To make Europe’s defense spending great

Another day, US support for Ukraine and therefore supports the security of Europe. While President Donald Trump pushes for the delivering agreement with Russia, Europeans are in a hurry to aggrassing themselves to protect himself without the US American assistance. Europe is a rich continent and the signs are that they can move quickly when the leaders are a knife in the throat. Of course, there is Friedrich Merz, Germany’s Chancellor A brokerial political agreement It is not a surprising thing to release defense costs from paralysis of paralysis of the country.

There is also a lot of discussion about financing models. Thus, below, I have to ask for financial problems of the European defense problem and offer some initial answers. What do free dinner readers think? Send us your ideas freelunch@ft.com.

I was useful for dividing the questions to three to open my own messs. How much money do you need to raise and spend? Where? And who? Let’s start with the first.

How long should Europe spend?

Europeans should spend more protection. But how much is it? It depends on what needs to be defended. The answer that responds to this is a large increase in the level (before 2022), a few percent of the annual GDP for many countries. This can be up to a doubling increase in these levels, which is a little above the most European in Europe, and sometimes with 2 percent of GDP.

As a good yard, take Poland, stop pupil. For only three years, this went about 5 percent about 2 percent of GDP. Poland, of course, is especially important for the potential Russian occupation and is highly aware of this. What about the rest of Europe?

Recently report Alexander Burilkov and Guntram provide a short but informative answer by Wolff. If the United States cannot be calculated, Europe will spend another 300,000 more troops and more protection against at least 250 billion euros – from 3.5 percent of GDP to 250 billion euros. He is not far from the addition of Poland’s extra effort.

Where is the money found?

Such a defense building removes several percentage points ‘true sources’ protection equipment, personnel, logistics and research and development from current users. This economic reality is the main point related to “financing” and should be seriously protected in any discussion of how accounting numbers go to budgets.

There are only three ways to do this in the economies that do not leave important sources by producing it less than potential. (In fact, in European economies can fall slightly – in this case, more defense costs will be more defensive costs, macroeconomic, general economic activity. The private sector can save more resources to save more resources with sewer sources for defense budgets.

Trebesch at Johannes Marzian and Kristof Kiel Institute have learned How funded was funded by military institutions. This is not paid by redistributing the cost of government expanses in an average and important work and military expansion. Instead, they are financed by a mixture of taxes and debt – and more stitches, the mixture has more debt. This is mainly in line with the existing Polish box of debt financed.

History can be a weak guide, but of course, Marzian and Trebesch shows that economic principles are accurately recommended. Any permanent growth in defense costs should be paid to reduce taxes or other expenses. But in a fast ramp, it is good to smooth the tax increase in time, so it is meaning to borrow for the initial explosion. In addition, when the installation includes a permanent growth in the shares of the material, the short-term spending needs will be slightly higher than the permanent level. This bump should also be funded to prevent a swell at the tax level. (And if economically is a slack, the debt financed deficit costs are guaranteed to standard keys.)

Who should do debt and spend?

Thus, we set up for an improvement blast (or) to replace, protect against the increase in taxes in time. A critical question in Europe is that the debt is not being made at the national or European level. This is often a mixture of a mixed debate that benefits from larger enlightenment recently.

The source of confusion is to oppose local and / or European rules in the expenditure of many countries. This is a reason for new institutions such as Pan-European General Debt or New Institutions (eg EU Pandemic Recovery Fund (eg EU Pandemic Recovery Fund) or “Defense Bank). But it’s a bad reason. If the rules are caused by bad economic policies (a really bad security and defense policy), the rules that have to change.

It happened this week. The Yogurt decision agreed to release the permanent release of German two traditional ruling party, the country’s constitutional debt brakes. Meanwhile, the European Commission offered to suspend budget rules for the EU defense spending. (Thank you “rescue dams” not belonging to the sector, restrictions throughout the budgets are not clear for the German, nor the European rules, no internal, nor European rules

However, there are other good arguments for joint debt and new devices. One will be spent on joint spending or coordinated between the countries of joint debts or at least the expenditures. As many observers noted, different national specifications are in Europe’s military procurement effectiveness (because scale economies are not exploited) and military warfare (because the equipment of the countries cannot be changed enough).

Another reason, joint procurement and interaction should naturally enter members of the United Kingdom and Norway. However, there are all legal and political restrictions on the participation of these countries in the existing EU policy and financing structures. (A work paper Politty from Stiftung Wissenschaft explains the complications well. Thus, some new constructions for joint funding and purchase by the “eager coalition” of the NU-EU, may need some new constructions.

Nevertheless, no one should not think of the issue of political selections that each of the defense bank reconstructing real sources. Unlike other great initiatives such as the green transition, it is impossible to finance a small amount of public finance to receive a small amount of public finance to make the rest. Only governments receive tanks (and thank you for it). Lending by a Defense Bank does not eliminate the need to put money to the command for the command if the tank is built. European leaders should refrain from charm to think that a type of building establishment of a new body will change the main fact. Multi-financial engineering will send an unavailable signal that does not want to collect sources in need.

If this is remembered, there is a job to get a total debt (Sander Tordoir is useful go out How to think about general defense bonds), if it was designed to promote specifications and joint procurement throughout Europe. Burilkov and Wolff offer that there is a need for an additional 250 billion euros, which needs 250 billion euros in the European level, half can be made at the national level. During a seven-year period of the EU, the resolution of the recovery fund will be: brave, but caused.

President of the European Commission this week proposed The spending of 800 billion euros by the EU and Member States will be spent on the value of 650 billion euros in four years, and it is effective by suspending financial rules. This is the right amount. But the capitals should still do political work to decide to spend more. Poland did it; Germany brought himself to a situation to do this, but in fact the costs did not actually commit. And spending liabilities should be continued for a long time to give confidence to increase the strength of weapons manufacturers over a long time. Merz is therefore right When you say The suspension of the EU budget for the avenue must be valid over time.

When it comes to general borrowing, € 150bn is very small and likely to be very highly recommended than an unused debt capacity than an unused debt. Thus, although some excellent steps in the right direction this week, more financial and political foot work remains.

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