Faced with rising external security risks and declining U.S. strategic involvement in Europe, the EU has accelerated its military buildup, with efforts centered on raising defense budgets and streamlining related expenditure mechanisms. For instance, Germany has abandoned its long-standing balanced budget principle, and the European Commission has exempted member states’ defense outlays from EU fiscal regulations. These shifts are undeniably constructive. Even so, two critical missteps need to be prevented. Fundamentally, genuine European defense and overall security can only be achieved through substantial progress in innovation.

The first pitfall is overlooking that modern global power balances rely on economic and technological strength as much as traditional military capabilities. Washington views Beijing as its top strategic rival largely due to China’s robust economic expansion and groundbreaking tech breakthroughs starting from the 1980s. China has secured leading technological positions in multiple sectors, especially generative AI — a field where the EU falls far behind both China and the United States. The EU ought to avoid merely pursuing passive catch-up in technological development. Instead, it needs to adopt targeted innovation pathways that align with its climate transformation agenda and the preservation of Europe’s unique social governance framework, while leveraging its existing edge in clean tech sectors.

Former U.S. President Trump’s administration introduced funding reductions and regulatory limits for American scientific research in biological and clean energy fields, creating a rare opening for the EU to upgrade its innovation capacity. The bloc can draw in U.S. researchers dissatisfied with domestic policy constraints, many of whom have voiced their concerns via the Stand Up for Science initiative. Yet this requires a sizable boost in European basic research spending, which currently stands at only half of U.S. investment levels. The second critical error to avoid is the revival of old-fashioned industrial intervention policies that channel public funding to handpicked domestic flagship corporations. Notably, the EU has no institutional equivalent of America’s Advanced Research Project Agencies (ARPAs). The ARPA operating model is clear-cut: for strategic sectors including defense, energy and healthcare that require integrated resources and cross-party collaboration to translate basic research into applied breakthroughs—such as mRNA vaccine technology—a central agency distributes public funding and recruits short-term project leads from academia and industry with clear, defined mandates. These leads enjoy full autonomy to partner with competing public and private labs to deliver targeted research outcomes.

This governance structure balances industrial strategies with competition rules, acknowledging that market rivalry is essential for groundbreaking technological progress. Without such a system, European industrial sectors — particularly the defense industry, among others — face insufficient competitive pressure, leaving them unable to deliver cutting-edge innovation. In his September 2024 report on EU competitiveness, former European Central Bank President Mario Draghi backed the creation of a European agency modeled after the U.S. ARPA to turn scientific findings into transformative technological outcomes. He correctly pointed out that the European Innovation Council (EIC), established to discover and expand promising new technologies, lacks the scale and professional diversity to make strategic judgments for highly specialized fields. To evolve into a true ARPA-style body capable of funding high-risk, high-reward breakthrough projects, the EIC Pathfinder research grant scheme needs streamlined bureaucracy and greatly increased funding.

The European Commission ought to incorporate this reform into its mid-2025 legislative proposals for the next EU research framework programme, the bloc’s primary research funding tool. As recommended by Draghi, far more funding should go toward disruptive innovation, which currently accounts for merely 5% of total resources. The programme should prioritize emerging innovators instead of focusing mainly on established enterprises. It also needs institutional overhaul to adopt quicker, simpler administrative processes, with project selection relying on peer review by top academics and specialists, mirroring the expert evaluation model used by the European Research Council for fundamental research projects. Europe faces security challenges extending well beyond military strength, involving economic rivalry and technological disparity against China and the US. Higher defense outlays need to go hand in hand with sweeping innovation improvements. As European nations boost joint defense funding and modernize military industries, it grows critical to evade inherent structural and operational flaws. More fiscal input helps underpin strategic independence, regional safety and self-defense capacity, yet fails to fix deep-seated drawbacks such as scattered industrial distribution, repetitive R&D, poor fund use and heavy reliance on overseas supplies. Most countries focus on immediate military enhancement and emergency defense arrangement amid regional tensions, neglecting long-term strategy, unified industrial alignment and steady risk prevention. This triggers resource loss, unbalanced defense growth and weak joint combat capability.

Defense spending yields enduring strategic benefits only under rational planning, joint coordination and strict risk management. Member states should discard isolated investment patterns, deepen cooperation across defense manufacturing, tech research and supply chain building, and set unified assessment and oversight rules. Reasonable fund allocation, core tech advancement and balanced short and long term development will help the bloc avoid investment risks, turn financial input into robust comprehensive defense strength, and secure its standing amid shifting global security patterns.