The latest Russian airspace violations across NATO territory have forced Europe to confront an uncomfortable truth: Moscow’s transformation into a full war economy makes peaceful coexistence increasingly unlikely. These incursions are not mere provocations—they signal Russia’s willingness to test direct confrontation with NATO. Any remaining illusions about Russia’s imperial ambitions should be abandoned. The Russian political elite, having staked their survival on military expansion, cannot afford meaningful peace. For them, any genuine settlement in Ukraine would likely prove fatal. Europe must therefore prepare for a prolonged confrontation, possibly even war.
Yet the question haunting European capitals is whether the continent’s institutions are remotely equipped for such a monumental challenge. The decision by European leaders to dramatically increase defence spending represents an ambition comparable to the climate transition—and that precedent offers little comfort. Europe’s mixed record on climate action raises an urgent question: can the continent afford similar underperformance on defence, or must it fundamentally reimagine its institutional architecture?
The European Union’s fiscal and monetary framework, long criticised in both prosperity and crisis, now threatens to become the Achilles’ heel of European security. The current fiscal rules, obsessed with debt reduction, create an impossible bind. In an era of sluggish growth, governments cannot simultaneously slash debt and massively expand defence investment. This is not merely difficult—it is mathematically impossible.
When finance ministries face this choice, the outcome is depressingly predictable. The spectre of rising bond yields will deter any serious investment programme. Governments might attempt to rob Peter to pay Paul, shifting resources from welfare or infrastructure to defence, but such austerity-driven strategies are political suicide in democracies already strained by economic uncertainty. The result will be half-measures that satisfy no one and leave Europe dangerously exposed.
The central bank conundrum
The problem deepens when we consider the European Central Bank’s studied detachment from the continent’s strategic imperatives. When political authorities agree on an existential investment goal—defending European civilisation itself—the management of money cannot remain a technocratic exercise divorced from political reality.
This is where Europe must grasp the monetary nettle. The fiscal contradiction has a potential resolution through monetary policy. Finance ministries hesitate to expand spending because higher debt triggers rising bond yields, making borrowing prohibitively expensive. The only institution capable of managing those yields is the ECB, which could guarantee purchases of bonds whose prices fall due to defence-related investment.
Yet the ECB recoils from such action, fearing it would appear “too political”. But this misunderstands what Europe now requires. The continent needs not the depoliticisation of central banking but its strategic alignment with existential priorities. The political independence of Europe must take precedence; the independence of its central bank must serve that higher goal. This is not about compromising monetary integrity—it is about recognising that monetary policy without a defensible Europe is meaningless.
These conflicting policy objectives will manifest most painfully at the national level, yet they cannot be resolved there. History teaches us that existential crises drive polities towards greater centralisation and federalisation, not fragmentation. The American Civil War, the two World Wars—each pushed nations towards more unified governance structures capable of mobilising resources at scale.
National and European authorities must therefore begin serious engagement with what once seemed unthinkable: genuine fiscal union and a strategically aligned monetary authority. This may sound radical, even impossible. But it is precisely in the realm of the previously unthinkable that Europe must now operate if it hopes to counter the Russian threat effectively.
Without this institutional realignment, Europe’s defence ambitions will remain aspirational. Material investments will chronically lag requirements. National capabilities will develop in piecemeal fashion, creating dangerous gaps and complicating coordination. Modern warfare demands meticulous planning—and effective planning requires central authority with genuine power to allocate resources and enforce priorities.
Crucially, Europe must not abandon its commitments to climate action and social welfare in this security pivot. With the right financial architecture, these goals need not compete—they can be mutually reinforcing. Green technology can enhance energy independence; social cohesion strengthens resilience against hybrid threats. But without institutional reform, these policy areas will cannibalise each other, deepening political tensions within member states and potentially fracturing the European project itself.
The moment for fiscal union has arrived, driven not by ideological preference but by strategic necessity. A genuine external threat should catalyse the final stage of European integration—the pooling and distribution of financial resources for the common purpose of survival. Europe faces a choice as stark as any in its history: evolve or perish. The institutional architecture that served a peaceful continent cannot defend a threatened one. The time for radical reform is now.
Andris Šuvajevs is a member of Latvia’s parliament, representing the Progressives, a green party of the left. His political work is focused on fiscal and tax policy as well as public spending. He has previously worked as a financial journalist, policy analyst and lecturer in social anthropology.
