A loose federation can save Europe

A growing number of people are convinced that, in order for the monetary union to be saved, the European Union (EU), or eurozone, must have a ministry of the treasury or finance –in other words, it must be able to tax and spend.

Today, the EU has virtually no power to tax. Its budget revenue comes from contributions by member countries. Moreover, its spending –a negligible one percent, more or less, of the EU GDP– finances almost no government functions but rather pays for subsidies, with those for agriculture accounting for almost half of the entire EU budget.

If there were a treasury, the EU would be able to tax citizens and spend the resulting revenue, which would in turn imply the existence of a budget. Considering this prospect with an open mind, the first question is: what would the budget go to?

Even excluding the largest typical public spending items, like education and social programmes, there are government functions that -in keeping with the theory of fiscal federalism, the principle of subsidiarity, and common sense- could be assigned to the central European government, in particular security and defence, diplomacy and foreign policy (including development and humanitarian aid); border control (the equivalent of Homeland Security in the United States); EU-wide infrastructure projects; major research and development projects; and social and regional redistribution.

Inextricably connected

Defence and foreign policy may be the last sectors considered to be inextricably connected to state sovereignty and off limits for assignment to a larger, international entity. Still, the growing loss of influence in international affairs that afflicts even the most important European countries is increasingly clear to everyone.

Nick Whitney, ex-head of the European Defence Agency, formulated the most perspicacious and persuasive condemnation of the current state of European security and defence policy: “After almost two decades from the end of the Cold War, the majority of European armies are still organised in preparation for a total war at the German border as opposed to the maintenance of peace in Chad or supporting peace and development in Afghanistan...

This failure to modernise means that the majority of the 200 billion euros that Europe spends each year on defence is simply wasted...The individual European states, including France and Great Britain, have lost and will never regain the ability to finance all of the new necessary capabilities alone.”

If this is the diagnosis, and if the years and years spent trying to improve coordination and cooperation among the various national defence organisations have failed to provide the remedy, then wouldn't the most logical solution be the creation of a European army?
It should be noted that precisely because the mission of European military forces has changed so profoundly, it would be far easier to create from scratch new armed forces (men, equipment, doctrine, and all the rest) than to persevere in the futile attempt to adapt existing forces to a new mission while trying to improve cooperation between them. Why is it possible to create a central bank and currency from scratch but not a new military?

In 2009, defence spending of member states ranged from 0.6 per cent of GDP for Ireland to 2.5 per cent for Greece. For the largest member states the percentage of GDP was as follows: France 2.0, Germany 1.5, Italy 1.4, Poland 1.7, Spain 1.2, the UK, 2.6. Collectively they spent 1.7 of the European GDP, or 194 billion euros in 2009.

A hypothetical level of one per cent of GDP for EU defence might thus seem modest, but it amounts to almost 130 billion euros, which would automatically make the EU armed forces a substantial military organisation, second only to that of the United States, with resources between three and five times greater than those of countries like Russia, China, or Japan. Even so, EU member states would be saving 60-70 billion dollars with respect to current outlays –more than half a per cent of the union GDP.

The transfer of given government functions from the national to the European level should not result in any increase in public spending within the European Union and indeed might result in a net reduction due to economies of scale. In the case of defence, a single organisation is without a doubt more efficient than 27. Moreover, as shown by the experience of Nato during the Cold War, efforts to coordinate independent defence organisations inevitably produced disappointing results and widespread parasitism on the wealthiest contributors of this public good.