Year XXXVIII, Number 2, July 2025

Antonio Padoa-Schioppa
Professor Emeritus of Legal History, University of Milan

The European Commission at the instigation of Ursula von der Leyen has placed at the center of its governance program for the 2025-2029 legislature the innovative proposals of the Draghi Report, which she herself commissioned, as well as those of the equally forward-looking Letta Report, entrusted to him by the European Council. In both documents the emphasis is on the need for major measures directed at making the Union globally competitive, thus autonomous and a guarantor for the future of its own development and security.

An indispensable condition for this is the strengthening of resources to finance those European public goods that individual EU member States, even the largest ones, are unable to provide with their national budgets. Draghi quantified the amount of these resources at as much as 800 billion annually, while making it clear that they will have to be found only to a lesser extent from public funds and for the rest from effective incentives for private investment, which has the potential to proceed but which needs such incentives in the start-up phase, as, moreover, has happened and still happens in the US. This is true in crucial sectors such as defense, next-generation satellites, new technologies, sustainable energy, and artificial intelligence.

The defense commitment as proposed by von der Leyen, now endorsed by the European Council, is divided into the two compartments of 650 billion in loans from the States and 150 billion provided by the Union. Therefore, individual States should be addressees of the largest share of the Union’s budgetary new resources on European defense, even if based on priorities agreed with the Commission. The sum is remarkable, but a common European defense requires far greater resources, as we have seen.

There are however serious reasons to believe that this approach goes in a direction inconsistent with the expressed aims, which clearly indicate the purpose of strengthening the Union as such to deal with the security crises that we need to face. If the preponderant share of European resources is given to the States, the goal of building a common European defense will be severely undermined.

An effective remedy, if so, would be to stipulate that States transfer to the European defense budget a major share of the new resources established by the seven-year Plan for loans by the individual States. But this approach, even though congruent, will not be easy to reach at all. Moreover, it is likely that States burdened with high public debt will tend to shy away from taking out new loans to avoid rises in the market-determined spread. And this would give in the defense of the Union an unbalanced and excessive weight to Germany, which is exempt from such risk because its public debt is much lower. Moreover, in this way neither the economies of scale nor the rationalizations resulting from a single standard for European defense weapons will be achieved.

The remaining 150 billion will, it is true, be spent at the European level, which is very important. But here too a recent proposal by the Commission has been announced to give the sum to the States, even if aimed at achieving a common defense policy.

More recently, the Commission President made some preliminary proposals for the design of the next Multiannual Funding Framework of the Union (2028-2034), which is to be presented by July to the Council and to the European Parliament. It will take as much as two years to finalize. On this front, too, the idea put forward by Ursula von der Leyen would be to entrust the choice of uses of European resources largely to the States, reforming the current approach that reserves a predetermined share for a number of major compartments (agriculture, cohesion, social policies and others), which each State must deploy in a consistent and monitored manner within its respective compartment.

But even here the very serious risk is that this would remove the incentive to promote European investment in major cutting-edge projects that are too expensive to be undertaken by individual States. From satellites to artificial intelligence, from global computing platforms to nuclear fusion, from hydrogen as an energy source to investments in Africa, what is needed is a European dimension and not a sum of national initiatives, even if coordinated. For this purpose what is needed is a European capital market, a completed banking union and a common corporate discipline, as Letta and Draghi have argued. Beside that, also a greater autonomy of Europe from the dominance of the dollar should be promoted, what could be done by promoting the Special Drawing Rights.

Finally, there is a further risk inherent in Ursula von der Leyen’s recent proposals. They essentially provide for the use of new own resources of the Union. This is undoubtedly right and proper; indeed, it is crucial. However, the European challenges to be faced in the coming years are of such magnitude that this necessary instrument will certainly not be sufficient. It will need to be supplemented with resources derived from Union public debt securities aimed at European public goods. Again, in recent days both Olivier Blanchard (May 7), Mario Draghi (May 14) and Fabio Panetta (May 31) have been absolutely clear on this. The task is not easy, but it is possible as well as necessary, as they all have argued.

We must be aware that the serious risks we have evoked here will, if not corrected in time, undermine the future of the Union in a probably irreversible way. For defense as for development and competitiveness there is a need for the Union “to act as a State” and not only with agreements and inputs from individual member States.

Hic Rhodus hic salta. And the time became short.