Defence Wake-Up Call
But also — Germany, Mario Draghi, Sanctions
Hello! Today is February 25, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
Three years to the day Russia launched its invasion of Ukraine, the concern felt by Europeans across the continent is palpable. The war is dragging on, and Kyiv's hopes of reclaiming its occupied territories are rapidly fading.
TURNING POINT • Against the backdrop of this delicate state of affairs, Donald Trump has shaken Europeans by announcing the immediate opening of negotiations for a peace agreement with Russia, sidelining both the EU and Kyiv.
At the same time, the US president is increasing pressure on the 27 EU member states to massively boost their military spending, demanding that they allocate 5% of their GDP to defence.
Faced with this new power dynamic, the EU is scrambling to prepare its response. "Europe's security is at a turning point. Yes, this is about Ukraine — but it is also about us," warned European Commission President Ursula von der Leyen last Monday on X.
A few days earlier, she had proposed temporarily suspending the EU’s budgetary rules — which limit public deficits to 3% of GDP — as during the Covid crisis, to allow Member States to invest more in their military capabilities.
“Our defense spending has increased from just over 200 billion euros before the war to more than 320 billion euros [in 2024]. We still need to increase this figure significantly.”
The Commission estimates that an additional 500 billion euros will be needed over the next decade to strengthen the defence industry.
MADE IN EUROPE • This stance is also shared by Emmanuel Macron, who urged his counterparts last Wednesday to step up their efforts.
Beyond increasing military budgets, he emphasises a central issue: independence from the US. Since the start of the war in Ukraine, 78% of the EU’s arms orders have gone to non-European manufacturers, with 63% going to the United States.
This is a dependency that the French president considers especially dangerous. “We need to develop a fully integrated European defense, industrial, and technological base,” he told the Financial Times on February 13.
“If we merely become even bigger customers of the US, then in twenty years, we will still not have solved the issue of European sovereignty.”
However, this ambitious proposal faces internal divisions within the EU. France has long advocated for a "made in Europe" defense industry, a position that has crystallised around the European Defence Industry Programme (EDIP), introduced by the Commission in early 2024.
The adoption of the proposal dragging on. Neither the European Council nor the Parliament has yet agreed on the details of this text, which includes plans to finance joint arms purchases with an initial budget of 1.5 billion euros.
While France, supported by Greece and Cyprus, champions a strictly European approach, countries like Poland, the Netherlands, and Germany are pushing for more flexibility.
This debate is not new: in 2020, France successfully lobbied for the creation of a European Defence Fund, focused on transnational defense projects within Europe, with a budget of 7.9 billion euros for the 2021-2027 period.
Since then, however, most EU defense spending has been channeled through the European Peace Facility, which has no origin criteria. This extra-budgetary instrument has reimbursed defense equipment used primarily to support Ukraine, totaling 17 billion euros since 2021.
FRAGMENTATION • The project of a European defense is also hindered by difficulties in industrial cooperation between member states.
The Franco-German-Spanish FCAS (Future Combat Air System) programme, intended to produce a new fighter jet by 2040, exemplifies these tensions, with ongoing disagreements between Paris and Berlin over the division of industrial responsibilities.
Added to this challenge is a fragmented European defense market. In 2022, the EU had 178 different weapons systems, 17 types of heavy tanks, 29 types of destroyers and frigates, and 20 types of fighter jets.
By comparison, the US has only one main tank model, four types of destroyers, and six types of fighter jets. This fragmentation slows down production and increases costs, as recently highlighted by Mario Draghi in his report on European competitiveness.
In recognition of these challenges, the Commission plans to unveil its first-ever White Paper on Defense in mid-March. Led by Lithuanian Commissioner Andrius Kubilius, this document is expected to propose measures to strengthen the European Defence Industrial and Technological Base (EDTIB), increase public procurement, and secure funding.
On this point, France advocates for joint borrowing, but Germany, Austria, and the Netherlands remain firmly opposed. However, Berlin’s position could shift after Sunday’s legislative elections: Friedrich Merz, the lead candidate for the Christian Democrats (CDU/CSU), has not entirely ruled out a defence-related loan.
In Case You Missed It
GERMANY • On February 23, German voters went to the polls.
The CDU/CSU (European People's Party in the European Parliament, center-right) led by Friedrich Merz gathered 28.5% of the votes, ahead of the AfD (Europe of Nations and Freedom, far-right), which for the first time became the second political force in the country with 21% of the votes. The SPD (Social Democrats, center-left) led by Olaf Scholz plummeted, reaching 16.5%.
Neither the FDP (Renew Europe, liberals) nor the BSW (radical left) reached the 5% threshold required to be represented in the Bundestag. This allows the CDU/CSU and the SPD to achieve a slim majority together, opening the possibility of a two-party coalition.
Explanation: the fact that some parties did not reach the 5% threshold has the mathematical effect of increasing the number of seats per vote obtained by the other parties. If the FDP and the BSW had passed the 5% mark, the CDU/CSU would have needed at least one other party to form a coalition with the SPD, which Friedrich Merz wanted to avoid for reasons related to governmental stability.
Even in the case of a CDU/CSU-SPD coalition, intense negotiations are to come, as the two parties have opposing views on many issues. Merz has stated that he aims for an agreement by Easter.
The latest European elections have strengthened the weight of the European People's Party (EPP) in the European Parliament, a significant asset for the future chancellor.
Friedrich Merz wishes to be more actively involved in European affairs than his predecessor — and his positions are more aligned with the strategic autonomy advocated by France.
He announced that the EU must change its attitude and not present itself as a "dwarf" in front of the United States — he declared that he wants Europe to develop complete "independence" from the United States. He also said he is ready to discuss sharing British and French nuclear protection.
Ursula von der Leyen and Friedrich Merz, although from the same party, do not always share the same positions, particularly on deregulation and ecological issues. They were also rivals in Germany, where one was Merkel's protégé while the other had been sidelined by Merkel.
Pending the election of the new chancellor, Olaf Scholz will continue to represent Germany in the European Council but will have to closely consult with the members of the probable future coalition.
SUPER MARIO • On February 18, Mario Draghi spoke before the European Parliament, almost six months after the publication of his report on European competitiveness.
While the findings he established in his report are still relevant, the former ECB president took advantage of this speech to highlight several recent developments.
Regarding artificial intelligence, models have become increasingly efficient, with machine learning costs ten times lower than a few months ago — an opportunity for Europe, which has no large language model (LLM) in the top 10, occupied by the United States (8) and China (2).
The former ECB president acknowledged some European advances in AI, notably the AI Champions Initiative, which aims to bring the public and private sectors closer together.
In terms of energy, gas prices remain very volatile — they have increased by 40% since September — while electricity prices are still two to three times higher than in the United States.
These challenges are compounded by new geopolitical tensions related to the American elections and the threat of transatlantic tariffs.
“To cope with these challenges, it’s increasingly clear that we need to act more and more as if we were one state,” he said.
Mario Draghi reiterated his call to eliminate trade barriers within the internal market, citing IMF statistics, which estimate that these barriers are equivalent to tariffs of 45% for industry and 110% for services. The GDPR, for its part, has increased the cost of data by 20% for European companies.
The competitiveness compass, presented by the Commission a month ago, is aligned with the recommendations of the report, according to Mario Draghi. However, he regrets the absence of new budgetary resources for the EU within the initiative, and that funding relies mainly on state aid.
He also recalled that the 800 billion euros per year required, according to him, to meet the aforementioned challenges are a "conservative estimate" (suggesting that more investments will probably be required).
Finally, Draghi insisted on the need to accelerate legislative procedures, which "often take up to 20 months," risking that "our policy responses may be outdated as soon as they are produced.”
SANCTIONS • A few days before the third anniversary of the invasion of Ukraine, the Council adopted a 16th package of sanctions against Russia.
These new measures mainly target imports of Russian aluminum and oil, exports of chrome, and several chemicals.
The delisting of 13 Russian banks from the SWIFT system, as well as the blacklisting of 73 ships that are part of the "shadow fleet", aim to curb Russia's circumvention of sanctions.
The adoption of this package of sanctions comes 24 hours after Marco Rubio's statements following exchanges between Moscow and Washington in Saudi Arabia, suggesting the possibility of easing American sanctions. Russia is even preparing for the return of Western companies to its soil.
The effect of Western sanctions would be undermined if the US was to ease sanctions, particularly those related to the dollar — which are considered the most effective.
The issue of the 210 billion euros of frozen Russian assets also resurfaces. While a consensus had emerged at the G7 for the use of generated profits to finance a 50 billion loan to Kiev, European states remain divided on the possible use of the assets themselves to support the Ukrainian war effort.
What We’ve Been Reading
For Bruegel and the Kiel Institute, Alexandr Burilkov and Guntram B. Wolff estimate the costs Europeans would incur to replace the United States’ implicit defense commitment, essential for deterring Russia.
In a Project Syndicate column, Ulrike Malmendier, Thilo Kroeger, and Christopher Zuber outline the economic challenges awaiting the next German Chancellor.
This edition was prepared by Augustin Bourleaud, Antonia Przybyslawski, Théotime Beau, Edgar Carpentier-Charléty, Antoine Ognibene, Lucie Ronchewski, Hana Rajabally, and Maxence de La Rochère. See you next week!