Few Notes on a Strategy for the EU Budget

Basic building blocks of future solutions must lie in the strengthening of the federal features of the European budget.

The future financial perspective of the EU can be probed from many points of view. One of them is to take into consideration the European Union’s budget from an overall historical perspective.

It is obvious that the EU finds itself at a watershed moment when the survival of Euro-Atlantic civilization, and possibly the human race itself, is at stake. It is crucial how the EU deals with digitalization and the rise of AI. It is absolutely clear that this upcoming change will reorganize the current economic model, that it will have a huge impact on all types of public finances, including the EU budget, and make us face plenty of substantial, philosophical, and ethical challenges. It is still not clear what it will bring for democracy—whether or not the democratic political system is in peril. It is certain, however, that human civilization will assume another shape. For the first time in the history of Earth, analytical intelligence will be connected to something else than a form of organic life. It is hard to predict the consequences, but it is clear that the part of the world that takes the lead in this area will become globally dominant and will set the rules.

Another set of issues that will have to be addressed is the construction of the EU itself. The most important part here is the eurozone and its stabilization. Seen from the point of view of monetary theories it is clear an optimal monetary zone it is not, yet there is hardly one using any of the big currencies. We cannot really consider India, China, Russia, or the USA as examples of ideal monetary zones. Any charting of the course of common currency leads to various effects on differently developed parts of a non-ideal currency zone.

The EU’s Budget Is Not Able to Carry Out the Task of Sufficient Redistribution

In order to keep a monetary zone stable in the long term, two things are necessary. First, a maximum possible economic and social coherence of the zone itself, i.e. the optimization of the zone in the widest, not only economic, sense. The concomitant of social and economic standards is a necessity. Second, as full homogeneity is not achievable, it is necessary to compensate the differences with the help of relatively robust redistribution mechanisms.

Looking at other large monetary zones, it is apparent that their redistribution mechanisms are far more potent than those in the EU. Take the USA, for example, with its twenty percent of the federal budget. The EU’s budget, with its less than two percent, is not able to fulfil the task of sufficient redistribution. In the long-term perspective, a substantial increase needs to be considered. It is very difficult to come up with a specific number at this point. No doubt it will be less than twenty percent of the US federal budget, but it must be many times more than its current volume.

Last but not least, there is an issue of concomitant foreign and defense policy. Current political development clearly shows that EU cannot a priori rely on the USA when it comes to its security. The USA (along with China, Russia, and India) pursues its own superstate interests and is convinced of its special place and role in history. It only follows that unless we coordinate our own European interests we shall not possess any comparable powers.

The EU Needs a Meaningful Position in a “Concerto” of Superpowers

It is even more important now, as we find ourselves at the civilization’s fault line; in times of such turmoil, everyone is bent on searching for “where the carpenter has left a hole,” as one fitting Czech proverb goes, and on pursuing their own agenda at their maximum capacity. Unless we acquire a stronger position, there will simply be a “concerto” of superpowers where the EU will not play an important part. It is clear that in the global political arena, we will witness the decline of the role of United Nations.

We can say the state of international affairs established after the World War II is coming to an end and it is in our very interest to participate in finding a new form of multilateralism. It will not be possible for the EU to have a meaningful position unless it acquires, at least in some features, the capacity of a superstate.

A stronger and more purposeful joint foreign and defense policy requires the drive to build a common architecture in these areas. Common foreign policy comes first; it is being jealously guarded by the nation states, even though they are not really able—bar an exception here and there—to conduct an independent foreign policy as they lack the necessary clout. One example for all could be the Suez crisis in 1956.

Looking at other large monetary zones, it is apparent that their redistribution mechanisms are far more potent than those in the EU. Take the USA, for example, with its twenty percent of the federal budget.

A Lack of a Common Will

In reality the EU has an arsenal of capabilities and assets at its disposal, though it lacks the ability to deploy them efficiently due to its lackluster political structure. Our economic and military potential is far from negligible, yet in reality our ability to define clear common goals falls into that category. If we were to simply add up all capabilities the nation states have we would find out the EU has the complete strategic triad available—starting with nuclear missiles equipped submarines, nuclear capable air force and ground forces. Its naval forces are comparable to other large flotillas, with the exception of the USA; its economic and human potential for defense purposes is larger than those of the USA and Russia. What we lack is a common will. Common foreign policy, apart from political changes, will require corresponding financial backing. Foreign a airs monetary budget increase appears to be a necessity.

The capacity of European defense industry and structures is extraordinarily strong, yet it is clear that simple competition and free coordination does not give any hope to reach global independence in this area or to spear-head technological development. Without an intervention on a European level, the EU becomes politically and defensively dependent. It is also clear that the development of defense capacities needs to be addressed in the European budget. We simply cannot succeed with the current methods and financial volumes.

Establishing a Marshall Plan of Sorts for Africa

Another strategic issue becoming crucial in the horizon of few decades is the EU’s ability to forge effective cooperation with Africa. It may not be obvious from the Central European perspective, yet it is Africa—not Asia—whose development has direct implications for us. To develop a new system of efficient cooperation and development aid appears to be of the utmost importance, but we hit the wall of budget constraints again. Unless we dramatically increase cooperation with African nations, it is highly likely there will be a rise in extensive conflicts with direct repercussions for us. At the same time it is clear that Africa, set to double its population in the next thirty years, presents a huge opportunity for real and effective cooperation. If we aim to maximize opportunities and minimize risks, as the saying goes, it is necessary to set a Marshall plan of sorts for Africa. Yet it will not be possible without corresponding financial and power structures in place.

The last strategic issue at stake, which will require highly coordinated efforts on the level of the EU, is climate change. Here we have to think along two lines. The first one is a political and structural reorganization of the EU so it is capable of tackling challenges presented by climate change. The other is a restructuring of the budget which would allow us to have enough financial leverage to have a global influence when addressing climate change as such. Internally it means a radical transition to renewable sources that would also provide energy independence. This transition is not feasible without “federal” interventions.

The abovementioned issues and their context make it clear that the future financial perspective—however intensively it will be discussed—is a perspective of transition. The key will not be so much what gets financed and in what volumes but its new overall structure and underlying philosophy that will see it through future challenges. It ought to be remembered that the budget itself cannot be separated from its political aspects and political legitimacy. A budget more robust on joint programs will require more robust joint political institutions. Political union is an essential concomitant of successful economic union.

What Conclusions Can Be Drawn?

The European Union does not have enough time to stand by and sort out its homework based on to the established administrative and political logic. Fundamental strategic challenges are coming and we cannot afford to play catch-up.

Essential features of future solutions must lie in more robust federal aspects of European budget. First: increasing its overall volume; second: the strengthening of political institutions; third: defining developmental “federal” projects, such as AI research and development, Marshall plan for Africa, energy transition, critical infrastructure development, or climate change challenge.

The increase of the financial volume has to come from EU’s own resources; here we can assume that it is not feasible anymore to acquire more from national states, but the real subsidiary structure must be the Union itself. Taxation of AI or digital economy as such could be mentioned here.

The last strategic issue at stake, which will require highly coordinated efforts on the level of the EU, is climate change.

The stabilization of eurozone will require many resources and establishment of new institutions that will drive principles of eurozone’s joint decision-making in budget planning. This could end up in a budgetary divide between eurozone and the rest of the Union itself, de facto leading to disintegration of the current structure and to a separate, independent eurozone union.

June 2018