Beyond Brussels’ Balance Sheet: The Structural Backbone for von der Leyen's “ReArm Plan”
As Russia's war with Ukraine rages on and American attention drifts eastward, Europe must transform its fragmented defence strategy into one of collaborative strength.
Europe’s security doctrine has officially been stretched to its breaking point. The President of the European Commission, Ursula Von der Leyen’s ‘ReArm Plan’ represents a watershed recalibration of European defence planning in light of its past dependence upon the United States which is increasingly focused on the Indo-Pacific. The plan seeks to unlock up to €800bn over the coming years for defence, with €150bn immediately available in loans. Additionally, it features a national escape clause, under which military spending would not be counted towards Member States’ debt limits.
This seismic reorientation comes as France’s century-old Gaulliste war-cry to prioritize the development of the Union’s sovereign capabilities becomes resurgent. The Russian war in Ukraine highlighted critical deficiencies in the European industrial base, given its inability to deliver on promised artillery shells. Trump 2.0 is testing the transatlantic alliance by sidelining European powers from US-Russian ceasefire negotiations in Riyadh. However, Von der Leyen’s plan misses the mark because it continues to try what has yet to work: envisioning the European Union as a regulatory monolith and financial backstop, rather than as an intelligent catalyst for transformative coordination. This is a strategic problem at a time when political polarization and economic constraints plague Member States.
As exemplified by the sputtering Franco-German engine, Von der Leyen’s battle plan is disconnected from the practical constraints of its war chest. France’s fiscal manoeuvrability is inhibited by mounting bond market turbulence and threats of yet another credit downgrade. Welfare cuts or pension by capitalization—critical for budgetary flexibility—are unlikely in a highly polarized and divided parliament since Macron’s dissolution in the summer of 2024. Meanwhile, although Merz was able to unlock historic defence spending by circumventing Germany’s constitutionally enshrined debt-brake (Schuldenbremse), which limits federal deficit spending to a mere 0.35% of annual GDP, Germany has spent decades procuring foreign weapons, depending on non-European military systems, and avoiding both indigenous research programs and capital allocation to startups developing infrastructure with military capacity.
Europe’s security architecture is failing because of fundamental problems in the Continent’s defence industrial base––EU research funds yielding minimal dual-use innovation, weak European-exclusive demand signals undercut indigenous defence industry growth, and ineffective ordination of shared defence priorities. Blindly pouring capital into the crisis masks, rather than resolves, the EU’s underlying Continental defence dysfunction.
Fragmented Defence Practices Creating “Bonzai” European Armies: Fundamental Issues in the Current Landscape
Europe has fallen behind in the innovation race. Products typically affiliated with the civilian commercial world – satellite constellations, first-person view (FPV) drones, and AI – are rapidly being adopted by military forces. Yet, there is no European equivalent to the U.S.’ Defense Advanced Research Project Agency’s (DARPA), an institution epitomizing dual-use technology, which has unleashed innovations such as the internet, GPS, drones and Siri. This lack of indigenous, civil-military integration not only creates gaps in productivity, economic activity, and wealth, but in the Continent’s security as well. Despite allocating €93.5bn over 7 years to R&D through Horizon Europe, only two of its six clusters (€2.4bn per annum) state the potential of dual-use innovation, and there are no KPIs (key performance indicators) to measure the extent to which this is taking place. The 2021-2024 strategic plan even lauds that R&D under Horizon Europe is exclusively for civilian applications, with potential to “strengthen synergies” with European defence research. This contrasts directly with the American approach, wherein DARPA dedicates a $4B budget each year to dual-use tech that is developed primarily for military use, with potential for civilian applications. This strategic shortsightedness has put Europe on its heels.
Additionally, Member States’ ‘bonzai armies’ waste resources by producing numerous platforms with limited interoperability. That is, in the case of European defence development, the whole is substantially less than the sum of its parts. Europe’s fighter fleet, for instance, is presently split across Member States. Competing sixth-generation programs, Global Combat Air Programme (GCAP) between the UK, Italy, and Japan, and Future Combat Air System (FCAS) between France, Germany, and Spain, demonstrate the Continent’s disjointed approach to defence and procurement. Weak coordination and competition-induced information limitations are part of the reason for Switzerland’s 2022 purchase of U.S.-made F-35s over fighters produced by European counterparts. Past reliance on American defence guarantees cannot be replaced without the creation of a holistic and coordinated European procurement framework.
While organizations like the European Defence Agency (EDA) and Permanent Structured Cooperation (PESCO) exist to increase EU-level coordination, conflicting national security interests between Member States create a collective action problem due to non-binding commitments and lack of centralized oversight. The Eurodrone project is an ongoing illustration of the challenges within PESCO which focuses on joint capability development; while supposedly a joint drone development effort between Germany, France, Italy, Spain, and the Czech Republic, Germany and France serve as the primary contributors to the project. Not surprisingly, a recent German report cited “ongoing coordination problems” between the German contractor and the French subcontractor as the reason for cost overruns and schedule delays. Further, French defence primes’ entrenchment stalls European defence harmonization efforts, as these companies encourage the French government to pursue nationalistic procurement strategies at the expense of European cooperation.
Shared Design, Sovereign Capability: Europe’s Defence Industrial Blueprint for Strengthening Alliance Balance
To address the current deficiencies in its defence infrastructure, the Commission must consider undergirding Von der Leyen’s ‘ReArm Plan’ with three key interconnected recommendations: high-level budgetary coordination, a streamlined R&D process, and conditionalities for procurement efforts.
The first recommendation is to publish an integrated EU defence budget every year. It should be an aggregated report of each individual Member States’ defence budgets, split by investment area (R&D, procurement, sustainment) and domain (air, space, land, sea, cross-domain, cyber). An aggregated budget would allow European defence companies to understand funding trends at the EU level rather than Member State level. This would increase long-term programmatic visibility, enabling both small and large contractors to formulate sustainable business strategies. Beyond focusing competition within the European defence industry, this would also help policy planners inform and align European Defence Industrial Strategy (EDIS) with budgets, other EU functions, and NATO priorities.
The second set of recommendations to support Von der Leyen’s plan revolves around streamlining and centralizing the R&D process. Europe already has a grass-roots DARPA-like program called the Joint European Disruption Initiative (JEDI), which offers SMEs, institutes, corporations, foundations, and researchers competitive grants for ambitious dual-use projects. However, it lacks the funding of a supra-national or even state-driven initiative, which has compelled it to partner with the undemocratic Saudi Research Development and Innovation Authority. The Coordinated Annual Review on Defence (CARD) was another failed initiative established in recent years to reduce fragmentation in defence spending and policy strategy.
The optimal strategy for the Commission is therefore to consolidate the funds and labour allocated to existing agencies such as Horizon, PESCO, the EIT, and the European Defence Fund (EDF) into a singular EU-backed organization, with streamlined investment strategies that fuse already-established focus areas from CARD, EDIS, and other policy infrastructure. The EDA, particularly as the authority for the EDF, could take on a greater role as facilitator by consolidating these organizations under a single umbrella to streamline funding allocation processes and capitalize on synergies.
At least 10 emerging disruptive technology investment areas should be considered and prioritized: hypersonics, autonomous systems, artificial intelligence, cyber / C4ISR, microelectronics, space, quantum sensing and computing, integrated sensors, and precision fires. These draw from current European policy and industry focal points and U.S. defence tech budget priorities. Small business incentives like SME contract quotas and applying JEDI’s moonshot approach within a unified organization would position the EU as the primary channel for startups pursuing disruptive innovation in high-risk domains, benefiting Europe’s industrial defense base. This, in turn, enables Member States to focus on more pragmatic defense policies, aligning with their constrained fiscal capacities.
The final set of recommendations demands the use of conditionality by the European Commission, so that every euro borrowed through the ‘ReArm Plan’ flows into the European defence ecosystem to strengthen the Continental industrial base, reducing the necessity of tendering so many contracts to foreign competitors. Placing a conditional on minimal European supply chain participation as a regulatory constraint for Member States to procure key materials would incentivize procurement collaboration and entrench homeshored supply chains. A minimal European-shoring categorization for essential equipment, alongside the proposal for the EU to take on overages for high-risk contracts that are indigenously procured (a small percentage, similar to non-Firm Fixed-Price (FFP) contracts in the U.S.) would engender the push and pull factors for the EU to become a Continental collaborative powerhouse of innovation.
The Eurofighter Typhoon exemplifies what can be accomplished if a coordinated approach to European defence development and a push for conditionality is realized. Excluding its American software, the Eurofighter’s supply chain is 100% European, with the UK producing the wings, Germany handling the fuselage, Italy manufacturing tail sections, and Spain coordinating final assembly. All countries and their associated contractors worked together towards a final product with a list of standardized specifications. Even with differing security priorities across nations, which serves as the foundational argument for non-standardized procurement requirements, the European Patrol Corvette project demonstrates how seven European nations can share a common vessel design while allowing national customization and distributed production. By strategically allocating work packages based on national manufacturing strengths, Europe can build industrial resilience that enhances—rather than splinters—the broader Alliance framework, creating a more balanced and mutually beneficial partnership across the Atlantic.
Towards a New European Century and a Rejuvenated Transatlantic Alliance
If Europe seeks to thrive as a geopolitically competitive structure, Von der Leyen’s ‘ReArm’ plan will need major strategic and structural modifications. Europe’s security architecture does not necessarily need more money thrown at its problems—it needs strategic coherence, industrial coordination, and the political courage to build truly European solutions. Additionally, nationalist mavericks such as Hungary’s Orbán and Poland’s Tusk must be politically reined in to prevent “ReArm Plan” funds from being diverted to purchase foreign equipment—transactions that strengthen independent relationships at the expense of a mutually beneficial transatlantic alliance. The European Union already collectively spends more than double on defence than Russia. Strategic use of funds thus allows the Continent to transform its fragmented “bonzai armies” into a defence ecosystem worthy of Europe’s ambitions and, importantly, rapidly emerging threats.
In the world of great power competition, Europe must decide whether it will be a primary or secondary player based on the integration of its industrial-military complex. The blueprint exists. Von der Leyen and Merz are attempting to create the fiscal space. Macron has re-opened the discussion of sharing France’s nuclear arms. Only the Union’s political will and the strategy for implementation of an integrated defence industrial base now remain in question.
Felipe Chertouh is a French Schwarzman Scholar and graduate of Sciences Po Paris.
Henley Schulz is an American Schwarzman Scholar and former Aerospace & Defence Analyst at McKinsey.
Photo: Chris Lofting
