EconPol Forum 04/2024: How to Ensure Defense Capabilities for Europe? Economic and Fiscal Consequences

Russia’s invasion of Ukraine has raised the question of whether the issue of external border security and defense needs to be more closely integrated within the European Union. Many proposals are under discussion aimed at assigning the EU with tasks that are currently performed at national level. Most EU members have increased their defense spending in the past year or plan to do so soon. However, whether an EU defense union is politically achievable remains controversial. It entails additional costs and ‒ even more importantly ‒ the member states would have to give up some of their sovereignty. The project is linked to the plan to build a robust and efficient defense industry. This is because European arms production has so far suffered from national fragmentation and chronic underfunding.

In this issue of EconPol Forum, our authors take a critical look at the needs of the common EU defense policy. They examine how it should be efficiently financed and coordinated at EU and national level. They also provide insights into the role of the European defense industry in a single market and its strengths and weaknesses in a global context. Furthermore, they shed light on the financing of R&D and technology through the EU’s coordinated defense policy and its expected impact on growth, productivity, and competitiveness.

In “Economic Policy and Its Impact,” the authors examine how the reform of EU innovation policy can help to escape the “middle technology trap,” i.e., the traditional dominance of the same companies, mostly from the automotive sector. In “Institutions Around the World,” they compare the strengthening of incremental innovative entrepreneurship in Germany versus the continuous promotion of radical and disruptive entrepreneurship in the US. In “Big-DataBased Economic Insights,” the authors show that well-intentioned measures such as polling place reassignments can have unintended consequences, such as a shift from in-person to postal voting and a temporary decline in overall voter turnout.