Europe needs a war economy
Europe must develop a war economy to sustain Ukraine's defense and defend itself as US support becomes uncertain under President Trump.
Russia's war has devastated Ukraine's south and east, testing Europe's economic resources and political unity. With President Trump seeking to force a disadvantageous settlement on Kyiv and threatening to withdraw US support, Europe must shoulder more of the burden alone.
The EU has been at the forefront of Ukraine's financing, providing an 18.1-billion-euro share of the G7's $50bn Extraordinary Revenue Acceleration loans in 2024 and finalizing a new 90-billion-euro loan this April without US commitment. However, internal divisions remain over constraining Russia.
While the EU adopted its largest-ever round of sanctions listings this month, the measures did little to broaden restricted activities or accelerate the phase-out of Russian energy imports, with pipeline gas imports still permitted until autumn 2027.
Joint borrowing framework
Europe must establish a standing framework for joint EU borrowing to finance Ukraine's defense and fund its own defense industry. The COVID-19 pandemic demonstrated how EU member states could overcome aversion to mutualized borrowing, creating the 750-billion-euro NextGenerationEU recovery fund in 2020.
The EU's contribution to ERA loans and the 90-billion-euro facility extended this logic to wartime finance, but these remain crisis-by-crisis improvisations. Deepening fiscal and capital markets union would provide foundations for Europe's power and ability to deter and win wars.
Europe has the means to finance its own security. It must now find the will to borrow for it.
Technology and sanctions
Europe needs fiscal capacity to fund technological development and procurement, similar to how US capital markets enabled SpaceX to develop Starlink, which has reshaped modern warfare on Ukraine's battlefields. Russia's frozen sovereign assets offer potential support for borrowing, though divisions remain over using them.
Europe must take greater control over economic linkages with Russia, intervening actively in cases like Austria's Raiffeisen Bank, which lost 2.1 billion euros in Russia. The EU should be more assertive against firms helping Russia evade sanctions, threatening loss of access to European financial systems.
Reducing US influence
Europe should reduce US influence over its foreign and security relationships. With Washington moving away from its security-for-oil bargain with Gulf states, Europe can offer a mutually beneficial partnership. The UK and France are already deploying jets and air defenses to help Saudi Arabia against Houthi attacks.
Europe can promise deeper partnerships and serve as a reliable buyer of Gulf oil and gas exports in exchange for enhanced sanctions compliance against Russia and ending the Kremlin's role in OPEC plus.
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