A Primer on Developing European Public Goods

The EU has mostly been defined as a provider of economic integration amongst participating member states. Historically, however, it was also intended to provide public goods – common policies that do not primarily aim to integrate markets or organise transfers among member states but are designed to provide amenities to the EU and all its members. The single market and the euro – the main projects of the last decades – were integration-driven. Time has come to reconsider the allocation of political impetus in the EU. Public goods must be given renewed priority in a context transformed by technology, the rise of global commons, regional challenges and geopolitical change.

There are legitimate concerns about the potential loss of national sovereignty involved in giving new competencies to the EU. But in today’s world, in several policy areas the choice is between European sovereignty and no sovereignty at all. Enhancing European public goods provision is not about an across the board extension of European policy competencies. It is about developing EU policies in areas where this adds value in comparison to a situation where member states act alone.  

We propose an initiative to enhance European public goods provision in the following eight areas:

1.    Foreign economic relations

Currently, trade policy, competition policy and a large part of regulatory policy are the responsibility of the EU. This should be complemented by extended EU competencies in investment policy. The Council should be given the right to decide by qualified majority to block a foreign investment that represents a risk to European security. 

The EU should also take steps towards the establishment of the euro as a major international currency, including through the granting of swap lines to partner central banks and the introduction of a common safe asset. And the EU should move towards a consolidated representation at the World Bank and the IMF. Doing this for the euro area at the IMF would be a first step.

2.    Climate change mitigation

The transition to a carbon-neutral economy is by now a major objective of the EU, but it still lacks the instruments to ensure effectiveness. The objective should be to integrate all sectors including road traffic and housing into a European carbon pricing regime based on the ETS or on an appropriate carbon tax system.  In this case emissions reduction targets for individual member states would be unnecessary and even harmful because they would undermine cost-efficient emissions reduction for the EU as a whole. The EU should be given the authority to set by qualified majority binding corridors for carbon prices. It should be equipped with a capacity to sanction infringements to jointly determined decarbonisation plans and to contribute to offsetting their social costs.  

3.    Digital sovereignty

Europe is lagging behind in the global digital race and this threatens its traditional comparative advantage in a series of industries, from aerospace to motor vehicles and banking. Dependence on infrastructures provided and controlled outside Europe may undermine European cybersecurity and digital sovereignty. Reliance on Chinese digital infrastructure is a case in point but strong dependence on US data storage facilities is also an example. But vulnerabilities are also internal: flaws in the security system of any member state can affect all partner countries. 

The EU therefore needs to pool its resources and make greater efforts to protect cybersecurity and digital sovereignty in Europe. We propose to task a high-level group to assess the situation and to make proposals for raising the effectiveness of European digital sovereignty, in particular of cybersecurity. The group should propose measures that should apply to the single market as a whole, as well as avenues for closer cooperation amongst a subset of counties. 

4.    Research and development in large and risky projects

Part of the technology and productivity handicap Europe is suffering from in the digital economy and especially artificial intelligence is attributed to a failure to finance disruptive innovation. The US DARPA programme is often mentioned as something to emulate: research and innovation funding that “reaches for transformational change instead of incremental advance”. 

The success of a European DARPA largely depends on an exclusive focus on pathbreaking projects, without consideration for their distribution across countries and irrespective of the potentially adverse effects of radical innovation on existing industries. It also depends on an ability to terminate the insufficiently successful ones decisively and abruptly, even if this is bound to affect certain member states negatively. If agreement on these conditions and on tasking an independent governance body can be reached at EU level or amongst a group of member states, the endeavour should be pursued.

5.    Development cooperation and financial assistance to third countries

In development policy the EU and its member states should question the prevailing division of labour between EU institutions and the member states. They should also reassess their development priorities, instruments and procedures. This in turn raises an institutional issue: the EU currently lacks an effective development policy body able to innovate, formulate options for the future, select priorities and administer a range of development instruments. To build up one, they need to decide whether or not to bolster the out-of-area mandate of the European Investment Bank (EIB), and whether or not to leverage their participation in the European Bank for Reconstruction and Development (EBRD).   

6.    Migration policy and the protection of refugees 

Migration policy is an area where spillover effects from national decisions are massive but where preferences differ widely. This makes common policies both particularly necessary and particularly difficult. Action is most urgent in the area of asylum and refugee policies. A lasting solution would require:

1.  A common border protection system combining national authorities and Frontex; 
2. A common legal framework for asylum, based on the UN convention, and a close coordination on implementation; eventually, a common refugees protection agency in charge of screening applications for asylum; 
3. Common principles for the allocation of persons to whom asylum rights have been granted; 
4. Common policies for the resettlement in their home country of persons to whom immigration rights have been denied.  

It is evident that such common policies cannot be put in place between countries that do not share the same fundamental principles, which implies moving ahead with a subset of them. The logic of a border-free and passport-free area such as Schengen is that it implies a common migration policy. Eventually, the geometry of Schengen and that of the common migration policy area will necessarily coincide. 

7.    Foreign policy and external representation 

In a world increasingly dominated by economic and geopolitical superpowers, foreign policy is another area where the case for a more European approach promises significant gains, but the lesson from experience is that mechanisms alone are not sufficient to overcome obstacles arising from deep policy divergences. The challenge for the years ahead is to ensure effectiveness in fields where policy perspectives are widely shared. We propose three practical steps: 

1. Initiatives to strengthen the European soft power. Culture, media, education and science are fields where European preferences are largely unified; 
2. Savings-oriented back-office cooperation. Significant savings can be achieved by mutualising non-policy and back-office functions such as the processing of visa applications to the Schengen zone, or by organising structured cooperation amongst national foreign ministries. 
3. Regular European Foreign Policy White Books. The High Representative of the Union for Foreign Affairs and Security Policy can only be effective when key member states share common objectives and have ownership of the EU’s foreign policy. One important step would be to introduce a much more extensive common assessment and analysis of foreign policy objectives and threats (EU Foreign Policy White Books). 

8.    Military procurement and defence 

Defence is by essence a public good, at least as far as major threats are concerned. But while in recent years the EU member states have taken steps towards more cooperation in defence policies, they have had limited effect at best. In view of persistent differences as regards the perception of threats, decision-making procedures and the willingness to embark on overseas operations, a way forward for European defence is variable geometry – especially as the UK is a major player in that field that should remain part of the coordination of defence efforts. Smaller club-like structures such as the 10-members European Defence Initiative have emerged, but so far with limited means and ambitions.

Progress should be made towards common procurement, shared infrastructures, common arms export policies and joint defence initiatives simultaneously. They do not need to advance at the same pace nor in the same format: cooperation on procurement can involve a wider ring of partner countries and it can also move faster than whatever has to do with the use of military force. Shared infrastructures also do not imply joint initiatives. But the development of European defence cannot be disjointed. It should be regarded as a system.   

An action agenda

Opportunities for defining a European public goods agenda are the negotiations of the Multiannual Financial Framework for the years 2021-2027 as well as the “Conference on the future of Europe” announced by the incoming Commission president, Ursula von der Leyen, in her opening speech of 16 July to the European parliament. The latter would have the advantage of involving the citizens in the definition of European priorities. At any rate, policy initiatives are urgent. 

Regarding the governance of public goods provision, approaches will have to differ across policy areas. Full shifting of responsibilities for the provision of certain public goods to the European level has a number of advantages which are sometimes underestimated. First, free riding and other types of strategic behaviour of individual member states are avoided. Second, a greater coherence of the policies in question can be achieved. Third, cost savings through the use of economies of scale are more easily realized. At the same time full shifting of responsibilities has disadvantages, in particular in the presence of preference heterogeneity. Therefore variable-geometry solutions will be necessary to make progress. 

The enhanced provision of European public goods requires funding, but it should not increase the overall tax burden for EU citizens. The overall tax burden should even decline if it is true that certain 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, and while a larger role of the EU in public goods provision would strengthen the case for reforming the financing system, we propose to disconnect the provision of new European public goods from longer-term issue of reforming EU finances. This implies that the EU should fund the corresponding spending increase through higher GNI-based resources in the EU budget. 

A Franco-German Initiative for Public Goods Provision

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:  

i) A common agency and a common research institute for cybersecurity

Cybersecurity is an area with significant border crossing implications and economies of scale. But cooperation in this field requires considerable trust among the participants, which is an obstacle to an EU-27 initiative. 

The advantages of joint action in this area are likely to be significant even if only two large countries intensify their cooperation. France and Germany should do so by creating a common agency and a joint research institute for cybersecurity.  

ii) A common fund for supporting breakthrough innovation 

The difficulty with the financing of breakthrough innovation is that it requires a strict selection of projects and an unwavering commitment to terminate those that do not deliver. Such principles may entail adverse distributional consequences and are hard to implement at EU level. We therefore propose that France, Germany and other countries willing to uphold them initiate the creation of a joint fund for breakthrough innovation. 

iii) Joint armed forces and a uniform arms system

Defence and military procurement is a key area of European public goods provision where potential efficiency gains are large. Building on existing initiatives, France and Germany should extend their cooperation in both the setting up of joint military units and military procurement. In particular there should be an ambitious objective and time schedule for the introduction of joint and uniform arms systems. Obviously, this schedule should be coherent with the gradual build-up of the German military spending effort.   

iv) A joint strategy for African development 

Although relations between France and many African countries are much closer than those to Germany, a diminishing economic weight and resource constraints have reduced the influence of France as well. Their combined weight would matter much more. Naturally, they should involve other member states whose history or location results in a strong interest for African matters.  

v)  A Franco-German chair at the IMF

Although their policy views often differ, France and Germany should consider merging their participation at the IMF. Adequately prepared, such an initiative would be the prelude to a consolidation of European chairs that is made necessary by the rapidly shifting balance of global economic power. 

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It should be emphasized that it is important to design these Franco-German initiatives in such a way that other member states do not perceive these as excluding others or as a claim of France and Germany to leadership, but rather as a pathbreaking initiative and as an opportunity to build a larger coalition of member states determined to bring forward European public goods provision.