Overview
The European Space Agency’s Ariane 6 rocket successfully launched a French military satellite this week, representing a major step forward for the European space sector. The commercial launch from the European spaceport in Kourou, French Guiana, put into orbit a CSO-3 French military observation satellite at an altitude of 800 kilometers. The launch, while a technical success for a new heavy-lift launcher, also has geopolitical impact, as Europe now has a homegrown alternative to US commercial lift suppliers, guaranteeing independent access to space.
Self-reliance is becoming a watchword. The bonds that have cemented the transatlantic relationships since the end of World War II are loosening, particularly evident in a divergence in threat perceptions towards Russia. While the transatlantic relationship has previously been viewed as a mutually beneficial defense partnership, European leaders now assess that the US risks becoming an unreliable partner, creating a dangerous vulnerability to European security that is overdependent on US defense capabilities.
As European NATO members move to increase their defense spending, there has been a debate on whether to buy US equipment or shift to a buy European policy. President Trump’s actions toward Ukraine are driving decision-makers to reassess past assumptions and lean towards self-reliance.
Ukraine War Exposed Gaps in Threat Perceptions
Europe and the US have had disagreements in the past over defense priorities and threats, such as in the post-9/11 period and the US decision to invade Afghanistan and Iraq. Serious as these disagreements were, the parties prioritized preserving the partnership and reached an agreement on a NATO role outside a US/European theater with shared strategic objectives.
Under the Biden administration, there were disagreements with European partners over the types of military equipment to provide Ukraine. Different European partners pressed a reluctant White House to provide more sophisticated capabilities—such as the Army Tactical Missile System (ATACMS), Patriot air defense system, and F-16 fighter jets—and the US was eventually convinced that the risks of escalation were outweighed by Ukrainian needs to defend itself on the battlefield. The Ukraine war from the outset risked spilling over, threatening European security on a larger scale. The US and European leaders consulted closely on policy and coordinated military aid, all made possible because of shared strategic objectives of preserving the sovereignty of Ukraine and, more broadly, European security. Fundamentally, there was agreement that leaving Russia unchecked in Ukraine posed a threat to European security.
President Trump’s approach on Ukraine, however, has unsettled European leaders. President Trump is acting unilaterally, not in consultation with them or Ukrainian leaders. President Trump has made clear that he wants to end the war, but European leaders worry under what terms and if those terms will meet their strategic priorities, i.e., constraining Russia as a threat. The threat perception gap is large, given that President Trump continues to characterize Ukraine as the aggressor in the war and Trump’s recent decision to cut off US military aid and intelligence sharing to Ukraine. There is also divergence in how the US and Europe intend to treat Russia after the war. The US seeks normalization, while Europe, having learned the lesson of its vulnerability to weaponized gas dependence, has signaled firmness in energy decoupling. This contrast could cement a dynamic vis-à-vis Russia of a hawkish Europe and an ambivalent US on other issues, beyond finding a peace deal to the current war in Ukraine.
Europe Reassesses Assumptions on US Defense Partnership
Since the end of World War II, Europe has depended on the US nuclear umbrella for strategic defense and become part of the US defense supply chain and end user market. The security partnership benefited Europeans by allowing them to selectively invest in defense under the assumption that they would be part of the US capability. And that US capability is massive, after decades and billions in investment, making it the global military and technological leader.
As the US turns inward and puts budgets on the chopping block, with contributions to multinational institutions (such as NATO) being a key target, Europe faces a new strategic dilemma: ride out the current Trump Administration and manage reduced defense commitments as temporary or jumpstart the European domestic defense sector to invest in a new policy of self-reliance…or something in between.
European NATO members have already boosted defense sector investors to meet or exceed the 2% of GDP threshold and to surge military production to support Ukraine. Investment is set to grow substantially with the German policy decision (pending parliamentary approval) to remove borrowing curbs on defense spending and the EU Commission’s plan to mobilize €800 billion for defense. For self-reliance, however, Europe would need to not just refill stockpiles but invest in capacity building for research and development of classes of military equipment for which it is nearly completely dependent on the US, such as sophisticated air defense systems, long-range missile systems and next-generation fighter jets. Europe would need to own the technology in addition to home-shoring manufacturing to eliminate the reach of US export restrictions. Establishing self-reliance would take time, far beyond the four years of the Trump Administration.
Implications for Businesses
The surge in demand for European defense stocks reflects the growing market opportunity, at least how it is perceived today, backed by the increasing number and value of contracts European defense contractors have on their books. The market signals in the US, however, are driving down US defense companies’ stocks. According to the Financial Times, since President Trump’s inauguration, shares in the six biggest US defense companies have fallen by an average of 4%, while shares of Europe’s largest defense groups have increased by almost 40%. If this trend continues, an upside risk is that European firms may have comparatively greater flexibility over time to invest in cutting-edge capabilities, such as next-generation fighters, AI-integrated drones, or improved air defense systems.
Businesses that can adapt to evolving security policies will be better situated to capitalize on market opportunities. But there are risks. While Europe has decades of underinvestment in the defense sector to make up, dramatic shifts in the geopolitical environment may reinforce the need for Europe to rearm and focus on self-reliance, including imposing “Buy European” quotas to target its public procurement and jolt its defense industrial base. Alternatively, Europe could press in the opposite direction if a sustainable end to the war in Ukraine is reached, shoring up the Western alliance with updated understandings for partner commitments to NATO, aligned with new requirements of the 21stcentury.
