The correct option is D serves both to increase European military capacity within NATO and to create a European defence force that could eventually stand on its own.
The given sentence has a faulty parallel structure. What follows ‘and’ must be parallel to what follows ‘both’. But in the given sentence, ‘both’ is followed by ‘to increase’, while ‘and’ is followed by ‘create’. The correct construction is— 'both to increase European military capacity within NATO and to create…'
Note here that ‘both serves…’ is also incorrect, as it is faulty parallelism.
Also, the article to be used with ‘European’ is ‘a’, not ‘an’, as ‘European’ begins with a consonant sound.