Introduction
In an era of rapid geopolitical shifts, multipolarity takes a toll on the world order; the European Union faces unprecedented challenges that demand a unified and strategic response. Uncertainty about credible defence commitments and fears of dependence from the transatlantic partnership has provided the political capital for the EU to enable and further its states’ militarisation efforts.
However, the militarisation of EU states does not need to be merely a reaction to external threats, but a proactive step towards ensuring the union’s competitiveness, security and autonomy. The path to effective militarisation, as outlined by the broader EU strategy of the Draghi, Niinistö and Readiness 2030 reports, lies in addressing these core issues. Nevertheless, at this critical juncture, Europe faces significant obstacles, namely the high cost of energy and a reliance on imports that leaves the EU vulnerable to economic shocks and undermines strategic independence.
The EU must embrace a dual approach: fostering a green transition to reduce energy dependence while enabling innovation, particularly for dual-use technologies – those that serve both civilian and military purposes. This is not only central to the European Investment Bank’s strategy, but also a cornerstone of the Draghi Report, positioning defence innovation as a driver of broader industrial transformation and resilience.
Furthermore, establishing a Capital Markets Union would substantially facilitate intra-EU investments and provide small and medium-sized enterprises (SMEs) better access to funding by harmonizing regulations and enhancing market infrastructure, driving innovation and industrial competitiveness. By doing this, the EU can leverage defence modernisation as a catalyst for broader economic and industrial development, demonstrating that innovation, defence and sustainability are not mutually exclusive, but mutually reinforcing.
Militarisation of Europe
The militarisation of Europe is gaining momentum, driven by initiatives like the Readiness 2030 programme, which allows EU member states to mobilise up to €800 billion in defence spending through various mechanisms. By activating the national defence clause of the Stability and Growth Pact, member states gain fiscal flexibility to increase defence spending by €650 billion over four years. This spending is designed to be politically adaptable, enabling countries to direct funds according to their strategic needs. Given differing national perspectives on the EU’s strategic identity and defence integration, it remains a political question whether all member states will be convinced to fully utilise this spending potential.
A key instrument of this initiative is the Security Action for Europe (SAFE) loan instrument, which aims to mobilise €150 billion from capital markets. SAFE encourages joint initiatives among at least two EU countries, fostering regional integration and serving as a prototype for the Capital Markets Union. Importantly, this spending excludes the procurement of American defence products, directly promoting the reindustrialisation of Europe. This aligns with Draghi’s vision of an autonomous defence industry and a “foreign economic policy” that emphasises collective control over economic decisions, thereby enhancing the EU’s influence in key markets.
Moreover, Sauli Niinistö’s proposal for a single market of defence goods further underscores the need for cheap energy to support joint development projects and streamline defence procurement processes. Balancing industrial growth across the EU is essential, ensuring that innovation is fostered across the union, rather than being concentrated in regions with cheaper energy. The Niinistö report also highlights the importance of involving Small and Medium-sized Enterprises in the defence sector, an area where the Capital Markets Union can play a pivotal role. This approach would particularly benefit economies, like Germany’s, which are heavily reliant on SMEs, and diversify others, such as France’s.
However, the industrialisation spurred by these defence initiatives will be highly energy-intensive. With European energy prices currently 2.5 times higher than those in the USA, sectors like chemicals, steel and metal processing face significant competitive disadvantages. Increased defence-related energy demand could exacerbate these challenges, potentially driving up energy prices further if supply does not keep pace. Consequently, for militarization to be sustainable, the EU must first secure its energy system, which remains vulnerable to external shocks.
Energy Dependence and External Vulnerabilities
Strategic Resources and the Green–Defence Nexus
The EU’s ability to meet its security ambitions hinges on its access to affordable, secure, and sustainable energy. However, challenges posed by high energy costs extend beyond defence spending alone. Today, the same structural dependencies that constrain the green transition also threaten geopolitical and economic autonomy—namely, overreliance on external suppliers of oil, gas, and critical minerals. These include oil and gas from the United States, the Gulf states and rare-earths from China. A successful green transition is thus not a competing priority, but a prerequisite for long-term strategic autonomy. Not only would it reduce vulnerability to geopolitical shocks, but it would also enable the dual-use innovation needed to enhance the EU’s military-industrial complex.
US Energy dependence
As of December 2024, the United States accounts for 45.3% of the EU’s Liquefied Natural Gas (LNG) imports, while Russia still accounts for 17.5%. The Trump administration’s push to increase EU dependence on US oil and gas—coupled with economic coercion, with Trump stating that the EU must import $350 billion of US energy for tariff relief highlights the urgency of diversifying energy sources. Having suffered economic shocks due to reliance on Russian gas, with their previous share standing at 40% of gas imports; the EU must prioritize energy diversification to safeguard its autonomy, especially in the face of potential transatlantic disagreements, lest energy once again be weaponised.
Supply chain vulnerabilities
Supply chain vulnerabilities further compound these challenges. The EU’s reliance on LNG imports from Qatar (10.3%) and petroleum from Gulf states (13.2%) exposes it to risks, such as potential conflicts in the Strait of Hormuz, which could trigger energy price shocks. While the risks aren’t as substantial as with Russia, Houthi strikes at the Bab el-Mandeb strait have already led to increased Red Sea shipping insurance costs and forced many ships to reroute around Africa, both of which contribute to higher energy prices and exemplify these risks.
Critical Minerals
Critical minerals, essential for the EU’s green transition that powers both its defence capabilities and energy independence, present another layer of vulnerability. China’s dominance in supplying heavy rare earth elements (100% of the EU’s supply) gives it significant leverage over the EU’s green technology development. Addressing these dependencies will mean China will have less leverage in influencing the pace of the European green transition, as having insecure supply directly constrains long-term European green innovation and industrialisation.
Green Transition and Capital Markets Union
To unlock the full potential of its green transition, the EU must not only overcome technical and policy barriers but also mobilise private capital through a robust Capital Markets Union, as European domestic development of green energy has been underwhelming. Slow adoption of industrial policies, cross-border investment issues, external competition, and resistance to strategic protectionism have contributed to the slow European domestic production of green technologies. China’s near-monopoly in the European green tech market, supplying up to 98% of solar panels, 29% of wind turbines and 37% of EV imports highlights the urgency for European innovation and industrialisation in this sector.
Thus, a green transition is paramount for addressing long-term security and energy costs. Cheaper energy would enhance the competitiveness of the EU’s military-industrial complex, especially if innovation in the green and civil defence sectors is leveraged as dual-use technologies. For instance, electric steel furnaces offer a more efficient and cost-effective alternative to traditional methods, while Finland’s integration of underground city facilities and metro systems exemplifies how dual-use infrastructure can support urban resilience, economic activity and defence preparedness. By harnessing dual-use synergies, the EU can narrow the innovation gap with the US.
Developing a Capital Markets Union is essential to empower European startups, preventing them from being outcompeted by China or acquired by US firms. This aligns with Niinistö’s vision of supporting SMEs, fostering defence-sector startups and enhancing global innovation, competitiveness and reindustrialisation. Protectionism through subsidizing nascent industries could further support these goals, though it must be carefully balanced to avoid stifling innovation. Additionally, European Commission demands for Chinese technology transfers provide additional ease for innovation and growth. These moves are strategic necessities, without which, the EU risks falling behind in innovation, industrial competitiveness, and long-term security
Conclusion
The European Union stands at a crossroads, where the imperatives of defence, energy security, and industrial competitiveness converge. Europe’s militarisation is not just about enhancing defence capabilities, but about implementing recommendations of Draghi and Niinistö to further a green transition and increased competitiveness. Efforts like establishing a Capital Markets Union would be essential to address the EU’s key vulnerabilities, particularly its dependence on external energy suppliers, rising energy demands and the need to close the innovation gap. The challenges posed by high energy costs and supply chain vulnerabilities underscore the need to diversify energy sources and promote a sovereign foreign economic policy. By investing in green technologies and fostering innovation, the EU can mitigate these risks, laying the groundwork for long-term economic and industrial development. Facing multipolarity, the EU must prioritise initiatives that strengthen its internal market, support SMEs, and drive technological advancement. Embracing these strategies will ensure that defence, innovation and sustainability are mutually reinforcing pillars of its future prosperity and security. The EU must therefore never let a good crisis go to waste, for the sake of unity.
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