Europe needs to start cutting its 2m-strong armed forces to take account of competition to recruit young people as the continent's population ages, according to a report expected to be endorsed by EU defence ministers tomorrow.

The report warns that personnel costs are likely to rise sharply by 2025, when the average European will be 45 years old and private sector employers will vie with the military to recruit from a dwindling pool of young people. It calls on European armed forces to outsource to the private sector, increase automation and eliminate excess capacity.

"Do Europeans between them really need nearly 10,000 main battle tanks and nearly 3,000 combat aircraft?" asks the European Defence Agency, in a paper that examines the defence challenges in 20 years' time.

Javier Solana, the EU foreign policy chief, will describe the paper - drawn up with the help of Europe's military planners and foreign policy experts - as "a compass bearing to help us advance into the fog of the future".