Geopolitical turmoil and great-power rivalry are threatening the EU’s political-economic model. Carnegie Europe’s recent compilation “Geopolitics and Economic Statecraft in the European Union” explores the dilemmas facing the union as it pursues economic security while defending the rules-based order.
In the first in a series of Q&As examining the challenges identified in the compilation, co-editor Sinan Ülgen sat down with Catherine Hoeffler, author of the chapter “More Strategic, but Autonomous? Divergences Limiting EU Economic Statecraft in Defense,” to unpack the EU’s role in the defense industry.
Sinan Ülgen: What are the most contentious issues that divide EU member states when it comes to strengthening Europe’s security and building strategic autonomy?
Catherine Hoeffler: The debate over European security reveals three key divisions among EU member states. The first concerns who should oversee European security. Historically, many member states have relied on NATO and, by extension, the United States. However, countries like France have advocated a more EU-centered approach that emphasizes strategic autonomy.
This disagreement hinges on how much independence the EU should have from the United States. Atlanticists argue that reducing the EU’s reliance on U.S. armaments could harm NATO interoperability and diminish U.S. support for European security, potentially endangering Europe’s safety. But the new administration of U.S. President Donald Trump is making Europe look for its own security solutions, as shown by the European Commission’s Readiness 2030 proposal and reforms to the EU Stability and Growth Pact’s rules on defense spending, for instance.
The second divide is whether strategic autonomy should be pursued through the EU, particularly the commission, through more traditional multilateral cooperation among member states, or through another European framework that is wider than the EU. Even pro-EU governments are hesitant to grant significant power to the union in defense and security matters, reflecting broader concerns over centralization. Currently, there are discussions of a security architecture that would include the EU, the UK, and the Nordic states. Turkey’s role in the future of the European security architecture could also be discussed. This shows that “Europe” can mean things when it comes to European security.
The third issue revolves around how to achieve greater strategic autonomy and the resources required. Countries with strong traditions of statist economic interventionism, like France and Italy, support increased spending on EU-manufactured weaponry and greater state involvement. Conversely, nations like Germany and the Netherlands have historically preferred a less protectionist approach that focuses on minimal defense spending and greater reliance on global markets.
These divisions highlight the complexity of forging a unified EU security policy as member states balance competing priorities, historical perspectives, and national interests. Resolving these disagreements will be crucial to the EU’s future strategic positioning and defense capabilities.
Sinan Ülgen: How do you think the debate on the common funding of defense spending will evolve?
Catherine Hoeffler: This is a highly sensitive issue but not an entirely new one. The commission first floated the idea of EU defense bonds during negotiations for the European Defense Fund in 2017. Such bonds would allow the EU to raise substantial funds for military spending without relying solely on national budgets or existing EU financing mechanisms.
Since Russia’s 2022 invasion of Ukraine, these policy ideas have gained significant traction. An increasing number of member states—most notably Estonia and Poland, alongside France, Italy, and Spain—have emerged as strong advocates of joint borrowing. Kaja Kallas, the EU’s foreign policy chief, has reinforced this push. However, while there is broad consensus on the need to increase defense spending, there is no agreement on how to finance it.
The core debate has revolved around different financing options: joint borrowing through Eurobonds; the reallocation of existing EU funds; national contributions, possibly incentivized by the relaxation of the Stability and Growth Pact for defense spending; and the involvement of the European Investment Bank. The commission is seeking to bridge the divides between these options through a hybrid approach that combines different financing tools. To shape the discussion, the commission published a white paper on defense in March 2025.
However, opposition from Germany and the Netherlands has so far been a major obstacle to further centralization of defense financing. Both countries have consistently vetoed the idea of defense Eurobonds, arguing that joint borrowing should be a one-time exception, as with the NextGenerationEU postpandemic recovery fund. That said, Germany’s stance began to show signs of change in 2024, and the U-turn by incoming Chancellor Friedrich Merz on the country’s debt brake, which hampered Germany’s ability to raise spending, could force other frugal states, such as the Netherlands, to loosen their opposition to common bonds. Yet, they remain very controversial among member states.
Sinan Ülgen: To what extent should EU-funded defense spending be conditional on buying from European suppliers?
Catherine Hoeffler: It already is—but with caveats. The European Defense Fund has established rules for EU subsidies that require applicants to be based in the EU or associated countries and not controlled by foreign entities. However, the war in Ukraine has amplified the debate over the need to develop European defense capabilities and support the EU defense industry. The 2024 European Defense Industrial Strategy (EDIS) revealed that a significant portion of EU defense spending goes to U.S., South Korean, or Israeli companies.
To address this issue, EDIS and the 2024 report on competitiveness by former European Central Bank president Mario Draghi called for European suppliers to be prioritized in defense procurement, highlighting the potential economic and security benefits of doing so. For instance, the Readiness 2030 proposal states that for standard military purchases, at least 65 percent of the value of purchased goods should originate in the EU, Iceland, Liechtenstein, Norway, Switzerland, or Ukraine. It is worth noting that this list could be extended to include other European countries that have signed a Security and Defense Agreement with the EU.
Despite these arguments, implementing such measures faces challenges. Foreign weaponry is often cheaper and offers advantages, such as interoperability with NATO partners. Additionally, Europe’s defense industry cannot yet fully meet member states’ military needs, making reliance on foreign firms unavoidable in the short term.
Moreover, political-economic considerations complicate the push for EU preference. Despite supporting European rearmament efforts, some EU governments, such as Germany’s, disagree with a straightforward Buy European approach.
Sinan Ülgen: The EU now has its first-ever commissioner for defense and space. Could this role be a game changer for centralizing EU defense?
Catherine Hoeffler: The appointment of Andrius Kubilius as the European commissioner for defense and space marks a significant step forward for EU defense policy. Historically, member states have kept defense cooperation under intergovernmental control and resisted greater intrusion from the commission. However, the war in Ukraine and the political entrepreneurship of former European commissioner Thierry Breton have raised the prominence of defense and space in EU politics. The appointment of Kubilius, a Lithuanian, also increases the profile of the Baltic states, as he will collaborate closely with Estonia’s Kaja Kallas.
That said, expectations of Kubilius’s impact should be realistic. While he will focus on defense-industrial policy, decisions on procurement and deployments remain the prerogative of member states. Additionally, tensions between Atlanticists and Europeanists persist, with friction likely between Kubilius and NATO regarding EU preference clauses in financing schemes.
A final critical issue for European security in the coming years is funding. Whether the next EU multiannual financial framework provides adequate budgets for defense and strategic investment or whether alternative instruments, like bonds, are introduced will significantly shape EU defense policy. While Kubilius may influence these discussions, the ultimate decisions lie with national capitals.
Sinan Ülgen: Looking ahead, what factors will shape the EU’s approach to defense-industrial policy in the longer term?
Catherine Hoeffler: Three key factors will shape the EU’s approach to defense-industrial policy.
The first is U.S. politics. The development of a strong European defense industry will largely depend on the extent to which the United States supports or opposes such efforts. However, the impact of U.S. policy is complex. Currently, the less committed U.S. administration is clearly pushing the EU toward greater autonomy—but this will deliver results only if European nations are willing to increase defense spending, overcome fears of straining transatlantic ties, and agree on strategic priorities.
The second factor consists of the economic and financial preferences of EU member states. Fiscal conservatism has gained traction even in traditionally less hawkish countries, like France. The financial health of European nations will heavily influence both their willingness and their ability to invest in defense, shaping not only the level of spending but also its structure. Even if Germany’s reforms of its debt brake trigger a domino effect in other countries, already-indebted states, such as France, Italy, and Spain, will continue to push for common bonds rather than rely on more national spending. This is an ongoing debate.
Finally, the international security environment is evolving. Heightened security threats to the EU would likely accelerate defense cooperation. However, history suggests that internal divisions and reliance on the United States are persistent obstacles. Whether current or future threats will be enough to break this pattern remains uncertain.
Catherine Hoeffler is an associate professor and director of the Sidjanski Center in European Studies at the Global Studies Institute, University of Geneva.
