to be co-headed by the EU’s Council President (for a swift coordination with EU heads of government) and NATO’s Secretary-general. The council could meet on schedule and also in a ‘crisis meeting configuration’, serving as the embryo for a future permanent European Security Council.
Finally, the White Paper mentions the need for cooperation with non-EU countries, namely those –it can be inferred– interested in so-called ‘coalition of the willing’ meetings to support Ukraine. Most EU member-states also belong to the transatlantic alliance and while the duplication of efforts by the EU has often been criticised by NATO officials in the past, it is time to move beyond such debates. To become a credible defence cooperation partner, the EU must first become a credible actor. While the White Paper advocates enhanced cooperation with Canada, Norway and Indo-Pacific partners, Spain can play a leading role in steering the debate. As a bridge-building country that stands for democratic values and cooperation, Spain could lead a move to increase cooperation with like-minded Latin American countries –such as Mexico, Colombia and possibly Argentina–. Thus, the Global South would have a greater role in the effort to uphold international law in Ukraine. Brazil remains a more complicated case, given its ambivalent position on Ukraine and Russia.
What might at first glance be seen as investment plans are in fact potential long-term strategic routes for the EU, if and when implemented. There will be permanent political consequences for the EU’s status as an actor in the international and European orders: to be a geopolitical actor in the current international context potentially entails painful costs and risks and Europeans must determine which are tolerable and acceptable. Past crises have certainly shown the value of pragmatism and compromise, which are unavoidable in what remains a union of sovereign states. Opinions between member states will continue to diverge and the EU will be as much of a geopolitical actor as its member states (namely the most powerful) want it to be.
Conclusions
Always adept at grand strategic declarations, the French President, Emmanuel Macron, said at the Budapest meeting of the European Political Community, just two days after Trump’s re-election last year, that ‘the question we have to answer is: do we want to read the history that is written by others… or do we want to write history ourselves?’. While the plans approved by the EU this year do not require a revision of its treaties, putting them into practice would be the real start of a common defence policy and its emergence as a geopolitical polity. The task is only just beginning and will require speed and collective coordination. Both principles seem to be driving the plans so far put forward by the EU, despite divisions about the future of its defence continuing as they are closely linked about the future of the Union, which remains a sui generis polity. The emerging discussion on a European nuclear umbrella is just one of the many difficult discussions Europeans will be engaged in over the coming decade.
Whether the EU can fill the gap left by the US in Europe and serve as a complement to NATO in underpinning the security of the West remains uncertain. Furthermore, if a renewed relationship between the US and Russia is institutionalised beyond the rhetoric of certain members of the Trump Administration, it could in time permanently bypass European and Ukrainian voices in defining the long-term future of the European security order and the shorter-term future of the war against Ukraine. Several scenarios are possible: there may be a return to transatlantic ‘normality’ after the second Trump presidency; perhaps this could be part of a longer process leading to the end of US Western hegemony and the ushering in of an era of ‘multipolarisation’, to borrow a term from the 2025 Munich Security Conference. In any case, the EU must make sure it can define its own future: for that, European defence is indispensable.
