EU and the War in Ukraine: More Funding, Not More Europe

Key Chapter Titles

1. Prospects for EU Fiscal Integration and the New Configuration of Rearmament
2. Historical Crises and Integration: From Maastricht to Next Generation EU
3. Response to the Invasion of Ukraine: National Actions and Limited Collective Tools
4. Defense Spending and the Formation of Modern State Fiscal Capacity
5. EU Bond Issuance and Centralized Fiscal Capacity
6. Defense and Ukraine Funding in the New EU Budget
7. Coalitions of the Willing and the EU's Marginalized Role
8. The EU's Future Role: Financier and Coordinator

Document Introduction

Russia's full-scale invasion of Ukraine in 2022 posed the most direct security threat to Europe since the end of the Cold War, coinciding with a potential weakening of U.S. commitment to NATO. However, unlike previous crises which often drove deeper European integration, the 27 EU member states failed to utilize their union to provide common defense in this crisis. Instead, member states responded in a fragmented manner based on their own national interests and circumstances—such as geographic proximity to Russia and levels of government debt. This failure of collective action not only missed an opportunity to deepen EU institutional integration but may also have profound negative implications for the prospects of any meaningful further integration in the future. If member states cannot unite in funding and directing more integrated military affairs, they are unlikely to grant the EU the fiscal and institutional powers needed to pursue other common goals in the future, thereby forfeiting the potential economic and security benefits of deeper integration.

This brief traces the historical pattern of EU integration forged through crises. From the Maastricht Treaty and the introduction of the euro, which paved the way for German reunification, to the European Stability Mechanism in response to the global financial and sovereign debt crises, the European Border and Coast Guard Agency for the refugee influx, and the Next Generation EU fund established for the COVID-19 pandemic, crises typically spawned new institutional solutions for European integration. However, this pattern appears to have broken down in the face of a direct military threat. The high cost of war and the collective action dilemma in responding to a geographically specific threat weakened the motivation for geographically distant member states to support joint efforts. The EU's most urgent current military need is embodied by the Ukrainian forces fighting Russia on the battlefield, with neighboring countries already bearing the primary responsibility.

In terms of specific responses, the EU level provided large-scale financial and humanitarian aid and activated the national escape clause in the Stability and Growth Pact, allowing member states to increase defense spending without violating fiscal rules. The European Commission also launched the European Peace Facility, a common borrowing tool, to raise funds for interested member states. However, these measures did not change the essentially member state-led nature of defense affairs. History shows that military and defense spending played a formative role in the expansion of the fiscal capacity of modern central governments. Although the EU's cumulative bond issuance has been rising since 2009, setting a precedent for centralized fiscal capacity through the Next Generation EU fund, it could have advanced the EU towards a more complete state form by taking on a significant financing and organizational role in this effort to meet the EU's own urgent future military needs.

Looking ahead, the European Commission's preliminary proposal for the new seven-year budget allocates only a modest annual allocation of around 18 billion euros (0.1% of EU GDP in 2024) for defense and military-related expenditure, indicating that long-term EU budget resources are not shifting towards European rearmament. The budget does include a 100 billion euro special reserve for Ukraine from 2027 to 2034, highlighting the EU's role as Kyiv's primary long-term financial backer. This limited request for defense funding means any additional EU-level military engagement would have to be initiated outside the regular budget, raising the political threshold.

Therefore, the analysis points out that future European rearmament and the establishment of a long-term independent military deterrent against Russia will increasingly be driven by coalitions of the willing, consisting of subsets of EU member states and non-member states, in cooperation with Ukraine's military-industrial sector. This model risks marginalizing the EU's role in providing continental military defense and national security. The EU's primary role will likely be confined to continuing financial support for Ukraine, increasing pressure on Russia through sanctions, overseeing Kyiv's accession process, and attempting to secure a coordinating role in EU defense-related R&D. The EU's failure to leverage this crisis for defense integration may signal that its process of crisis-driven deepening of institutional ties has reached its limit.