Common defence debt: risks and limits of a premature initiative
Shared debt issuance without a consolidated fiscal and political union risks generating liabilities without accountability
The debate on issuing new common European debt, specifically to finance the strengthening of common defence, has been reopened. The argument in favour of this initiative is that we must extend the Ngeu experience to other large industrial and technological projects. The proposal is presented as a natural factor for integration. In reality, now, it is a bad idea. Not because of ideology, but because of institutional and political shortcomings as well as its economic consequences.
The EU does not have an autonomous fiscal capacity. The European budget is worth about 1% of the Union's GDP and is financed by national contributions. The parliament has no power of taxation. It cannot decide autonomously on either revenues or expenditures with a relevant macroeconomic dimension. Issuing debt without a corresponding fiscal authority accountable to the voters means creating future liabilities without explicit political responsibility.
In 2020, the exception was justified by the pandemic and took shape in the Ngeu programme, of which the Italia NRP is a part. Today, it is proposed to turn that exception into a rule, expanding its scope and ambitions. But the evaluation of the results should precede the replication of the instrument. There are many reasons to doubt that the whole thing has been a success, at least in economic terms.
Data on the implementation, as documented by the European Court of Auditors, of national NRPs show delays, reallocations of expenditure, revisions of objectives and widespread administrative difficulties. In Italia the impact on productivity is, to date, certainly lower than initially expected and probably not positive. In other countries, resource absorption is proceeding with similar slowness and evident lack of positive effects. All available evidence says that Ngeu has been the opposite of a success.
Second node: defence. There is talk of a 'European army', but there is no common military policy approved in a binding way by all states. Foreign and security policy decisions remain largely intergovernmental. The Commission has no mandate to define a common military doctrine, whose competence remains with the individual states. We would then have to issue debt to finance a project that does not yet exist!
