Year XXXVIII, Number 3, November 2025

Antonio Padoa Schioppa 
Professor Emeritus University of Milan, Former President Centro Studi sul Federalismo, Turin.

At the initiative of President Ursula von der Leyen, the European Commission has placed in the center of its governance agenda for the 2025–2029 legislature the bold proposals outlined in the Draghi Report, which she herself commissioned, alongside those of the equally forward-looking Letta Report, mandated by the Commission by the European Council. Both documents underscore the pressing need for ambitious measures aimed at making the European Union globally competitive – thereby strengthening its strategic autonomy and its capacity to safeguard its own development and security.

A fundamental precondition for achieving these objectives is the reinforcement of financial resources earmarked for European public goods – areas in which even the largest Member States cannot act effectively through their national budgets alone. Draghi estimated the scale of these resources to as much as €800 billion annually, while stressing that only a portion should come from public funds. The remainder must be mobilized to effective incentives to stimulate private investment, which is potentially available but requires support during the launch phase – just as has happened, and continues to happen, in the United States. This imperative is particularly acute in strategic domains such as defence, next-generation satellite systems, frontier technologies, sustainable energy, and artificial intelligence.

President von der Leyen has voiced a strong and explicit commitment to strengthening the Union, especially in the field of common defense, but also in other domains. The defense initiative, endorsed by the European Council, envisions €650 billion in loans provided by Member States and €150 billion directly from the EU budget. The approach, therefore, is to allocate the majority of financial responsibility to national governments, within a framework of priorities coordinated with the Commission.

There is well founded concern that this strategy risks diverging from the stated objectives, which clearly call for rapid consolidation of the Union’s capacity to confront major ongoing crises. If the lion’s share of resources is entrusted to the Member States, the goal of constructing a truly common European defense will be jeopardized. A possible corrective measure would be to mandate the transfer of a substantial portion of those seven-year resources directly into the EU’s defense budget. Yet such a step will not be easy to implement.

In addition,Member States with high levels of public debt are likely to resist proposals involving new borrowing, fearing adverse effects on market spreads. The dynamic would affect Germany’s role in European defense, given its comparatively low public debt and minimal exposure to such financial risks. The resulting asymmetry would not only create imbalances in leadership and burden-sharing, but also hinder the pursuit of economies of scale and operational efficiencies that can only be achieved through harmonised standards and joint procurement.

While the €150 billion to be spent at the EU level is certainly significant, it remains far below the threshold needed to achieve a genuine common defense capacity, as experience clearly demonstrates.

More recently, President von der Leyen has put forward initial proposals for designing the next Multiannual Financial Framework (MFF) for the period 2028–2034. This proposal, expected to be presented to the Council and Parliament by July, will take up to two years to finalize. In this case also, the Commission’s suggested approach is to grant Member States greater discretion in allocating European funds, moving away from the current model in which predefined shares are allocated to key policy areas – such as agriculture, cohesion, and social policy – and must be used consistently and transparently within those areas.

Nonetheless, this model also entails a significant risk: it may undermine the Union’s ability to invest in major, cutting-edge initiatives that lie beyond the reach of individual Member States. From satellite constellations to artificial intelligence, from global computing platforms to nuclear fusion, from hydrogen technologies to large-scale strategic investments in Africa, such endeavours demand a genuinely European approach – not a fragmented mosaic of national programmes. What is needed is a fully integrated European capital market,
 
a completed banking union, harmonized corporate rules (as emphasized by Letta), and greater European autonomy from the dominance of the U.S. dollar.

A further concern arises from President von der Leyen’s latest proposals:

Although they rightly call for the introduction of new EU own resources – an essential step in principle – this tool alone will be insufficient given the scale of the challenges the Union faces. It must be complemented by resources derived from the issuance of common European debt instruments, specifically dedicated to the financing of European public goods. In recent weeks, both Olivier Blanchard (on May 7) and Mario Draghi (on May 14) have spoken with unmistakable clarity of issue. The path forward is undeniably complex – but it is both necessary and entirely within reach.
We must be fully aware that the three serious risks outlined here – if not addressed in time – could gravely and perhaps irreversibly undermine the Union’s future. Whether in defense, development, or competitiveness, the Union must be able to act with the authority and capability of a sovereign actor, rather than relying solely on intergovernmental agreements and national contributions.
Hic Rhodus, hic salta. Time is running out.