“Europe urgently needs to promote the construction of its air defense system through joint debt issues” that finance its “arms deficit and security gaps” in the face of the growing threat from the Kremlin. “New investments” aimed at building an anti-missile shield that contributes to “the urgent need to reduce the degree of vulnerability of the European open skies to possible interference or threats from the Russian military,” such as the reported Iranian drone invasion. Latvian space this summer in Riga, recall the co-authors of an analysis by the Bruegel Institute.
The report of this think tank The pan-European plan, signed by Armin Steinbach, professor at the Jean Monnet School, and Guntram B. Wolff, of the Willy Brandt School of Public Policy, estimates the financial requirements of “first responders” to fill the gaps at “at least 100 billion dollars.” “minimum security of European airspace.
“The EU should issue a common debt to create an investment fund” aimed at “protecting” its open skies from “possible Russian attacks” by promoting the European Sky Shield Initiative (ESSI), launched in 2022 by Germany to build a riot-missile defense system “at a time when geopolitical tensions” have taken over the European climate. Despite the fact that Berlin “maintains strong opposition to Eurobonds”, even with the favorable opinions on this “financial mechanism” that the former president of the ECB, Mario Draghi, subordinates to “strategic projects” in his diagnosis on competitiveness.
But “German reluctance will become a priority,” predicts Wolff, who recalls that the proposal for the shield came from Chancellor Olaf Scholz and that “countries outside the club have joined the club, with undeniable military capacity and “outstanding NATO partners.” Turkey or the United Kingdom. “It is now easier for Berlin to adhere to strategic theories than to decide to spend more money,” he argues to justify the German position, but revealing a change of attitude in the future.
Bruegel experts point to air defence as the first link in these common debt issues, which – they point out – must be classified as a European public good (EPG) indispensable for creating funds such as Next Generation or the SURE employment programmes created after the Great Pandemic to be covered by “legal protection” and acquire coherence with the acquis communautaire. “It is extremely visible that this is an EPG because every national contribution benefits the rest of the neighbours in the internal market,” explains Wolff.
European jargon defines a GEP as a product that is not adequately supplied without public intervention, so it must be supplied, in whole or in part, with state support to activate large-scale productive benefits and eliminate externalities that hamper logistics and its supply networks. The EU has incorporated this concept into its federalist budgetary literature, he recalls. think tank near Brussels to declare the usefulness of an air defense as a spearhead of eurobonds – mutualized debts – within the framework of a project labeled and status BPE: “There is no doubt; “Air defense is a classic BPE manual, because no partner, individually, can provide a common shield or offer its shared security advantages.”
‘Debt pooling to generate intensive capital
“A Patriot missile battery costs about $1 billion,” an expense that requires “intensive capital” and guaranteed investment lines of “hundreds of millions.” This example of a button that Bruegel highlights is part of NATO’s dialectic of increasing the military bill of the allies and with its recent orders, in August, to raise the level of security in German air bases due to suspicions of sending Russian drones into community territory and to show its concern about the maneuvers of the Russian army with long-range hypersonic missiles. “While the EU’s air defense capacity has been irregular and insufficient in recent years,” warn Steinbach and Wolff.
“A debt mutual fund is economically justified” in this area. Like Next Generation resources. “It would be legally possible […]should be subject to the defence powers assumed by the EU” and, if it were to be brought into play, “it should retain its exceptional character of only air protection” for a predetermined period, but extendable to “be able to respond to the Russian danger” and be identified at any time as an “act of solidarity”.
The Community Government has defended throughout its last mandate the opportunity to launch joint financing mechanisms such as Eurobonds, with undeniable success on international markets, to guarantee the 750 billion euros of Next Generation funds within the framework of the Post-Covid Recovery Plan. And to extend it to any other “resilience” that must be activated to face adverse scenarios or priority challenges “without having to resort to socially relevant provisions”.
President Vor der Leyen has stressed this on several occasions. Among others, in Davos: “European sovereignty funds are structural solutions” to accelerate digitalization, the technologies required by the energy transition or to reindustrialize the internal market. Exactly the Keynesian recipe that Draghi prescribed a few months later in his diagnosis of the obstacles to productivity and competitiveness in the EU.
In an even more ideal context, if possible, where the European defense strategy has been revised, to which Brussels has linked the future industrial overhaul of the club, a pending subject for the head of the community government of her previous mandate. that he intends to clear. “We must put Europeans on their guard to make the continent safer.” This will be one of your favorite readings this quarter.
In short, the EU is going to rearm and, to this end, its political authorities and investment agencies, with the European Investment Bank (EIB) at the helm, are ready to divert aid to its military industry, to the benefit of arms companies in the internal market. With the mission of “strengthening the deterrence capacity” of the club by “reinforcing the political objectives” of the EIB “without jeopardizing” – that is to say – the bank’s exceptional strategic rating, argues Nadia Calviño, its president since January.
Activation of European economies of scale
Bruegel admits that the German ESSI has reservations. Among others, those of Italy and France and, to a lesser extent, Spain, one of the few NATO partners still without a bearer check of 2% of GDP. But the Eurobonds and, above all, the possibility that in the medium term these issues could acquire the credit quality rating of the pack German could be a motivation for everyone.
Heads of state and government “should be urged to implement the European debt programme”, in the interests of “security” and invoking the spirit of “solidarity” of the Union. In order to free the partners from another fiscal corset and to facilitate the transfer of know how technological transition from the military sector to other production segments. “Industrial interoperability” based on innovation is another “first-rate asset” that joins “the necessary relocation” of manufacturing centers, believe the authors of this think tank.
“Shared security” strengthens defence efforts without denying either the priorities of industrial policy or the objectives of budgetary consolidation and without coming into conflict with the Union treaties, which allow recourse to external “financing” to ensure credit coverage outside budgetary items, “including military ones.” The European legal system “does not prevent partners from engaging in collective debt mechanisms to meet defence projects,” they state bluntly.
German rearmament enters the scene
In another analysis, Wolff, along with three other Bruegel experts, point out that rearming the German military to match its military capabilities to those of the Kremlin “will require decades of exceptional spending by Berlin and Brussels.” Russia – they say – has set up a war economy that has already mobilized 300,000 soldiers to stabilize its war fronts and secure its arsenals through massive revenue collections.
More than 30% of its budget is devoted to financing the war, which leaves Moscow with a bill of $120 billion. Although the professor of the University of Western Australia, Peter Robertson, specifies that this check – in terms of purchasing power or PPP, according to its acronym in English – amounts to almost $400 billion per year, almost half of the $841.4 billion of the US budget.
Berlin must review its rearmament intentions “if it wants to commit to a long-term strategy.” For which “it will have to reduce costs through concerted actions with the rest of its European partners after 30 years of peace dividends” without increasing spending, which has led to questioning its preparedness for a Russian attack “in the next five or eight years.” years.
The mutualisation of spending and debt is a “politically profitable” plan, Wolff says. Essentially, for three reasons. The first, because he has already reacted [a la invasión de Ucrania] with a debt vehicle – the Sondervermögen – of 100 billion euros and regular disbursements of 52 billion, or 1.2% of GDP. Secondly, because Berlin must promote a European tactic that integrates its arms industries, establishes greater productive rationality and promotes economies of scale that instill specializations that increase competitiveness and the quality of manufacturing. Only France, Italy, the United Kingdom and Sweden have, like it, “sufficient guarantees in the manufacture of highly sophisticated weapons”.
And finally, because it must encourage innovation and logistics in its military industry, a challenge that would be more achievable with a European fund and a shared debt reducing its military deficit with Russia. “Taking only budgetary items would paralyze your rearmament strategy,” they warn in Bruegel, before specifying that Europe is the factor that would dispel all their tactical unknowns, their financial doubts and the long-term prospects of their army.
