For the past four-and-a-half years, the war on Europe’s doorstep has haunted policymakers. Yet they have treated it as a looming threat rather than one already eroding the very foundations on which Europe stands.
Russia’s war has devastated much of Ukraine’s south and east, even as the front lines have shifted only slowly. For Europe, however, the challenge has never been confined to the battlefield. Supporting Ukraine and constraining Russia have tested the continent’s economic resources and political unity. Now, as United States President Donald Trump seeks to force a disadvantageous settlement on Kyiv and repeatedly threatens to withdraw US support, Europe faces the prospect of shouldering even more of that burden alone.
Even if the latest crisis is averted, Europe can no longer assume that Washington will guarantee its security. It must develop the financial capacity to sustain Ukraine’s defence, the industrial strength to defend itself and the economic leverage to constrain Moscow. To meet these challenges, Europe must build a war economy.
The past four years offer lessons in how Europe can finance such an effort, but also warnings about the divisions that could undermine it. The European Union has already been at the forefront of Ukraine’s recent financing, moving from an 18.1-billion-euro ($21bn) share of the G7’s $50bn Extraordinary Revenue Acceleration (ERA) loans in 2024 to finalising a new 90-billion-euro ($100bn) loan this April, one that came without US commitment. Yet internal divisions remain over numerous issues, particularly as they pertain to constraining Russia. This month, the EU adopted its largest-ever round of sanctions listings. But while the measures added a record number of designations, they did little to broaden the scope of restricted activity and did not accelerate the phase-out of Russian energy imports, with pipeline gas imports still permitted until autumn 2027. European leaders have also expressed concern over Trump’s decision to waive new Russia-related sanctions as he seeks to grapple with the costs his foreign policy has wrought.
However, the US-Israel war on Iran has, if anything, shown that Europe’s measures against Russian hydrocarbons could have gone further. Before February, some 20 million barrels per day (bpd) of crude and oil products and roughly 110 billion cubic metres (bcm) a year of liquefied natural gas (LNG) passed through the Strait of Hormuz. By comparison, Russia exported about 6.5 million bpd of oil and products in September, and some 43bcm of LNG last year – about a third of Hormuz’s oil and two-fifths of its LNG. As the crisis continues and Trump seeks additional Russian supplies, Europe must complement its efforts to constrain Moscow with greater investment in its own security.
The first and most important step is to establish a standing framework for joint EU borrowing – not only to finance Ukraine’s continued defence, but also to fund the defence industry Europe will need to sustain its own defence and, if necessary, prevail against future threats from Russia. Crisis begets innovation, as demonstrated during the COVID-19 pandemic, when EU member states pushed past their long-held aversion to mutualised borrowing, creating the 750-billion-euro NextGenerationEU recovery fund in 2020. The EU’s contribution to the ERA loans and this year’s 90-billion-euro facility, both financed by common EU borrowing, extended that logic to wartime finance. But these remain crisis-by-crisis improvisations. Deepening fiscal and capital markets union and building a genuine fiscal-military state would provide the foundations of Europe’s power and its ability to deter and win wars.
The same logic plays out in the US today, where deep capital markets have given companies such as SpaceX, which invested heavily for years before seeing returns, the space to develop technologies such as its Starlink network that have reshaped modern warfare. The importance of this technology is now keenly felt on Ukraine’s battlefields, where Kyiv’s communications have rested on a network subject to the whims of one man, SpaceX CEO Elon Musk. Europe therefore needs the fiscal capacity to fund its own technological development and procurement.
There are understandable jitters about the existing indebtedness of European states such as France and the United Kingdom. However, Russia’s frozen sovereign assets offer a potential way to support further borrowing. Divisions remain over using these assets, with Belgium, which hosts the lion’s share at Euroclear, opposing such a move over fears of Russian legal action and damage to its position in the global financial system. The bloc must come together to share that risk, which is overblown in any case. Not all EU fiscal support needs to come in the form of direct joint debt either. Greatly expanding the EU capital markets union and creating tax-advantaged structures across the region for defence firms and technological innovators may prove even more effective.
Beyond the assets themselves, Europe must also take greater control over its continued economic linkages with Russia. That means intervening far more actively in cases such as that of Austria’s Raiffeisen Bank. In 2025, following a Russian court ruling, more than 2.1 billion euros were taken from Raiffeisen’s Russian subsidiary to compensate Rasperia, a company tied to the sanctioned oligarch Oleg Deripaska. A Vienna court’s ruling last month now paves the way for Raiffeisen to seek compensation from Rasperia’s frozen assets in the EU – using the same sanctions derogation through which Euroclear released some $3bn in 2025. It is precisely this kind of legalised dealing with Moscow that keeps threats like those levelled at Belgium credible: if the Kremlin can seize European assets and prompt the release of Russian-linked assets frozen in the EU, every expropriation becomes a bargaining chip.
Furthermore, the UK and the EU have increasingly made use of measures against circumvention that share some features with US secondary sanctions. Europe should now be more assertive in making it clear that firms helping Russia evade its sanctions risk losing access to European financial systems and markets. US firms will choose Europe over the Kremlin, even if Trump waives more sanctions.
Finally, Europe should seek to reduce US influence over its foreign and security relationships. Speaking in Qatar this week, US Ambassador to Turkiye Tom Barrack said Washington was moving away from its decades-old bargain of security for Gulf oil. Europe may not be able to offer the same level of security, but it can offer a mutually beneficial partnership that addresses both sides’ concerns. And it is Europe that is now stepping up in the Gulf, with the UK and France deploying jets, air defences and refuelling support to help Saudi Arabia against Houthi attacks. Unlike Washington, Europe can promise a deeper partnership in the future and serve as a reliable buyer of Gulf oil and gas exports in exchange for Gulf states doing more to address Europe’s security concerns about Russia through enhanced sanctions compliance and, first and foremost, ending the Kremlin’s role in OPEC plus.
Europe has the means to finance its own security. It must now find the will to borrow for it.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.
