Why a defence union?
The Arguments For are both security and economic. On the security side, the EU is facing considerable risks on its Eastern and southern flanks, while the Trump presidency and Brexit have cast new doubts on NATO solidarity. On the economic side, countries’ unilateral capacity to scale up their own national defence spending is limited by fiscal rules and in some cases high debt—the same constraints that restricted their capacity to stabilize in the face of the euro area crisis.
Hence—and this was the main point of the presentation—it makes sense to bring the two conversations together: a common defence policy is a needed public good which could contribute to EMU deepening.
Defence spending as an economic stabilizer
Valerie pointed out that the reforms pursued since the crisis to strengthen euro area architecture may not be enough to deliver the stability needed to preempt future crises. (i) Banking union will be an important new safeguard, but the large relative size of European banks and difficulties in closing them will limit how big a role banking union can ultimately play in smoothing shocks. (ii) And, while the European Stability Mechanism has shown itself to be an effective provider of liquidity, by its nature as a crisis response mechanism it comes into play only late in recession, rather than offering a permanent shock absorber. The implication is that fiscal stabilization will still be needed, and in Herzberg-Vidon’s view, defence spending could provide a more effective and acceptable stabilizer than other proposed schemes (for instance, common unemployment insurance or a stabilization fund); ‘military bases do not close down during a recession’.
Lessons from the U.S.
Valerie used the US as a reference for the value of a common defence policy. The provision of a defence public good dominated the functions of the US government through the end of the 19th century, the period during which US federalism become entrenched. Today’s evidence (still under-explored) points to US states with higher defence spending enjoying lower output volatility. An EU study points to large potential efficiency gains if Europe were to reduce its weapons systems from the current 178 to the 30 employed by the US—with further efficiencies from shifting to a single procurement market. The savings, estimated to be as much as 100 billion euro, could free up resources significant enough to keep some states out of the Excessive Deficit Procedure and/or finance significant stabilization. Other lessons from the US are that defence spending can trigger innovation (boosting future growth prospects) and that a strong defence policy may go hand-in-hand with the global strength of a currency (consider, for example, why Saudi Arabia holds all its international reserves in dollars).
Support for defence cooperation
Valerie reminded the audience of several recent signs that elements of defence union are showing green shoots: the Commission’s launch of the European Defence Fund, the establishment of PESCO (permanent structured cooperation by 25 EU member states), and the emphasis on security in the June 2018 Mesenberg Declaration. Moreover, polls persistently favor a common defence policy (though not, for instance, a common army). Discussants’ skepticism about whether these ambitions remain realistic was dramatically countered by a breaking-news report from the audience on the Aachen Treaty (signed by President Macron and Chancellor Merkel the following day), which commits to enhanced Franco-German defence cooperation.
Discussion
The lively debate (under Chatham House rules) focused on what elements of a common defence policy could feasibly be pursued in the current climate. A broad definition—say, including border protection and immigration policy—was considered likely to earn more traction. Indeed, possibly the federalization of more public goods could ringfence the ‘external’ interference by Europe in national budgetary processes, the perception of which has been politically damaging to the European project. Some commentators saw a role for defence bonds in contributing to development of a ‘safe’ asset. There were also different views on how big a contribution defence could realistically make to economic stabilization.
Reference: Valerie Herzberg and Edouard Vidon, “The Sword and the Marketplace: Europe Needs a Defence Union to Support its Economic Integration”, Foundation Robert Schuman Policy Paper, European Issues no. 486, October 2, 2018
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