Just as geopolitical dynamics are impacting trade flows and energy markets, so they are also reshaping the international security architecture.
European leaders were already moving to strengthen their “strategic autonomy” before U.S. Vice President J D Vance delivered his now-historic speech to the 2025 Munich security conference. In it, he described a continent out of step with Washington’s thinking on everything from immigration to free speech and told EU leaders they needed to “step up in a big way” to provide for their own defense.
As Vice President Vance was preparing to take the stage in Munich, Friedrich Merz, then Germany’s Chancellor-in-waiting, was 300 miles away in Berlin. There he announced that his Christian Democrats, alongside their prospective coalition partners the Social Democrats, had secured backing from the Greens for a deal that would relax Germany’s strict “debt brake”. The agreement paved the way for increased defense and infrastructure investment.
EU introduces raft of reforms to increase defense spending
At EU level, the response to America’s policy shift has been similarly profound: a new defense strategy that includes an emergency EUR150 billion loan facility to support the joint procurement of military systems from European suppliers (the Security Action for Europe (SAFE) financial instrument); the easing of EU fiscal rules to enable national governments to raise debt levels in support of higher defense spending; and plans to accelerate the Savings and Investment Union, which could channel private capital into the munitions sector.
In parallel, the European Commission’s Defense Readiness Omnibus package introduces a suite of regulatory reforms designed to accelerate defense investment and production. These include moves to clarify the application of ESG requirements to defense activities; simplify the regulatory environment for defense-specific and dual-use technologies; fast-track permits for defense readiness projects; and ease the transfer of defense products across borders. Brussels has also stated its willingness to take a more flexible approach to merger reviews, antitrust enforcement, and state aid analysis in the defense sector.
However, there is still a lack of clarity around what a European defense sector will look like in practice. Many member states, including France and Germany, have announced plans to invest in naval hardware and radar capabilities. With the assumption that systems should be interoperable and available for export within the EU, such duplication risks a significant amount of destroyed capital.
U.S./EU Relations strained over free speech, net zero, and Greenland
After the drama of Munich, U.S./EU relations have remained fragile. In April 2025 came the “Liberation Day” tariffs. Then, just weeks later, U.S. Secretary of State Marco Rubio announced new visa restrictions on foreign nationals deemed “responsible for censorship of protected expression.” At the time, the policy was widely interpreted as a response to the EU’s Digital Services Act (DSA), which imposes on “Very Large Online Platforms” stronger obligations to implement measures to detect, flag, and remove “illegal” content (broadly defined as any information that violates EU or member state law). In December 2025, five European nationals—including the architect of the DSA, French former EU commissioner Thierry Breton—were denied entry into the United States.
The visa bans came shortly after the publication of America’s National Security Strategy, which accused the EU of “undermining political liberty and sovereignty” and branded its focus on Net Zero “disastrous” and “a threat to the United States.” The strategy stated that America’s goal “should be to help Europe correct its current trajectory.”
Tensions ratcheted higher as 2025 ticked over into 2026 when the U.S. administration reiterated its desire to acquire Greenland. The move stirred speculation about the future of the NATO alliance—concerns that reignited again following the U.S./Israeli strikes on Iran and subsequent Iranian attacks across the region, when world leaders rejected calls from President Trump for support to reopen the Strait of Hormuz.
Tensions with Washington highlight threat to EU from eurosceptic member states
These developments serve to highlight the challenge the EU faces from Eurosceptic member states.
To neutralize the possibility of a Eurosceptic veto, Brussels moved to act on elements of its defense strategy under Article 122 of the EU Treaty, which enables Commission proposals to bypass negotiations in the European Parliament and proceed straight to approval by a qualified majority in the Council. This mechanism and others like it are expected to be leant on more heavily in the future as the Commission looks for ways to respond quickly to global events.
But while these forces are putting pressure on European unity, the need for strategic autonomy has also brought the UK and EU closer together, with their rebooted relationship built initially around a new defense and security partnership. Canada, too, has signed a similar agreement.
Focus on procurement presents challenges for boards
Public procurement has emerged as a key lever via which the EU is attempting to align market forces with its geopolitical and industrial priorities. The EU’s 2024 Defence Industrial Strategy (EDIS) marks a significant shift in procurement logic, prioritizing as it does strategic autonomy over cost-efficiency by encouraging joint procurement across member states and EU-based production.
The Commission’s desire to ensure technological sovereignty and security of supply requires businesses to satisfy a series of requirements when transacting with public bodies. Eligibility rules state that companies must be established and have their executive management structures in the EU or an associated territory (i.e., countries in the European Free Trade Area (EFTA), prospective EU member states, Ukraine, and nations that have signed security and defense partnerships with the EU), and that they cannot be controlled by countries or entities from outside these areas.
In response, boards and management teams must consider whether to “onshore” aspects of their governance and operations to the EU in order to access these opportunities. Rules of origin and nationality also act as a trigger for use of the EU’s anti-coercion instrument (ACI).
The fact that signatories to EU security and defense agreements are able to participate in defense procurement programs illustrates a broader opening of public markets in response to geopolitical pressure. While still cautious, this alignment reflects mutual recognition that security cooperation—including industrial coordination—is essential in an era of contested global influence.
