What Scotland needs as Europe faces moment of reckoning

For the first time since the Second World War, the continent must confront the possibility that American security guarantees can no longer be relied upon, just as Russian threats grow and China's economic dominance reshapes global trade. Yet at this critical juncture, Europe finds itself hobbled by political fragmentation and an inability to translate its apparent economic strength into effective defence.

At first glance, defence does not look like a tough challenge; Europe's economy stands nine times larger than Russia. European nations spent over four hundred billion dollars on defence last year, triple Russia's military budget. And in population terms, Europe's four hundred and fifty million dwarfs Russia's one hundred and forty-five million. There is dominance in industry and technology, too; Europe houses world-leading firms in aerospace, pharmaceuticals, precision engineering, and advanced manufacturing. By conventional measures, Europe should be secure, powerful, and confident.

However the challenge is in the organisation of defence and the need to recognise the changed nature of cold war and conflict. In this, Europe looks increasingly vulnerable. Defence procurement remains overwhelmingly national, with seventy-eight percent of European military spending flowing to suppliers outside the continent, predominantly American firms. Lack of standardisation is a weakness, with proliferation of tank and fighter aircraft models. Europe's defence industry has been systematically underinvested and is now ill-suited to modern threats. Decades of peace have allowed military production to atrophy.

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Europe’s weakness matters for Scotland. Our economy depends heavily on European trade - particularly in food and drink, energy, and services. Scotland’s universities benefit from European research partnerships. Most Scots feel an affinity with Europe and view neighbouring countries as natural trading partners and collaborators. Should the relationship include defence cooperation?

Scotland has an equivocal relationship with defence, but we may have entered an era when defence could be a unifying force for Europe. The positives are the need for a united front and collaboration. But it is not clear what sacrifice would be involved; more defence spending risks crowding out investment and much needed support for health and welfare. Policy on defence is set in Westminster but Scotland needs to be in the debate if decisions impact the economy and growth.

Intertwined with national security is the economic threat from China. China's new strategy combines three elements: shutting out European products from Chinese markets, flooding Europe with subsidised exports, and weaponising export controls on rare earths and critical materials. The result threatens forced deindustrialisation of Europe's core industries.

Germany faces the sharpest impact. Its trade deficit with China reached €66 billion in 2024 and is expected to surge past €85 billion this year. Traditionally Europe's manufacturing powerhouse, Germany suffers most acutely from its rapid trade reversal. Hardest hit is the country’s Mittelstand - small precision manufacturers that for decades drove the nation’s industrial success. These businesses previously found Chinese markets perfectly suited to their machine tools and engineering excellence.

Times have changed. German exports to China have collapsed alongside a surge in Chinese imports, particularly in cars, chemicals, and machinery, all traditional German strengths. In the space of five years, German car sales have fallen from 27% of the Chinese market down to 17%, at the same time that China's net car exports boomed.

This happened despite the European Union introducing tariffs in 2024 on Chinese electric vehicles.

Europe’s industrial challenge extends into new areas. The global economy is shifting toward technologies where European strength counts for less; artificial intelligence, advanced robotics, space systems and automated manufacturing. These sectors will define economic and military power in the coming decades, dominated by American and Chinese firms.

European excellence in traditional manufacturing and precision engineering still matters, but the future will emphasise software-defined systems and data-intensive production. Europe's industrial base -world-beating in the twentieth century - struggles to compete now. The defence industrial transformation demanded by modern warfare illustrates the problem starkly. Ukraine's battlefield experience shows that military edge depends not merely on advanced platforms but on capacity to iterate, adapt, and mass-produce cost-efficient solutions rapidly.

The future is electronic warfare systems, drones and precision munitions. European industry excels at complex bespoke systems but cannot match the agile, scalable production that modern conflict demands. All the components that make modern drones possible come predominantly from Chinese manufacturers. Unfortunately, Europe’s advantage over a China-supplied Russia in economic scale is undermined by our high cost base, expensive energy and lack of key technologies.

With determination and cohesion, Europe could counter the threat. The problem is not lack of resources but lack of will, organisation, and political courage. Europe has the money, the population, the industrial capacity, and the technological capability to defend itself and remain a respected global player. What it lacks is the institutional framework and political consensus to mobilise these resources effectively.

National sovereignty is undermining potential for collective action, with industrial policy serving domestic constituencies rather than strategic needs. Europe’s defence procurement prioritises jobs over capability. The result is waste, duplication, and vulnerability. Scotland must be realistic; the comfortable post-war order is collapsing and Europe's economic dominance has faded. Crucially, the institutions that protected smaller nations are weakening. Small nations thrive when power is constrained by rules, and larger states cannot simply impose their will or make bilateral deals. The new world order matters for how we see ourselves as a nation.

Scotland needs Britain to maintain credible military forces, which requires European cooperation. We need a Europe that remains stable and prosperous, which requires political cohesion and economic integration. And Scotland wins if a rules-based international system survives, which requires European commitment to multilateral institutions and international law.

Finding ways to bring Britain back into the European fold would strengthen the whole. British military capability, nuclear deterrent, intelligence services, and diplomatic networks all enhance European security. Creative arrangements that restore cooperation could benefit all parties.

Colin McLean is a director of Barnton Capital Holdings