On another day, there is another withdrawal to support the United States for Ukraine, and thus the security of Europe. While President Donald Trump is pushing for a surrender deal with Russia, the Europeans are rushing to prepare Europe to defend itself without American assistance. Europe is a rich continent, and signs that its leaders can move quickly when they have a knife against the throat. That Friedrich Mirz, who is on his way to Germany’s advisor, has It mediated in a political agreement Defensive spending from paralyzed debt brakes in the country is not less amazing.

There is also a lot of discussion about the financing forms. So, I am exposed to questions to be asked about the financial challenge of defense in Europe, and to provide some initial answers. What do free lunch readers think? Send us your opinions in Freeelunch@ft.com.

To dismantle my private confusion, I found it useful to divide the questions into three. How much money needs to collect and spend? Where are you from? And before? Let’s start with the first.

How much should Europe spend?

Europeans need to spend more on defense. But how much more? This depends on what you think you should be able to defend. But any reasonable answer to this requires a very significant increase in current levels (not to mention before 2022), which is several percentage points from the annual GDP of many countries. This may reach up to double the current levels, which for most Europe is slightly higher, and sometimes less than 2 percent of GDP.

As a good leader, take Poland, the prominent student. In just three years, it moved from about 2 percent of GDP to about 5 percent. Poland, of course, is particularly subject to a possible Russian invasion and its awareness. So what about the rest of Europe?

accident a report Written by Alexander Burkov and Junram Wolf gives a brief but informed answer. If you cannot rely on the United States, Europe will argue, you will need an additional 300,000 soldiers and at least 250 billion euros in defensive spending per year-which is approximately 2 to 3.5 percent of gross domestic product-to compensate for the loss of capacity. This is not far from the extra effort of Poland, then.

Where should the money be found?

Such defense accumulation means re -allocating several percentage points for the real resources of European economies away from the current uses towards defense equipment, employees, logistics, research and development. This economic reality is the basic point about “financing” and must be taken into account firmly in any discussions on how accounting numbers reach budgets.

There are only three ways to do this in economies that do not leave significant resources through production less than their potential. (In fact, there may be some stagnation in European economies – in which case, more defensive spending, the macroeconomic, can pay the price for itself by enhancing total economic activity. But for this discussion, let’s put this possibility aside.) You rob the resources from consumption and private investment through taxes; Government borrowing can persuade the private sector to provide more resources, while directing the liberated resources to the defense budgets; Or the government can reduce other budget expenses.

Johannes Marzian and Christophe Trepesh at the Keel Institute They studied How the military accumulation was historically funded. They found that on average, in important case studies, military expansions are not generally paid by re -allocating current government expenses. Instead, it is funded by a mixture of taxes and debts – the more freshness, the more debt in this mixture. This also fits the current Polish issue, which is largely funded.

History can be bad evidence, of course, but Marzian and Trebesch indicate that economic principles are specifically recommended. Any permanent increase in defense spending must be paid by taxes or discounts in other spending. But in a rapid increase, it is good for the tax to rise over time, so it makes sense to borrow for the initial explosion. In addition, when the accumulation includes a permanent increase in the equipment stock, the spending needs will be short to somewhat higher higher than the permanent level. This bump should be filled with debt to avoid bump in the tax level as well. (In the event of economic recession, there is a justification for the deficit -funded deficit for standard causes.)

Who should do borrowing and spending?

So we are in a position (or we must be) to an imminent detonation of borrowing to spend on the defense, to be partially replaced by increasing tax levels over time. The crucial question in Europe is whether it should be borrowed at the national or European level. This is often a disorganized discussion, fortunately, recently benefited from some of the greatest enlightenment.

One of the sources of confusion is that many countries contradict the local and/or European bases on the deficit spending. This is one of the reasons why there are calls for common borrowing in Europe or new institutions such as the “Defense Fund” (similar to the European Union’s epidemic fund, for example) or “Defense Bank” (similar to the current multi -party development banks). But it is a bad reason. If the rules lead to a bad economic policy (in fact, bad security and defense policy), then these rules must change.

This is exactly what happened this week. In a bold decision, the two sides of the two traditional rulers in Germany agreed to permanently increase the defensive spending of the country’s constitutional debt brakes. Meanwhile, the European Commission suggested suspending the budget for the European Union’s budget for defensive spending. (How to do this exactly is not completely clear, given that the “escape condition” that will be called is not specific to the sector, but it suspends restrictions through the entire government budgets. But the political decision is clear)

There are other good arguments for joint borrowing and new facilities. One of them is that joint borrowing will help joint spending, or at least coordinated spending and unification between the two countries. As many observers indicate, the various national specifications constitute a great burden on the efficiency of military purchases in Europe (given that the vocalists are not exploited) and their military combat effectiveness (because the equipment of countries is not subject to mutual or exchangeable operational operating).

Another reason is that joint purchases and inter -operational service should naturally include members of the European Union such as the United Kingdom and Norway. But there are all kinds of legal and political restrictions on the participation of these countries in the current European Union policy and financing structures. (A. Worksheet From Stiftuung Wissenschaft Und Politik explains the complications well. Therefore, some new formulations can be necessary for joint financing and purchases through a “coalition of desire” that includes countries other than the European Union.

However, no one should think that the Defense Bank somehow avoids the political options involved in re -allocating real resources. Unlike other large initiatives, such as green transition, it is not possible to “benefit” from small amounts of general financing to obtain special financing for the rest. Governments only buy tanks (and thanks to God for that). The lending by the Defense Bank does not overcome the need for the government to put money on the line to obtain an order, if the tank is built. European leaders must categorically avoid the temptation to believe that the inclusion of the creation of a new institution will change this basic fact in one way or another. Many financial engineering will send an unambiguous sign of weakness – still does not want to mobilize the required resources.

If this is in mind, there is a state of joint borrowing (Sander Tordoir in a useful way Put How to think about joint defensive bonds), if this is designed to encourage simplicity and common purchases throughout Europe. Burilkov and Wolf suggests that the additional 250 billion euros requires a year that can be done at the European level, half at the national level. Over the course of seven years of the European Union’s multi -year budget, this would match the size of the recovery fund: Bold but viable.

This week, the head of the European Commission Proposal A 800 billion euros spending exploded on the defense by the European Union and its member state – of which 650 billion euros by national capitals for four years, by suspending the financial rules. This is about the appropriate amount. But capitals still have to do political action to decide to spend more. Poland did this; Germany has put itself in a position to do so, but spending has not yet been committed. Long -term spending obligations must continue to grant weapons manufacturers confidence to build capacity. Thus, Mirz is right When he says The suspension of the European Union’s defense budget base should be over time.

As for the common borrowing, 150 billion euros are very few, and it may be defined less through needs more than what can be re -used from the unused borrowing capacity without much uproar. So, although there are some excellent steps in the right direction this week, there are a lot of financial and political works.

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