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A Primer on Developing European Public Goods: A report to Ministers Bruno Le Maire and Olaf Scholz

This report was prepared for the French and German Ministers of Finance.

By: and Date: November 8, 2019 Topic: European Macroeconomics & Governance

The EU has mostly been defined as a provider of economic integration. The single market and the euro were both integration-driven. In a context transformed by technology, global and regional challenges, and geopolitical change, time has come to give renewed priority to European public goods – policies and initiatives whose value to the citizens are higher when conducted at EU rather than at national level. These are:

  1. Foreign economic relations. When security is at stake, the EU should have the power to block a foreign investment by QMV; promote the internationalisation of the euro through the granting of swap lines to partner central banks and the introduction of a common safe asset; and move towards a consolidated euro-area representation at the IMF.
  2. Climate change mitigation. All sectors should be part of a European regime based on the ETS or a carbon tax system.The EU should be able to set by qualified majority binding corridors for carbon prices and to sanction infringements to jointly determined decarbonisation plans. It should contribute to offsetting the social costs of the transition.
  3. Digital sovereignty. The EU needs to pool its resources to protect cybersecurity and digital sovereignty. A high-level group should propose measures for the single market and avenues for closer cooperation amongst a subset of counties.
  4. Research and development in large and risky projects. A European DARPA should focus exclusively on pathbreaking projects – without consideration for distribution across countries – and be able to terminate unsuccessful projects abruptly.
  5. Development cooperation and financial assistance to third countries. Chinese inroads have made the case for a common development approach stronger.The EU should choose between bolstering the out-of-area mandate of the EIB and leveraging its participation in the EBRD.
  6. Migration policy and the protection of refugees. Refugees come to Europe, not to a particular member state. A lasting solution should include a common border protection system, a common legal framework for asylum, common principles for allocating persons to whom asylum has been granted, and common policies for resettling persons to whom immigration have been denied. This implies moving ahead with a subset of countries. Eventually, the Schengen area the common migration policy area will coincide.
  7. Foreign policy and external representation. The case fora European approach is strong, but mechanisms alone are not sufficient to overcome deep policy divergences. We propose three practical steps: initiatives to strengthen the European soft power, savings-oriented back-office cooperation, and regular European Foreign Policy White Books.
  8. Military procurement and defence. A way forward for European defence is variable geometry. Progress should be made towards common procurement, shared infrastructures, common arms export policies and joint defence initiatives.

The enhanced provision of European public goods requires additional funding, but it should not increase the overall tax burden for EU citizens. The overall tax burden should decline if public goods are more efficiently provided at European than a national level. But more resources would need to be shifted to the European level. While there is an ongoing debate about the financing of the EU budget, we propose to disconnect the provision of new European public goods from longer-term issue of reforming EU finances. This implies funding European public goods through higher GNI-based resources in the EU budget.

 To bring momentum to the project of enhancing the provision of European public goods, we propose that France and Germany undertake to start the following bilateral projects:

  • A common agency and a common research institute for cybersecurity;
  • A common fund for supporting breakthrough innovation;
  • Joint armed forces and a uniform arms system;
  • A joint strategy for African development;
  • A Franco-German chair at the IMF.

 

External publications have not passed the editorial process of Bruegel and are republished under the sole responsibility of the authors. 

 

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