On February 13th, United Europe in partnership with the European Alpbach Forum and the Bavarian Family Entrepreneurs co-hosted THE EUROPE PANEL 2025 – an official side-event of the Munich Security Conference. Among the impressive line-up of speakers were former President of the European Commission Jose Manuel Barroso, EU Commissioner Defence & Space Andrius Kubilius, Former First Vice-President of the European Parliament Othmar Karas, CEO Terraquantum Markus Pflitsch, Chairman Academic Council Wilfried Martens Centre for European Studies Klaus Welle, Chairman NATO Innovation Fund (NIF) Klaus Hommels, Chairman Global Advisory Board Deutsche Bank Paul Achleitner, CEO Helsing Dr. Gundbert Scherf, Director European Investment Bank (EIB) Hristo Stoykov, Chairman ERSTE Foundation Andreas Treichl and others. The discussion took place under Chatham House Rule.
The Growing Threat Landscape
The risk of Russian aggression against the European Union remains high. While NATO serves as a cornerstone of collective security, it is imperative that Europe takes greater responsibility for its own defense. A strong and unified European Defense Union would provide deterrence and bolster resilience against external threats.
Europe is not seeking confrontation with Russia or China. Instead, a defense union would enhance NATO’s capabilities, ensuring that Europe is not solely reliant on the United States for its security. Strengthening Europe’s defense industries is essential—producing weapons, bolstering cybersecurity, and investing in next-generation defense technologies will be key to ensuring long-term stability.
A Strategic Shift in Defense Spending
Currently, Europe’s defense production capacity is inadequate. European nations source more than 60% of their defense supplies from the United States, an unsustainable dependency that weakens the continent’s ability to respond to crises independently. Redirecting national defense spending toward European industries will not only enhance self-reliance but also stimulate economic growth within the EU.
Germany, among others, has signaled strong support for a European Defense Union. Increased investment in joint defense projects will allow for economies of scale, reducing procurement costs while fostering technological innovation. However, co
ordination remains a challenge. Member states must align their defense strategies and move beyond national interests to achieve true European integration.
Lessons from Ukraine: A Wake-Up Call
Russia’s invasion of Ukraine has been a stark reminder of the cost of unpreparedness. The EU’s military aid to Ukraine has reached $145 billion—a significant sum, yet still less than 0.7% of its combined GDP. The war underscores the need for a unified European defense policy, where rapid response mechanisms and joint procurement and production efforts can be swiftly mobilized.
A European Defense Union would provide the framework for increased military readiness, ensuring that Europe is not caught off guard in the event of future conflicts. Investing in defense is costly, but the cost of inaction is far greater.
The Role of Technology in Modern Warfare
The future of defense is not just about boots on the ground—it is about technological superiority. Lessons from Ukraine highlight the growing significance of drones, artificial intelligence, and robotics in modern warfare. Europe must prioritize research and development in these fields, ensuring that it remains at the forefront of military innovation. A strong defense industry is not just about security; it is about economic and technological leadership.
Overcoming Political Hurdles
Since 2022, Europe has made strides in joint procurement efforts, particularly in ammunition production. However, progress has slowed as individual member states revert to national defense policies. This fragmentation threatens the very concept of a European Defense Union.
Security should be treated as a public good—one that transcends national borders. The United States has been a steadfast ally, but Europe must assume greater responsibility for its own security.
Can a Capital Markets Union Fund the Future of Defense?
For decades, Europe has operated under an economic paradox: a continent teeming with wealth, yet incapable of mobilizing its capital effectively. As geopolitical tension rise and the global economic landscape shifts, a single, inconvenient truth emerges: without a Capital Markets Union, Europe will struggle to fund its future – especially in defense.
The European Union’s attempts at greater cohesion have yielded mixed results, but a fundamental weakness remains – the absence of a unified financial framework to support large scale industrial and technological advancements. Nowhere is this more evident than in the defense sector, where European countries remain reliant on fractured procurement systems and outdated financial mechanisms.
The Case for a Defense Capital Market
Across the Atlantic, the United States has long demonstrated the power of capital markets in financing technological supremacy. Europe, however, remains constrained by national regulations, risk-averse financial culture, and the absence of an investment-driven pension system. In critical industries – artificial intelligence, cyber defense, and space technology – Europe lags behind because its capital structures remain disjointed and inflexible.
For all the political rhetoric about “strategic autonomy”, Europe lacks a functional, unified defense market. Member states maintain independent procurement processes, and major defense firms are reluctant to consolidate, fearing a loss of government contracts. As a result, European defense spending remains inefficient, spread thin across multiple national interests rather than harnessed into a singular, competitive force.
Unconventional Solutions for an Urgent Challenge
The European Defence Agency (EDA) exists to harmonize defense cooperation among member states, yet it remains underutilized. A shift toward common procurement could yield significant cost reductions, better rates and streamlined production. Yet bureaucracy remains a formidable obstacle. While efforts to reduce red tape are underway, progress is slow, and the window for action is closing.
One possible solution lies in the creation of a European Defense Investment Fund – modeled after DARPA in the US- which would focus on financing cutting-edge military technologies. Another approach would be to earmark unspent regional funds for defense innovation, repurposing the staggering 70% of unused mobility funds towards military expenditures.
Despite fiscal conservatism in some quarters, defense spending is no longer a taboo. Once frugal nations like Finland, Sweden, and Denmark have abandoned past restraint, recognizing the necessity of investment in security. Germany, too, would be well advised to shed its reluctance. The imperative is clear: without serious financial commitment, Europe’s defense ambitions will remain just that – ambitions.
Defense as the New Green Revolution?
There is a growing argument that defense spending could serve as a catalyst for European economic revitalization. Investing in sovereign technology – particularly in AI, cybersecurity, and space- offers a chance for Europe to reclaim its chance as an industrial leader. Space, for instance, is set to be a decisive frontier, yet Europe’s premier space enterprise, Ariane, operates on a fraction of the budget of its U.S. counterpart, SpaceX. If Europe wants to be a serious player, it must think bigger. Blitzskilling– a term borrowed from the tech world- emphasizes the need for rapid, aggressive upskilling. In contrast, Europe’s slow -moving approach to industrial policy leaves it dangerously behind. There is an urgent need to break free from a cycle of endless deliberation and embrace a proactive, investment-driven strategy.
The Capital Markets Union: A Long-Delayed Necessity
Beyond defense, a Capital Markets Union is essential for Europe’s broader economic resilience. Unlike the U.S., where deep, liquid financial markets drive innovation, Europe remains hamstrung by a fragmented banking system that cannot adequately support high-risk, high-reward industries.
Historically, Europe’s economic success relied on strong industrial sectors with tangible collateral. But in today’s digital economy, where intellectual property and software drive growth, traditional bank financing falls short. Google, for example, offers little in the way of collateral – yet it thrives due to a financial ecosystem that embraces risk. Countries like Switzerland and Denmark adopted a capital funded pension system in the 1970s and now reap the benefits, spending less on pensions and more on innovation. Meanwhile Germany’s pension model consumes 20% of its budget, limiting its ability to invest in future industries.
If Europe is to remain globally competitive, it must overhaul its financial infrastructure. Pension funds, currently restricted in their investment mandates, could be leveraged to support long-term defense and technology projects. The savings and investment union could provide the capital necessary to fuel the next wave of European innovation.
CONCLUSION
The world is changing at an accelerating pace. China and the US are surging ahead in AI, Space, and defense, while Europe remains bogged down in bureaucratic inertia. If a Capital Markets Union is not established soon, Europe risks falling irreversibly behind.
Ultimately, the question is not whether Europe has the resources – it does. The question is whether it has the political will to use them effectively. Defense is not just about security; it is about sovereignty, technological leadership, and economic vitality.