Rebooting the U.S.-EU Defense Relationship

Sophia Besch

Centre for European Reform

Sophia Besch is a DAAD/AICGS Research Fellow from September to December 2021. She is a Senior Research Fellow at the Centre for European Reform’s (CER) Berlin office and a Nonresident Senior Fellow at the Atlantic Council Europe Center. She works on European defense issues, with a focus on EU defense industrial cooperation, German defense policy, the effects of Brexit on defense cooperation, and EU-NATO relations. Ms. Besch holds Master’s degrees from the London School of Economics and Sciences Po Paris and is currently pursuing a PhD at King’s College London.

Ms. Besch's dissertation is concerned with the EU’s decision to establish the European Defence Fund, a new initiative that uses EU budget money to incentivize defense industrial cooperation. Specifically, her research centers on the internal interplay of actors that led to this instance of European integration in a traditionally intergovernmental policy field.

During her fellowship at the AICGS, Ms. Besch will analyze the transatlantic dimension of the Defence Fund. She will examine how U.S. government and industry actors perceived the EU’s creation of the Fund and what role the defense relationship with the United States played in member-states' deliberations. This will eventually allow her to draw policy-relevant conclusions about the Fund’s implications for defense cooperation between the United States and Europe.

The DAAD/AICGS Research Fellowship is supported by the DAAD with funds from the Federal Foreign Office.

President Biden has come into office determined to reboot the U.S.-EU relationship after four years of tension between Washington and Brussels. The Biden administration acknowledges that the European Union is an actor with significant geoeconomic clout and an important partner in the United States’ dealings with China and Russia. This recognition of the EU’s importance was reflected in an initial flurry of initiatives, from the EU-U.S. summit in June 2021 to the launch of the Trade and Technology Council in September 2021. There has been a change of tone in the defense and security sphere too. What can Washington and Brussels hope to achieve in this field?

New realities

The EU is growing in importance as a security and defense actor. As a geoeconomic and regulatory powerhouse, it can help member-states improve their resilience against economic coercion. But the union is also building up its capacities in the traditional security realm—it is working to advance European military mobility through regulatory initiatives and infrastructure programs; it has developed defense capability development funding mechanisms like the European Defense Fund and PESCO, and it has become effective at countering disinformation. It also aspires to improve its crisis management operations. EU member-states have, for instance, suggested setting up an EU rapid deployment capacity that would allow the union to intervene in a range of crises without relying on the United States. Member-states have also launched a fund to train and equip foreign military forces and are working to improve the joint deployment of European national navies.

The hope in DC is that the United States’ embrace of a more constructive course vis-à-vis the EU’s defense efforts will help the EU achieve the longstanding objective of filling European defense capability gaps.

U.S. administrations have traditionally been skeptical of the EU as a defense player. They have been concerned about unnecessarily duplicating NATO structures, about losing influence in Europe, and about Europeans pursuing a diverging foreign policy course on Russia or China. Washington has also been apprehensive that EU defense market integration would restrict U.S. defense companies’ market access. Under former President Trump, the United States openly lobbied against the EU’s defense industrial initiatives, accusing the Union of deploying protectionist instruments to shut out U.S. firms.[1] This view still prevails in some parts of the administration, particularly in the Pentagon, which remains protective of NATO. But other officials and political appointees are open to a more independent European defense policy. They share a broader understanding of security with the EU that goes beyond “hard” defense concerns to include questions of human security and societal resilience. Those officials more supportive of an independent EU defense policy remain committed to NATO and see the alliance at the core of European territorial defense. But they do believe that Europeans should be able to take on out-of-area crisis management operations in the European neighborhood without U.S. support, they hope to rely on the EU to rally its member-states around sanctions against Russia, and they are looking to coordinate their posture in the Indo-Pacific with the Union in the future.

Good intentions

To guide the U.S.-EU defense relationship onto a more constructive track, the Europhiles in the administration are ready to move on, at least to an extent, from the idea that spending 2 percent of GDP on defense should be the only metric of defense performance and even overcome their skepticism of the strategic autonomy terminology.[2] New direct dialogue formats have been established between Washington and Brussels, such as the U.S.-EU dialogues on defense and security, the Indo-Pacific, and China. When the EU High Representative for Foreign Affairs and Security Policy Josep Borrell came to Washington, he took meetings not only at the State Department but also at the Pentagon.

The window of opportunity for a reboot of transatlantic defense is effectively closing in the summer of 2022.

The hope in DC is that the United States’ embrace of a more constructive course vis-à-vis the EU’s defense efforts will help the EU achieve the longstanding objective of filling European defense capability gaps. Previous EU operations in Kosovo, Libya, Afghanistan, and the Sahel have again and again shown shortfalls in the capacity to carry out or use strategic lift or air-to-air refueling, for instance. These efforts have gained relevance since the withdrawal from Afghanistan in the summer of 2021, which showed once again that for now, European military operations remain painfully dependent on U.S. military capabilities and decisions. Both the United States and the EU are also aware that Europeans need to modernize their armed forces in order to prevent a widening capability gap in the field of emerging and disruptive technologies and maintain transatlantic interoperability, which is an urgent priority particularly in the context of the U.S. technology race with China.

Mounting frustrations

Despite good intentions, however, almost one year into the Biden administration, both sides are frustrated with the lack of progress. Ironically, the diplomatic spat over the AUKUS deal in the fall of 2021 has helped to focus Washington’s attention on European defense. But U.S. defense officials complain that EU member-state representatives tend to present contradicting viewpoints on where EU defense is going, often going so far as to actively undermine each other. They report that when EU officials have come to Washington, they have not been able to discuss many concrete proposals or initiatives on defense and instead deferred to the ‘Strategic Compass’—a sort of defense white book which is expected to yield answers on the direction of EU defense in 2022. Many in the DC defense community worry that the Strategic Compass will turn out to have been nothing but a bureaucratic exercise. They are disheartened by the fact that the funding for the EU’s flagship defense initiatives, the European Defense Fund and the PESCO military mobility project, came in below what was expected, and they wonder whether Europeans themselves are serious about empowering the EU as a defense actor.

Many in Washington feel that “the ball is in the EU’s court” and are waiting for Europeans to present concrete initiatives to the United States… But it would be a mistake for the United States to stay out of the European debate. Washington’s voice matters in matters of European defense.

Meanwhile, EU officials have been frustrated with the United States’ focus on questions of industrial interests and market access.  Take for instance Washington’s insistence on a European Defense Agency (EDA) Administrative Agreement (AA). This agreement is necessary for U.S. defense firms to be able to participate in EDA-managed defense capability projects.  Concluding the EDA AA is not a new U.S. demand, but it rose to a priority issue in the first months of the Biden administration. European governments are split on the issue of U.S. access. While some welcome U.S. involvement in EU-funded capability projects, hoping to increase transatlantic interoperability and anchor the U.S. security guarantee with defense contracts, others worry about European defense firms being shortchanged and about the application of U.S. arms export policy to EU-funded defense platforms that include U.S. components. These concerns have not changed with the new U.S. government. In fact, the Biden administration’s focus on “Buy American” requirements has contributed to some EU wariness about mounting U.S. protectionism.[3] The EDA AA issue was finally resolved at the end of 2021 through bilateral talks between Paris and Washington after the AUKUS deal.[4] In November 2021, member-states granted the EDA the mandate to start negotiations with the U.S. Department of Defense. And in December, the U.S.-EU defense dialogue was launched. Now that this obstacle has been overcome, both sides could move on to more substantial issues.

A window of opportunity

The EU’s defense efforts are about to reach a critical point in 2022. In recent years, EU defense has been struggling with the divide between technical initiatives to fill capability gaps on one side and a largely theological debate on the concepts of European strategic autonomy and technological sovereignty on the other. Member-states are now trying to bridge that divide.

The Strategic Compass, which is accompanied by a joint threat assessment, will be just one catalyst for a broader European debate about strategic objectives. Crucially, the EU’s strategic review runs in parallel to NATO’s Strategic Concept process. And the Union is conducting a review of its fiscal rules, which could include a discussion over increased EU public investment in digitalization, decarbonization, infrastructure, and defense. The next few months are, therefore, a unique opportunity to not only sharpen the EU’s defense profile but also develop a new narrative of transatlantic defense cooperation, one that accounts for new realities, includes NATO, the EU, and the United States, and frees up the necessary investments to put a new transatlantic defense deal into practice. Time is short: the French elections and the U.S. mid-terms are looming. The window of opportunity for a reboot of transatlantic defense is effectively closing in the summer of 2022.

It would now be a grave mistake to let the current mutual goodwill and functioning working relationship lull the United States and the EU back into inaction. Instead, both sides should make use of this moment of respite to build lasting and institutionalized structures of engagement on defense that can withstand future tensions.

Many in Washington feel that “the ball is in the EU’s court” and are waiting for Europeans to present concrete initiatives to the United States. This instinct is understandable, especially considering Washington’s strategic focus on the Indo-Pacific and China. But it would be a mistake for the United States to stay out of the European debate. Washington’s voice matters in matters of European defense. For years, U.S. calls for Europe to ‘do more,’ coupled with skepticism of the EU, have contributed to the Union not living up to its potential on defense policy. Then, under the last U.S. administration, the open opposition of President Trump helped galvanize Europeans to launch a range of new initiatives. It would now be a grave mistake to let the current mutual goodwill and functioning working relationship lull the United States and the EU back into inaction. Instead, both sides should make use of this moment of respite to build lasting and institutionalized structures of engagement on defense that can withstand future tensions.

Five Recommendations

Broadly, Washington can reassure European governments that their investment in the EU’s defense efforts does not in any way alienate the United States or undermine Washington’s commitment to NATO.  Concretely, the United States and the Europeans should focus on five potential wins over the next months.

1. Set up the U.S.-EU dialogue on security and defense for success

The first meeting of the U.S.-EU dialogue on security and defense will be held in early 2022 with the participation of the U.S. Departments of State and Defense and the European External Action Service, the European Commission, and the European Defense Agency. This new format holds great promise. For one, both sides can use it to prepare and explain defense policy initiatives, which in the future could help avoid the surprises and misunderstandings that have plagued recent debates over the EU’s rapid deployment force or the Strategic Compass, for instance. The dialogue can help minimize public tension and improve the tone of exchange between the EU and United States. It can also help to avoid a ‘bilateralization’ of the U.S.-EU relationship: as long as the United States relies solely on briefings by Paris, Berlin, or Warsaw it will not only get contradictory information but also end up disappointed: single member-states do not control Brussels and cannot actually deliver all-of-EU initiatives.

But dialogue for the sake of dialogue is limited in its usefulness. Both the EU and the United States now need to develop a substantive agenda for the next few months. The first draft of the Strategic Compass outlines a long laundry list of issues to be discussed with Washington.[5] Since France will hold the EU Presidency in 2022, it would make sense for the first meetings of the dialogue to focus on French priorities, such as improving transatlantic cooperation on the EU’s coordinated maritime presences, on cyber defense policy and joint cyber exercises, and on the EU’s defense space strategy, which is to be developed by 2023.[6] There has been some debate over whether working-level consultations between EU and U.S. officials or regular high-level meetings would be most effective. Ideally, a mix of both could help to work out concrete and substantive joint initiatives, as well as guarantee continued political momentum.

2. Align EU-NATO work on defense innovation and find new formats of engagement

Both the United States and the EU have an interest in investing in new and emerging defense technologies and to maintain interoperability, particularly in the context of the U.S. technology race with China. The United States, through AUKUS, has established an innovation partnership with just one European ally, the UK (for now). Meanwhile, NATO has launched a new defense innovation fund and a defense innovation accelerator (DIANA). The UK, which post-Brexit has given itself the guidance to ‘Think NATO,’[7] was a supporter of the Fund, but the United States and France are not members. At the same time, France often argues that the EU should be in the lead on emerging technologies and is pushing for the creation of an Innovation Defense Hub within the European Defense Agency. These defense innovation efforts pursued in parallel by both organizations are already leading officials to complain about NATO duplicating the EU and vice versa. Both Americans and Europeans should try to prevent a rehashing of this unproductive talking point.

Parallel to the EU branching out into ‘traditional’ security, NATO has been broadening its own understanding of security to include newer domains such as economic security, disruptive technologies, and disinformation.[8] This development provides clear opportunities for cooperation between the two organizations, but also presents risks of conflict and tension. NATO-EU cooperation today remains largely process-driven. Inter-institutional exchanges are often focused on ‘deconflicting’ rather than building genuine synergies,[9] and the relationship suffers from long-standing political conflict between Turkey and Cyprus and from newer tensions between the UK and France. The concurrent NATO Strategic Concept and EU Strategic Compass processes are an opportunity for the United States and the EU to work together to improve NATO-EU cooperation on innovation. The next NATO-EU joint declaration, which is scheduled to be published soon, could help by acknowledging a new division of labor between the two institutions.

For instance, it would make sense for the two organizations to cooperate on investment screening, research protection, and initiatives to facilitate information-sharing on dual-use export and import controls of critical technology.[10] These joint NATO-EU initiatives could usefully build on the work done by the United States and the EU at the Trade and Technology Council.  On defense technology development, the Americans and Europeans could explore different new formats of engagement. For instance, the United States could expand AUKUS to include more European countries with relevant defense innovation profiles, such as France or Estonia. Or, if AUKUS remains too politically sensitive for Paris, the transatlantic allies could explore the possibility of the United States joining selected PESCO projects geared towards defense innovation. The United States may also want to reconsider its decision not to join DIANA.

3. Don’t let industrial interests undermine cooperation

Both the EU and the United States should push to conclude the EDA AA negotiations as quickly as possible to prevent the issue from bedeviling cooperation efforts for too long. EDA negotiations with other third countries have taken months and years in the past—the United States and the EU arguably do not have that kind of time. Russia’s aggressive posturing near the Ukrainian border demands a unified response and China can be expected to test the EU-U.S. alliance soon. In this context, it is useful to adopt some perspective. Both the EU and the United States restrict third-party access to their funding programs for defense capability research and development. And both the United States and European governments have in place a range of export controls, for instance, the U.S. International Traffic in Arms Regulations (ITAR) provisions. (Notably, the EU itself does not control European arms exports yet; this competency remains largely in the hands of member-states.)

At the same time, U.S. defense firms remain a significant player in the European market—between 2014 and 2016 the United States exported $62.9 billion worth of defense exports to the EU (meanwhile only $7.6 billion went from the Union to the United States).[11] The idea of a European defense market closed to U.S. companies is a strawman. Despite the growing role of the Commission, the EU has neither the ideological inclinations, the institutional power, or the strategic incentive to implement such programs.[12] And despite the Biden administration’s rhetoric on Buy America initiatives, exceptions remain in place that enable the Pentagon to continue trading with European allies.[13]

While it is unlikely that the negotiations over the EDA AA will result in ITAR exceptions for Europeans, there might be an opening to loosen the rigidity of the regime for European allies. In future, both sides should work to prevent industrial issues from dominating the agenda between the EU and the United States. As the EU starts investing in its own defense industry, competition between EU defense firms and U.S. companies will become more prevalent. But the recent focus on the EDA AA points to the lack of other substance in the defense conversations between the United States and the EU.  The United States continues to worry about the disconnect between EU industrial initiatives and European defense policy. U.S. defense planners fear that EU capability investment suffers from a lack of prioritization and is designed not to build up capable militaries but rather to build up European industry. Putting concrete issues of engagement on the table would help by allowing Europeans to show that their defense efforts will yield results and persuading Americans that an integrated European defense industry, combined with a common European defense strategy, can lead to a fairer distribution of the transatlantic security burden.

4. Invest in Europe’s strategic sovereignty

European NATO allies have consistently increased their defense spending for the last six years.[14] But in the EU’s budget negotiations, defense has emerged as a loser. The Commission had originally planned, through the European Defense Fund, to spend around €12 billion to co-finance collaborative capability development projects and fund collaborative defense research, but the Fund was cut down to around €7 billion over seven years. The Commission’s circa €6 billion military mobility plan was reduced to €1.5 billion. The European Defence Fund is set for a review in 2024, but this will likely focus on its work program rather than budget. Nonetheless, to the extent that it can influence the review, the United States has an interest in helping the Defence Fund succeed; this way member-states might allocate more resources in the next budget cycle, starting in 2027.

More significantly, and in the nearer future, the ongoing review of the EU’s fiscal framework might offer an opportunity to invest. Some in Europe are calling for a reform of the EU’s rules to support increased investments in decarbonization, technology, infrastructure, and defense.[15] Specific defense-related proposals have suggested creating a version of the EU’s post-pandemic Recovery Fund for defense, jointly borrowing money to finance the acquisition of defense capabilities by member states and to support existing EU initiatives.[16] In his first meeting with the newly elected German Chancellor Scholz, French President Macron brought up the need for investments into what he calls ‘European sovereignty,’ imposed by new geopolitical tensions.[17]

While Germany’s new governing coalition may be more open to such proposals than previous governments in Berlin, any debate on investments into ‘European sovereignty’ will bring to the fore European divisions over the meaning of the term. For instance, while Paris tends to include the EU’s defense industrial base, the new German government does not appear to embrace the notion of European strategic autonomy in defense terms. The German coalition treaty defines ‘strategic sovereignty’ as becoming “less dependent in important strategic areas such as energy supply, health, raw material imports, and digital technology.”[18] The new German foreign minister Annalena Baerbock also stated that Berlin understood strategic sovereignty primarily in terms of technological and economic policy, and not in military terms.[19] From a transatlantic defense perspective, it is certainly true that one way to address some of the long-standing points of tension in the EU-U.S. defense relationship would be to invest more money into EU defense. This would increase European credibility, do much to dissolve the EU-NATO institutional rivalry, and alleviate some of the defense industrial competition. The review of the EU’s fiscal framework offers a unique opportunity for Europeans to debate these issues.

5. Improve the UK-EU defense relationship

Finally, the U.S.-EU defense relationship can only thrive if the UK-EU defense relationship improves. Not only would Europe’s credibility as a defense actor clearly benefit from close defense links between the UK and the EU, but the UK could ideally also function as a bridge between the transatlantic partners—with its close relationship with the United States and its involvement in AUKUS and Five Eyes, London could help Europeans understand the U.S. perspective. If the EU associates the UK as a third country with a ‘special relationship’ with Europe, the UK could help to inform and reassure Washington about the EU’s initiatives. At the same time, if the tensions between continental Europe and the UK continue and London remains an outsider to the EU’s efforts, this could undermine both U.S.-EU and NATO-EU cooperation.

So far, talks between London and Brussels have made little progress. [20] Each side blames the other. The EU accuses the UK of wanting to cherry-pick the benefits of cooperation while not taking the Union seriously as a budding defense player. Meanwhile, the UK accuses the Commission and the member-states of being rigid and lacking a strategy, creating overly protectionist defense industrial programs, and seeking to benefit from excluding the British and their defense industry. The AUKUS slight has not helped: the relationship between France and the UK, already tested over difficult Brexit negotiation, is currently at a low point.

The United States should support any efforts at reconciliation particularly between the UK and France and continue arguing for closer relations between Brussels and the UK—to its EU interlocutors, but particularly also to London: the current UK government has recently shown little interest in working with the EU on defense issues. Meanwhile, the EU should continue to reach out to the UK and offer new ways to engage. Concretely, a UK-EU dialogue on security and defense, mirroring that of the EU and the United States would be a useful first step to bring London back into the tent.

[1] Alexandra Brzozowski, “Pentagon warns EU against blocking US firms from defence fund,” Euractiv, 15 May 2019. 

[2] Hans Binnendijk and Alexander Vershbow, “A trans-Atlantic agreement on European strategic autonomy,” DefenseNews, 10 October 2021. 

[3] Joe Gould, “Buy American: Biden sees industry pushback as allies warn of trade consequences,” DefenseNews, 1 November 2021. 

[4] The White House, “United States-France Joint Statement,” 29 October 2021. 

[5] Niklas Nováky, “EU’s draft defence strategy points to evolution not revolution,” Euronews, 23 November, 2021. 

[6] Commission de la défense; Mme Florence Parly, Ministre des Armées, 14 Décembre 2021. 

[7] UK cabinet office, The Integrated Review 2021,, 16 March 2021. 

[8] Giovanna Di Maio, Opportunities to deepen NATO-EU cooperation, Brookings, December 2021. 

[9] Simona Soare, “Turning the tide; how to rescue transatlantic relations,” EUISS, 22 October, 2020. 

[10] Tyson Barker, The hidden G2 for democratic tech governance is the EU-US relationship, DGAP Analysis, June 2021. 

[11] Daniel Fiott, “The poison pill: EU defence on US terms,” EUISS, 14 June 2019. 

[12] Sophia Besch and Martin Quencez, “The importance of being protectionist: a long view of the European Defense Fund,” War on the Rocks, 13 June 2019. 

[13] Joe Gould, 2021. 

[14] NATO, The Secretary General’s Annual Report, 2020. 

[15] Arancha González, “Europe’s fiscal rules are holding it back,” Politico, 13 December 2021. 

[16] Max Bergmann and Benjamin Haddad, “Europe needs to step up on defense,” Foreign Affairs, 18 November 2021. 

[17] Hans Von der Burchard, “Macron urges Scholz to ‘invent’ new financial solutions for EU,” Politico, 10 December 2021. 

[18] SPD, Bündnis 90/Die Grünen and FDP, Mehr Fortschritt wagen, Koalitionsvertrag, December 2021. 

[19] Rede von Außenministerin Annalena Baerbock anlässlich ihrer Amtsübernahme im Auswärtigen Amt, 8 December 2021. 

[20] Sophia Besch, “Bridging the Channel: how Europeans and the UK can work together on defence capability development,” CER, 15 October 2021.  

Supported by the DAAD with funds from the Federal Foreign Office (FF).

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American-German Institute.