How the EU could boost its defence capabilities with an arms-buyers’ club

Good morning. Today, our finance correspondent reveals the sweeping blueprint pitched to EU finance ministers to overhaul defence financing, and our trade correspondent explains the divisions between European capitals on tariffs.

Brothers in arms

European countries should not just buy weapons together but also jointly retain ownership of key strategic assets, argues a paper by Brussels-based think-tank Bruegel seen by Paola Tamma.

Context: European finance ministries are racing to find cash to boost Europe’s defence capabilities. Both the EU and the UK have made a number of proposals, including joint weapons purchases.

Bruegel’s paper was commissioned by Poland, which currently holds the rotating EU presidency, and is due to be discussed by finance ministers later this week.

“As defence spending remains a national prerogative, this intergovernmental model may offer a more effective response,” Polish finance minister Andrzej Domański wrote in an invitation letter for the Warsaw meeting, seen by the Financial Times.

Bruegel’s central idea is to establish a “European Defence Mechanism” which would purchase all of the participants’ defence needs. EU and European countries such as the UK, as well as the European Commission, would be the shareholders.

By pooling demand, the mechanism would command greater quantities at a lower cost, generating savings of over 50 per cent in some instances, according to Guntram Wolff, a Bruegel fellow who co-authored the paper with the think-tank’s director Jeromin Zettelmeyer.

“The economies of scale you can make are very significant . . . Frankly speaking, if we try to re-arm at the current cost per unit, it’s going to be very, very expensive,” Wolff said.

The paper also suggests that a ban on national procurement and military state aid would help liberalise national defence markets, which have so far been sheltered from competition. “There’s a national bias and it needs to be addressed,” said one official briefed on the paper.

The authors also propose that the mechanism should retain ownership of key strategic assets, relieving national budgets and enabling members to obtain capabilities that were so far outsourced to the US.

“Examples include a satellite system for military intelligence and communication, the development and deployment of expensive air defence systems, and new missile technology,” the paper states.

“It makes sense for an asset that has a collective benefit to have collective ownership, in a regime when there is no single country that can pay for it,” said Zettelmeyer.

The authors acknowledge that such a fundamental market restructuring, with countries agreeing to let go of their national champions, would be hard to achieve, but argue that it’s not impossible.

“The threat landscape has changed so much that it is a realistic proposition,” said Wolff.

Chart du jour: Fighting stance

French far-right leader Marine Le Pen yesterday denounced a conviction that risks blocking her from France’s 2027 presidential election as a “witch-hunt”, and told her supporters she would fight back.

All eyes on Italy

Stark divisions among the EU’s 27 member states will be laid bare today when trade ministers get their first chance to discuss how to respond to US tariffs, writes Andy Bounds.

Context: US President Donald Trump has hit Brussels with a three-punch combination — sectoral tariffs on steel and aluminium as well as cars, and a 20 per cent rate on almost everything else. The European Commission is analysing the measures before formulating a response.

“The main aim here is to get out of this council with a united message,” a senior EU diplomat said of today’s meeting.

That might be difficult. France and Germany are pushing for a strong, quick retaliatory response, but countries including Italy, Greece, Romania and Hungary oppose escalation. 

The remaining member states mostly back the commission’s strategy of delay, and are preparing measures while offering concessions to negotiate lifting the tariffs.

The hawks want the commission, which has broad powers over trade policy, to load its trade “bazooka”, the so-called anti-coercion instrument, which would allow it to hit US tech companies and other services suppliers.

To get the necessary qualified majority, all the big member states would have to back the move — including Italy. Italian premier Giorgia Meloni must “choose a side” between her nationalist fellow travellers in the US, and the EU, in the words of a second EU diplomat. 

A new report from the European Policy Centre argues that the EU must prepare a massive “one strike” retaliation — including the anti-coercion instrument — in addition to negotiating.

“President Trump’s ‘liberation day’-tariff announcement is not a within-the-rules trade conflict. It’s a full-blown attempt both at rewriting the international economic order and coercing Europe and other trade partners into obedience,” said Georg Riekeles, one of the authors.

In other words Meloni’s choice can be delayed, but not dodged. 

What to watch today

1. EU trade ministers meet in Luxembourg.

2. European Commission president Ursula von der Leyen meets Norwegian Prime Minister Jonas Gahr Støre in Brussels.

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