Gundbert Scherf, cofounder and co-CEO of Helsing GmbH (Helsing), a German defense AI start-up, must advise senior German government officials on the future of European defense integration while simultaneously deciding his company’s strategic path. The case is set in October 2025, as Europe grapples with the war in Ukraine, questions about the North Atlantic Treaty Organization’s (NATO’s) reliability under a second Donald Trump administration in the United States, and the challenge of transforming fragmented national defense markets into a coherent European defense industrial base.

The case employs two parallel analytical frameworks. First, fiscal-federalism theory evaluates whether defense should be provided at the EU level, examining economies of scale, positive security spillovers, and the preference heterogeneity that explains why integration has historically failed. Second, a crowding-in-versus-crowding-out framework analyzes the macroeconomic effects of increased defense spending, emphasizing how spending composition determines whether public investment stimulates or displaces private activity. These frameworks are complementary: Fiscal federalism diagnoses the institutional problem, while the crowding-in analysis determines whether proposed solutions are macroeconomically viable.

This case was written for "EU in the World Economy," a second-year MBA elective at Darden. The course develops analytical frameworks for understanding European economic integration, and the case applies these tools to a contemporary policy and firm-level setting. Drawing on concepts introduced earlier in the course, including EU institutional design, the single market, the euro, and the EU banking union, the case invites students to evaluate how integration choices shape economic outcomes under uncertainty.