Europe’s trilemma: rearmament, green transition, competitiveness

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European leaders met in Brussels on 20 March to confront a mounting policy dilemma: how to balance rearmament, the green transition, and economic competitiveness. The discussions come amid slowing growth, high energy costs, and growing strategic insecurity — all while EU fiscal rules remain in place.

At the heart of the summit lies a trillion-euro question: can Europe meet its climate targets, rearm at scale, and remain globally competitive?

Defence spending surges across CEE

Several Central and Eastern European (CEE) countries have announced substantial increases in defence budgets. Poland plans to raise military spending to 4.7% of GDP in 2025, up from 3.8%. Czech Prime Minister Petr Fiala recently committed to increasing defence expenditure to 3% of GDP. Romania, Slovakia, and Hungary are also scaling up their budgets to meet or exceed NATO’s 2% threshold.

Historically, Europe was a military heavyweight. The UK spent over 20% of GDP on defence in the early 20th century, peaking at more than 40% during World War II. But post-war Europe demilitarised, shifting focus to welfare and economic integration. Since the 1990s, most EU members have kept military spending around or below 2% of GDP.

Russia’s invasion of Ukraine has reversed this trend. With Moscow reportedly spending around 8% of GDP on defence, EU states are scrambling to rebuild capabilities. Yet progress is slow. According to Germany’s Kiel Institute, Germany would take 10 years to replenish its fighter jets, 40 years to replace tanks, and over a century to restock artillery at current procurement rates.

US pressure and EU strategic autonomy

The Brussels summit took place amid renewed US demands for Europe to carry a larger share of NATO’s defence burden. US President Donald Trump has called for allies to raise defence spending to 5% of GDP — far above the 2% NATO guideline.

The pressure has reinvigorated debates over European strategic autonomy. While some member states favour close US coordination, others stress the need for independent EU capabilities. The EU’s new “Readiness 2030” strategy, backed by a proposed EUR 150bn defence loans programme, seeks to strengthen Europe’s own defence industry and reduce dependence on US suppliers.

Twin-track strategy: green and armed

At the same time, the EU remains committed to its Green Deal targets, including net-zero emissions by 2050 and a full phase-out of internal combustion engine vehicles. In February, the European Commission launched a EUR 100bn Clean Industrial Deal to accelerate decarbonisation in sectors such as green steel, solar manufacturing, and heat pumps.

But green targets must now coexist with the bloc’s rearmament drive — prompting the Commission to promote a twin-track strategy. European Commission President Ursula von der Leyen told leaders, “Europe must stay competitive while securing its future. That means investing in defence and decarbonisation — at the same time.”

Fiscal constraints and budget rule backlash

High public debt and inflation make large-scale public investment politically and fiscally contentious. Still, calls to suspend or reform EU fiscal rules are growing louder. “Europe cannot deliver on its ambitions with 20th-century fiscal rules,” French President Emmanuel Macron said after the summit.

Italian Prime Minister Giorgia Meloni has echoed support for greater fiscal flexibility, while France continues to push for joint EU borrowing to fund strategic investment. Germany remains split. However, Friedrich Merz — widely expected to replace German Chancellor Olaf Scholz — recently introduced a parliamentary motion to amend Germany’s constitutional debt brake and unlock over EUR 1tn for strategic investments.

Hungary’s veto power begins to erode

A major point of tension is how to finance the defence and green transitions without unanimous support. Hungarian Prime Minister Viktor Orban has consistently opposed new EU borrowing and Ukraine-related defence aid. But other leaders are now finding ways around Budapest’s obstruction.

“There is a new normal in the EU. It’s called EU26,” one senior diplomat told Euractiv. Increasingly, EU leaders are bypassing unanimity by using intergovernmental agreements outside EU treaty structures — or applying creative legal instruments to isolate holdouts.

Hungarian MPs recently adopted a resolution opposing joint borrowing. Yet this has not stopped other capitals from advancing coordinated spending plans via coalitions of the willing.

Outlook: hard choices ahead

The Brussels summit is expected to produce new guidance on fiscal coordination, joint procurement, and industrial strategy. But the core trilemma remains unresolved. Achieving strategic security, climate neutrality, and global competitiveness — all under tight fiscal conditions — may prove politically and financially unmanageable.

For CEE governments especially, the need to rapidly rearm while modernising their economies and decarbonising industry will require difficult trade-offs.

As one EU official put it, “Europe has big ambitions — and an even bigger bill. The real question is not whether we can do it all, but whether we can afford not to.”