Build a European Military-Industrial Complex on Purpose
Updated: 4 days ago
By Kaija Schilde
1. What kind of rupture
If this moment in transatlantic security is “a rupture, not a transition,”[1] the question is which institution or security arrangement is best suited to navigate this rupture. Military power requires institutions that generate defense resources over time from markets and society that can endure beyond ruptures. The only institution that can do this in the near and mid future in the transatlantic context outside of the US is the European Union. The EU’s infrastructural market powers (the capacity to penetrate markets and implement decisions through them), both active and latent, predate the rupture, and earlier security ruptures, forgotten in current debates, produced the first proposals for European defense authority.
There are six core authority mechanisms that contemporary states use to generate material defense capabilities, and EU market authority already subsumes four of them. Modern states must extract defense capabilities primarily from private, or partially private, market actors, which requires stable institutional market authority over time. The EU’s market authority now includes market, regulatory, borrowing, and judicial power over defense; the two it lacks are fiscal appropriation and defense procurement. Those two are the authorities that build political constituencies for defense spending (the firms, workers, and regions whose livelihoods depend on defense production), and I argue that a rupture is a critical juncture where it is politically possible to imagine, design, and propose policies building defense industrial constituencies that were previously politically impossible.
Indeed, European defense authority formed in response to previous external threat ruptures, particularly the threat of US abandonment in the early 1950s, before the North Atlantic Treaty Organization (NATO) became the compromise solution after the French National Assembly rejected the European Defence Community in 1954, meaning that this ‘unprecedented’ rupture is actually an intensification of a structural pattern.
2. EU possesses 4 of 6 authority foundations of defense capabilities
The EU is the (1) market power in Europe. Market power determines the terms under which the EU and twenty-seven member governments operate within the single market and in global supply chains. Defense has historically been outside of the EU’s market authority, but it has increasingly become a blurrier category between defense and security markets.[2][3] A key authority the EU already possesses is (2) regulatory power, meaning that it uses market regulation to indirectly generate and coordinate defense and security goods. Regulatory stability encourages firms to invest their own money in research and development (R&D): by 2012, firm spending was about twice the defense research budgets of European governments,[4] and firms watch EU regulation to see whether, what, and how much to invest in defense technology. In this context, a regulation such as the rule of EDIRPA (the EU’s €300 million instrument for joint defense procurement) that 65% of a product’s components originate in the EU or an associated country such as Norway to qualify for EU funding[5] is industrial policy generating future defense capabilities, via regulation rather than picking winners and losers.[6]
The EU also has (3) borrowing authority and is increasing its fiscal authority in response to the Ukraine War, with debt borrowing along the lines, but not the scope, of its NextGen EU Keynesian fiscal Covid response (the EU’s recovery fund, financed by Commission borrowing on capital markets), such as Article 122 (the treaty’s emergency provision) for SAFE (Security Action for Europe) in 2025, under which the European Commission borrows from capital markets and lends the €150 billion to member states.[7] The EU’s Court of Justice is also the (4) judicial authority over European markets, and has ruled on the boundaries of the European defense market,[8] and since the 2008 Agusta case (in which the Court ruled that Italy’s direct purchases of Agusta helicopters fell under EU procurement law), the Court of Justice determines the boundaries of military and civilian European markets. These four functions are indirect, infrastructural powers: the EU penetrates and structures the markets that generate defense capability.[9]
What the EU still lacks are the two direct authorities of a more ‘positive’ security state (a state that directly generates the tools of war by extracting from and coordinating amongst its societal and market actors): appropriation (the authority to fund the purchase of weapons from its own budget) and industrial policy through procurement. This means that the EU is a defense public goods provider, but not yet a defense public goods buyer. NATO pools allies’ orders through its procurement agency and sets common standards, but the EU alone regulates European defense markets, and member states are individually too small to fund and sustain capital-intensive arms programs, which require alignment with both the political market authority and the source of borrowing power. The EU has no European appropriator: even after 2022, procurement budgets and project determinations remain national, the seven-year financial framework (the EU’s long-term budget) requires unanimity among member governments, and the European Parliament has no defense appropriation authority. Industrial policy at the EU level is mostly regulatory: under the EDIRPA content rule governments spend their own money on European products, the European Defence Fund (EDF) adds little to national research, and the EU funds production lines at selected firms through its 2023 ammunition regulation (ASAP), while member states remain the buyers, since in the regulation’s words firm orders from member states are “a precondition for any investment.”[10] Those two authorities are the ones that build political constituencies: procurement shapes the geography of production and supply chains, and the constituencies who depend on them defend future spending after the threat recedes. Regulation alone is reversible, because it is not embedded in domestic political economy interests at the European level: member states continue to invoke Article 346 (the treaty exception for essential security interests, including arms production) to preserve and protect existing national champion contracts (contracts that governments award directly to the large domestic arms firms they favor), and the Commission’s impact on European-led, cross-border procurement has been minimal.
3. The rupture as opportunity
Early ideas such as the European Defence Community (a 1952 treaty for a European army with a common command, budget, and procurement) were driven by concerns about Soviet threats and US abandonment in NATO’s first years, when European leaders doubted that the United States would keep its forces in Europe. The EU founders’ contemporaneous records are filled with existential threat concerns of Soviet invasion (or influence on European colonies in the Global South) and assessments that the United States would not extend security to Europe, concluding (for Jean Monnet, who drafted the 1950 French proposal for a European army) that “this security depends on the creation of an integrated European army.”[11] European leaders’ historical response to multiple threat and abandonment ruptures has been to aggressively build defense institutions. Threat produces new European authority where earlier cooperation, often informal, has already built the capacity: the European Defence Industry Programme of December 2025 built on the 2023 instruments for joint procurement and ammunition production.
At this moment of rupture, the two authority functions the EU lacks—fiscal appropriation and defense procurement—would remove the inefficiencies that block strategic autonomy (the EU’s capacity to act autonomously on security and defense when necessary, and with partners where possible), and, more importantly, they embed defense political economy constituencies within and across European states, institutionalizing bottom-up support for defense over time. EU regulatory authority has shaped firm investment patterns, but procurement authority creates industrial policy, which shapes the geography and constituencies of production and supply chains. The current path to strategic autonomy is fragile, because dominant member states protect their national champions, when constituencies in other states, sectors, regions, and industries could also be winners under EU-led procurement and industrial policy. A rupture is a moment to disrupt the current balance of winners and losers, and build a European military-industrial complex on purpose.
4. Build European parochialism on purpose
The US faced the same problem historically and resolved it with (very politically difficult) bureaucratic reform: it had no layer of executive authority over the separate military services until the 1949 creation of the Department of Defense, and no centralized procurement and industrial policy until the 1986 Goldwater-Nichols acquisition reforms.[12] After 1986 services kept their requirements and resourcing authority, but acquisition was coordinated with the approval of the Office of the Secretary of Defense.[13] In a design analogy, EU institutions do not have to be a single buyer, but the EU has to be the executive coordinator over twenty-seven buyers, the supervisor and regulator of the buying without replacing them. The SAFE conditions to buy European and in a coordinated manner, written because governments bought American after 2022,[14] are a first step.
Procurement policy is intertwined with industrial policy, where the central procurement authority picks winners and designs the defense market, instead of a bottom-up juste retour (‘fair return’) model organizing production by national share, the status quo version that killed FCAS (the Future Combat Air System, the next-generation fighter jet that France, Germany, and Spain planned together).[15] Coordination at the EU level builds a Europe-wide embedded political economy constituency, gently reinforcing previous winners and aggressively creating new ones. Borrowing to back it is the next step, because modern states finance war mobilization primarily through debt, and debt-driven industrial policy can sustain markets with multiple, competing winners.[16] Debt-funded market creation also postpones the guns versus butter tradeoff (military spending at the expense of social spending) that tax-funded defense spending imposes at once. Arms manufacturers, as my co-authors and I argue, “transform defense spending from an abstract security good into concrete local employment and investment, activating sustained parochial interests in defense-dependent communities.”[17] Then, strategic goals such as NATO’s 3.5% rule (the 2025 commitment that allies spend 3.5% of GDP on core defense by 2035)[18] get spent on multiple goals: strategic autonomy capabilities and sustained public and electoral defense constituencies for continued spending, as defense investments fuel debt-funded economic growth from multiple geographic and sectoral winners.
[1] Mark Carney, Special Address, World Economic Forum Annual Meeting, Davos, 20 January 2026 (“We are in the midst of a rupture, not a transition”).
[2] Market power is structural: the size and scale of the single market, and the authority to decide who has access to it and on what terms. Chad Damro, “Market Power Europe,” Journal of European Public Policy 19, no. 5 (2012): 682–99; Anu Bradford, The Brussels Effect: How the European Union Rules the World (Oxford: Oxford University Press, 2020).
[3] Third-country access to EU defense instruments is negotiated on those terms; Canada joined SAFE in June 2026 as the first non-European participant. Council of the EU, “SAFE: Council Concludes Agreement with Canada,” press release, 15 June 2026, building on the EU–Canada Security and Defence Partnership of June 2025.
[4] European defense companies raised self-funded R&D from almost nothing before 2004 to more than their own governments’ defense R&D budgets by 2012, by about two to one, with the increases following EU regulatory milestones and the first two of them coming during years of flat or falling national budgets: Kaija Schilde, “Weaponising Europe? Rule-Makers and Rule-Takers in the EU Regulatory Security State,” Journal of European Public Policy 30, no. 7 (2023): 1255–80.
[5] Regulation (EU) 2023/2418 establishing an instrument for the reinforcement of the European defence industry through common procurement (EDIRPA), art. 9(12), on the 65 per cent Union-origin requirement; European Defence Fund eligibility rules under Regulation (EU) 2021/697.
[6] The same regulatory power reaches the transfer of defense products between member states, dual-use export control, and the screening of foreign buyers of defense firms: Directive 2009/43/EC of 6 May 2009 on transfers of defence-related products within the Community; Regulation (EU) 2021/821 of 20 May 2021 setting up a Union regime for the control of exports of dual-use items (recast); Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union.
[7] Council Regulation (EU) 2025/1106 of 27 May 2025 establishing the Security Action for Europe (SAFE), art. 9: back-to-back lending, under which the Commission borrows on capital markets and lends the proceeds to member states on the same terms, repaid by the borrowing states; adopted on the basis of Article 122 of the Treaty on the Functioning of the European Union (TFEU). On borrowing without tax power and its legitimacy gaps, see Woźniakowski 2023.
[8] Case C-337/05, Commission v Italy (Agusta and Agusta Bell helicopters), judgment of the Court (Grand Chamber) of 8 April 2008: Italy’s direct awards to Agusta breached the procurement directives, and the Article 296 EC (now Article 346 TFEU) derogation, strictly construed, did not cover them. On the Commission’s use of the Court’s shadow to bring member states to the 2009 Directive, see Michael Blauberger and Moritz Weiss, “‘If You Can’t Beat Me, Join Me!’ How the Commission Pushed and Pulled Member States into Legislating Defence Procurement,” Journal of European Public Policy 20, no. 8 (2013): 1120–38.
[9] Michael Mann, The Sources of Social Power, vol. 1 (Cambridge: Cambridge University Press, 2012), 59: despotic power is the range of decisions an elite can take without routine negotiation with civil society groups; infrastructural power is the capacity to penetrate society and implement decisions through it. In the EU the negotiation that despotic power dispenses with is unanimity.
[10] The European Defence Fund’s total budget for 2021–2027 is €7.95 billion (current prices), against EU-27 national defense expenditure of €343 billion in 2024 alone: Regulation (EU) 2021/697 of 29 April 2021; European Commission, “European Defence Fund,” programme page; European Defence Agency, Defence Data 2024 (2 September 2025). On ammunition: Regulation (EU) 2023/1525 (ASAP), Articles 5(1) and 8(3)(a) and recital 20; European Commission, press release IP/24/1495, 15 March 2024, on 31 projects funded with €513 million from the budgets of the EU and Norway.
[11] Jean Monnet, Note de réflexions, 29 December 1953, Fondation Jean Monnet pour l’Europe, Lausanne, AMI 23/3/10, pp. 1–2 (author’s transcription and translation). The unit is catalogued among Jacques Van Helmont’s notes, and I attribute the note to Monnet on the evidence of its genre and its first-person voice. On Soviet influence in Africa, see the statements of Guy Mollet and Robert Schuman in January 1957 in Peo Hansen and Stefan Jonsson, Eurafrica: The Untold History of European Integration and Colonialism (London: Bloomsbury Academic, 2014).
[12] Douglas Stuart, Creating the National Security State: A History of the Law That Transformed America (Princeton: Princeton University Press, 2008; paperback 2012); James R. Locher III, Victory on the Potomac: The Goldwater-Nichols Act Unifies the Pentagon (College Station: Texas A&M University Press, 2002/2004).
[13] U.S. Government Accountability Office, Defense Acquisitions: Observations on Whether the Military Service Chiefs’ Role in Managing and Overseeing Major Weapon Programs Should Be Expanded, GAO-14-520T (May 2014), 3–6.
[14] The EU-sourced share of selected European procurement contracts fell from 62 per cent in 2018–2021 to 44 per cent in 2022 to mid-2025; three quarters of contracts still go to domestic firms; and member states buy 18 per cent of their equipment collaboratively against the 35 per cent benchmark they set themselves. IISS, Progress and Shortfalls in Europe’s Defence: An Assessment (IISS Strategic Dossier, September 2025), ch. 4; Lucian Cernat, Oscar Guinea, and Hannah Preuss, “Openness and Fragmentation in EU Defence Procurement” (ECIPE Policy Brief 20/2025, December 2025); Sebastian Clapp and Martin Höflmayr, “Building a Common Market for European Defence” (EPRS Briefing PE 775924, September 2025).
[15] France and Germany ended common development of the FCAS fighter in June 2026 after Dassault demanded 80 per cent of the work: “Why the Franco-German FCAS Fighter Jet Project Has Failed,” Euronews, 9 June 2026; “FCAS Industrial Spat Causes Termination of Europe’s New Generation Fighter Project,” FlightGlobal, June 2026.
[16] On how states finance war, see Rosella Cappella Zielinski, How States Pay for Wars (Ithaca, NY: Cornell University Press, 2016). The European Parliament brought an action for annulment against the Council over the Article 122 legal basis of the SAFE Regulation on 20 August 2025, Case C-560/25, Parliament v Council, OJ C/2025/5209. European Commission, proposal for the 2028–2034 multiannual financial framework, 16 July 2025, with €131 billion for defence and space within the European Competitiveness Fund; adoption requires unanimity in the Council and the Parliament’s consent.
[17] Jordan Becker, Lucie Béraud-Sudreau, Rosella Cappella Zielinski, Lorenzo Scarazzato, and Kaija Schilde, “Two Cheers for Parochialism: National Defense Industrial Policy and Burden-Sharing in the Transatlantic Community” (working paper). A one per cent change in defense industry employment relative to population corresponds to a 0.36 per cent change in equipment spending as a share of GDP, roughly three times larger in majoritarian than in proportional electoral systems.
[18] The Hague Summit Declaration, 25 June 2025, para. 3: allies “will allocate at least 3.5% of GDP annually based on the agreed definition of NATO defence expenditure by 2035 to resource core defence requirements,” within the 5% commitment of para. 2.
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