These are desperate times. As the rancorous Trump administration is turning away from Europe, accusing its “pathetic” nations of “free-loading,” and withdrawing support for thankless Ukraine, which Donald Trump blames for having “started the war” with Russia, dumbfounded European Union leaders are struggling to free up hundreds of billions of euros to increase defense expenditures.
The stress is palpable. Following decades of neglecting their own military budgets while remaining under the US defense umbrella and reaping the post–Cold War “peace dividends,” EU countries suddenly find themselves in a new, colder reality of having to fend for themselves. They are urgently exploring new ways to rapidly reinforce their defense infrastructure.
The biggest obstacle to this revival of “military Keynesianism,” reminiscent of the Cold War era, is the fact that the immediate step-up in public spending (to at least the NATO norm of 2 percent of GDP) requires deficit financing and higher public debts. This conflicts with the (self-imposed) fiscal discipline under the EU Stability and Growth Pact (SGP).
As the world is burning, many European macroeconomists, for whom safeguarding the credibility of the eurozone’s macroeconomic framework is a matter of life and death, are losing sleep over the risks to Europe’s fiscal sustainability and the credibility of its fiscal rules. Or when they sleep, they are having nightmares about the remarks made by French president Emmanuel Macron, according to whom the SGP is “obsolete.”
Stringent rules on…
Auteur: Servaas Storm
