In an era where US security guarantees are gradually weakening, Europe has no choice but to significantly increase its investment in defense, as argued by Vesa Vihriälä.
Over the past decade and a half, Europe has been marred by a string of crises, including the global financial crisis which subsequently ignited the euro crisis, the refugee crisis, the corona pandemic, and the crisis caused by Russia’s aggressive war tactics.
These crises have necessitated new collective action. The Eurocrisis, for instance, led to the creation of temporary financial support mechanisms and the European Stability Mechanism to provide loan financing to countries experiencing debt difficulties. Similarly, the corona pandemic brought about an unprecedented form of joint operation. In essence, over 700 billion euros are directed to the member countries through the recovery fund, half of which are in the form of grants rather than loans. These funds are obtained through collective debt.
Since the euro crisis, the European Central Bank (ECB) has been effectively managing member countries’ ability to finance their deficits by making large securities purchases and promising exceptional measures if a member country’s debt management capability is deemed questionable without merit.
Moreover, Russia’s invasion of Ukraine triggered collective support for Ukraine to keep its economy functioning and supply arms.
While Russia, having transitioned to a military economy, continues its aggression in Ukraine, the West is showing signs of fatigue in supporting Ukraine. In the USA, Republican politicians who support Trump have ceased arms support to Ukraine. If Trump wins the upcoming elections, support will likely discontinue and the US’s commitment to defending Europe will face increased scrutiny.
Ukraine’s survival is becoming more and more reliant on European countries. Beyond the considerable increase in immediate arms support, Ukraine also requires financial support for reconstruction for years to come, as it works towards becoming a member of the Union and beyond.
“Therefore, the need for intensifying EU integration is more pressing than ever.”
With US security guarantees waning, Europe must step up its defense investment. Europe also needs to diminish its economic dependence on the rest of the world for security reasons, even if this might diminish productivity. The green transition demands replacement investments that do not augment the capital stock and therefore do not support productivity growth.
To boost productivity, investments in research and innovation activities need to be amplified. The escalating use of state subsidies in the USA and other places heightens the pressure to retain and even enhance subsidies in Europe.
While the actions of individual member countries are crucial in many respects, efficiency advocates for joint efforts in several matters. The EU budget needs a significant increase. Some measures to improve growth and safety necessitate new EU-level regulation.
As such, EU integration must become more close-knit. However, how can this be achieved when populist anti-EU political forces are gaining momentum in numerous countries? This is a looming question that requires urgent answers.
The author is a distinguished economist and a visiting researcher at the University of Helsinki.
