How does an economic alliance transform itself into a security blanket? The European single market’s biggest challenge now comes from issues that are neither single nor a market, but require collective action, nonetheless.
Power politics is not a natural fit for a community founded on cross-border trade. Europe has an obvious need for more security cooperation, given Russia’s war against Ukraine at its eastern border and increasing global instability. It does not yet have a path to get there. Its core competence of economics and finance is already straining under the weight of national debts and a populist surge.
European Commission President Ursula von der Leyen tried to wrangle some momentum in her September 16 “State of the European Union” address. Some of the most telling moments were not in her speech itself, but rather the tentative pauses before the applause at key moments. The European Parliament in Strasbourg was internally divided before she even started, and her calls for more unity on mutual defense, China, and renewable energy will not lead to near-term consensus. She did bring a few new ideas: a critical raw materials stockpile (as suggested in these pages by Agathe Demarais and Daniel Gros back in May), new security councils, closer ties with Canada.
Her call for Canada to become an “associate member” of the EU was met with immediate scorn, with some national diplomats claiming to have been “blindsided” by her inclusion of a term that only started circulating in the press shortly before the speech. Yet a September 17 follow-on speech by Canadian Prime Minister Mark Carney showed there was a substantive plan behind the hand-wavy declaration. Unlike the United Kingdom (which left the EU in 2020), Canada has already joined Europe’s SAFE joint defense procurement scheme.
Whatever they call it, Ottawa is likely to deepen ties with Brussels in ways that could put pressure on the UK or other allies to follow suit.
The war between Russia and Ukraine has exposed the Europeans’ underlying discomfort with national security cooperation, even in areas of relative strength like financial support. On the one hand, the EU has so far funneled €221 billion in aid to Ukraine, including €107 billion from the EU budget, largely funded by joint bonds. On the other hand, member states are now reluctant to keep tapping their own pocketbooks as domestic spending pressures grow. Joint spending on missile defense, drone development, or other defense-related public goods will be a tough sell.
Meanwhile, the EU remains conflicted about how to handle what von der Leyen dubbed “China Shock 2.0.” Despite regular hand-wringing about how European firms stack up against global competition, the main policy response seems to be increased tolerance for national subsidies.
Integration has always come in fits and starts, as the EU moves from crisis to crisis with periods of relative prosperity between. Money will be necessary for the next step forward, but it may not be enough.
What Does Works, What Does Not
The EU has long served as a financing backstop for countries that join its numbers, providing catch-up funding to formerly communist states alongside bond borrowing assistance to those struggling for investors. It offers full market-access benefits to 27 members and three more countries besides, via the European Economic Area (EEA). The EU signs trade deals and negotiates with Switzerland. And, as mentioned, it provides substantial financial assistance to Ukraine, a candidate country.
But disagreements abound on defense and security, cloaked in the rhetoric of national sovereignty and member state responsibilities. The EU treaties give the union a specific and defined set of powers, mostly economic, sometimes shared. The rest remain firmly under national control.
When it comes to defense spending, border management, and mutual military aid, EU member states do not even have consensus about which teams they are on.
Ireland, Austria, and Malta are not part of NATO, the North Atlantic Treaty Organization that has kept the European peace since shortly after World War II. Ireland, along with Cyprus, also refrains from joining the Schengen border-free travel zone, which does include all the others, the three EEA members, and even Switzerland.
And Ireland, along with Germany, does not take part in the SAFE defense loan program, even if both countries went along with its creation and EU-level debt financing. Germany can borrow cheaply enough on its own while remaining in the core of European security policy, but Ireland’s stance matches its general attempts at neutrality and staying outside.
There has been some progress toward more unity, spurred by Russia’s 2022 Ukraine invasion. Danish voters gave up their 30-year official opt-out from the EU’s common defense policies, while Sweden and Finland joined NATO after decades of neutrality.
Finding Consensus
These divisions are further complicated by the EU’s longstanding reliance on consensus for taking joint decisions. While some types of economic laws can be passed through qualified majority voting, most big decisions require effective unanimity, as befits a voluntary alliance. It usually takes a crisis to reach a major breakthrough, like the 2012 creation of the banking union or the 2020 embrace of EU-wide joint debt.
Russia’s war against Ukraine, combined with the intransigence of former Hungarian Prime Minister Viktor Orbán, pushed leaders to unearth an obscure mechanism for making budget commitments without full internal agreement, allowing Hungary, Slovakia, and the Czech Republic to insulate themselves from fully guaranteeing the EU’s latest €90 billion loan to Ukraine. And unlike when the UK and other non-euro countries demanded a similar opt-out for a 2015 euro crisis bridge loan, the 2025 version was agreed quickly on a summit sideline rather than requiring stacks and stacks of legal contracts.
Giving countries the power to insulate themselves without blocking big decisions is in the EU’s interest, as long as the financial consequences revolve around theoretical future losses that are very unlikely to materialize. Using budget accounting to add and subtract budget guarantees is thus a solid testing ground for a majority-vote approach on foreign policy.
Being part of a union does rule out too much exceptionalism, however. Current calls to eliminate the EU’s diplomatic service (the European External Action Service, or EEAS) privilege national agitation too much over the common good. The EEAS may be a limited foreign policy arm, but the EU needs to have something. If nothing else, it serves the president of the European Commission well to have another prominent voice in tough conversations.
Associate What, Exactly?
The current European Commission chief is taking alliances seriously, and not just the now-traditional head-banging with the UK and Switzerland. The 2026 “state of the union” speech promised an “alliance of the future” that could include Canada as some new kind of “associate member.” Do not be deceived by the terminology drama or short-term awkwardness—this was a shrewd move that could lead to a meaningful shakeup in EU-third country relations. The name will almost certainly change, while the underlying agenda holds real promise.
Canada’s Prime Minister Carney came prepared with a long list of ambitious yet possible goals for renewed Ottawa-Brussels cooperation, which will already benefit from a beefed-up EU presence. He suggested his country could join the Erasmus+ youth mobility scheme and increase its presence in the Horizon research initiative, where Canada is already a partial participant. On top of the Canada-EU Free Trade Agreement (CETA), concluded in 2017, the two jurisdictions should aspire to “seamless, digital trade” in non-agricultural goods and a range of services. And if the EU does manage to assemble a critical raw materials stockpile, Canada might even be persuaded to take part.
Carney framed the growing alliance as a way of strengthening sovereignty on both sides, rather than a reaction to the growing trade wars with Washington or the EU’s uncomfortable squeeze between the United States and China. In contrast to the UK’s negative framing of the EU’s common rules, the Canadian premier sought to play up possibilities, rather than limitations.
Let’s Get Creative
To succeed as a foreign policy collective, the European Union is going to have to look past its comfort zone of legal agreements and careful rulemaking. Member states rightfully will want to protect their citizens and their national borders as they see fit, even as they must realize they will hold more global sway as part of a group.
Historically, NATO was the appointed gathering place—smaller and more aligned than the United Nations, but more flexible than the EU itself or other regional alliances. Its expressly military focus allowed it to coordinate Western strategy during the Cold War and assemble a different group of countries than those in the G7 or G20 economic powers. But NATO is circumscribed while the United States grapples with the second Donald Trump administration, no matter how ably Secretary General Mark Rutte manages his mercurial North American constituent.
The Europeans, therefore, need to diversify. The European Union must continue its internal deliberations on the role of unanimity, particularly as more countries aim to join. It also needs to embrace the mélange of alliances necessary to be effective in defense planning, coordination, financing, and procurement. Just as a successful economy requires open commerce with an eye toward national needs, a successful foreign policy will require an open mind toward cooperation alongside national priorities.
Economics will always be the EU’s heart and soul. Security strategy is a difficult but necessary part of its survival.
Rebecca Christie is IPQ’s Brussels columnist and a senior fellow at Bruegel, the economic think tank.
