2025 marked the 500th anniversary of the Battle of Pavia, a key Italian war that took place in my hometown at the dusk of the Renaissance era in Italy. The exhibition ‘La miseranda Citade. Pavia assediata 1522-1527’ offered some insights and intriguing trivia.
It emerged that the Lansquenets – the bloody German mercenaries employed by the Spanish Emperor Charles V – were fashion victims, who enjoyed looting sophisticated garments and styling them in eccentric ways. More broadly, the anniversary prompted reflections on evolving geopolitics, the fortunes of different forms of government, war and peace, sovereignty and prosperity.
Between the 14th and 15th centuries, the city-states of northern Italy reached peak prosperity. Their independence, dynamism and strategic position allowed them to flourish. They excelled in manufacturing (textiles, shipbuilding) and trade, mobilised capital and innovated in finance (including the creation of banks), and produced some of the finest achievements in the arts and humanities.
The discovery of the New World at the end of the 15th century changed everything. The rise of the militarily and fiscally powerful nation states laid bare the vulnerabilities of small, politically fragmented city-states. The Battle of Pavia dramatically illustrated this shift: Milan and its allies became a theatre of war, rather than independent actors within it. Between 1503 and 1533, one by one, the cities became territories or puppets of the great powers. The Sack of Rome in 1527 was the symbolic end of the Italian Renaissance.
Today’s circumstances are hardly comparable to the early 16th century, but the trajectory of the Italian city-states should resonate with modern European countries.
Coordination must be at EU-level
Evolving geopolitical considerations are presenting Europe with monumental challenges that will be insurmountable if faced as a collection of different nation states representing a constellation of vested interests. The end of Pax Americana, the increasingly confrontational stance adopted by old and new global superpowers, the crisis of liberal-democratic values, and the loss of economic and technological competitiveness all pose existential threats to Europe.
Since the Russian invasion of Ukraine in 2022, European countries have become acutely aware of the need to step up their defence capabilities. The US’s disengagement from Europe – crystallised in the US National Security Strategy published in December 2025 – has brought that necessity into sharper focus. European Nato members have committed to raising defence spending to 3.5% of gross domestic product by 2035, from around 2% currently.
The European Commission’s ReArm Europe Plan/Readiness 2030 – potentially mobilising up to €800bn over the next four years – and Germany’s plans to spend nearly €650bn over the next five years, more than double its current military spending, would support that target if fully realised. However, these initiatives largely assume that investments will take place at the national level, missing the efficiencies of a European Union-level coordinated approach.
New approaches to joint financing
More importantly, the adoption of a pan-European defence framework would also require the development of new approaches to joint governance and financing, as advocated by Philipp Hildebrandt, Hélène Rey and Moritz Schularick. This would help advance the European integration process across multiple dimensions beyond defence. To begin with, the issuance of joint debt to finance shared defence investments would support the creation of a meaningful market for European safe assets – a prerequisite for the integration of European capital markets and a boost to the international role of the euro.
In addition, defence investment typically encompasses research and development in dual-use technologies, supporting much-needed productivity gains and long-term growth. This would help Europe address several key challenges in the coming decades, including maintaining living standards, coping with a rapidly ageing population, building climate resilience and regaining competitiveness as the Fourth Industrial Revolution looms.
As the 2024 report by Mario Draghi highlighted, a productivity gap has opened between Europe and the US since the 1990s, with EU labour productivity currently around 20% below that of the US. GDP per capita tells a similar story, with EU GDP per capita at about 73% of US GDP per capita in purchasing power parity terms, according to International Monetary Fund estimates.
The issues of competitiveness and national security are deeply intertwined, and advancing European integration would go a long way towards addressing both. Europe’s small and mid-sized nations face the risk of moving from a system-shaping core to a contested periphery as they lose strategic and economic relevance. They need to become more serious about European integration and be willing to relinquish some national sovereignty swiftly if they are to avoid ending up with little more than an illusion of sovereignty.
Silvia Dall’Angelo is an independent economist. She was formerly Senior Economist at Federated Hermes.
This article featured in the February 2026 edition of the OMFIF Bulletin. Download ‘Europe’s place in a divided world’.
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