Europe’s Red Tape Is Helping Russia

The European Union’s spending rules and public-procurement processes are plainly inadequate to the threat posed by Russia’s full-scale invasion of Ukraine. If the World War II Allies had been subject to such strictures, they would have been unable to buy landing boats for the invasion of Normandy for a landing in 1944, equip General Charles de Gaulle’s Free French Army, or issue war bonds in time. The EU’s regulations undermine its capacity to mitigate the war’s effects on Europe itself, weaken its ability to protect itself from a broad range of hybrid attacks, and prolong Russia’s military aggression against Ukraine.

That is why some European leaders have increasingly called for the EU to put its economy on a war footing. French President Emmanuel Macron, for example, has rallied a coalition of countries to increase support for Ukraine. But while such a shift is urgently needed, efforts to this end have so far mostly been confined to the military sphere, leaving both Ukraine and the bloc vulnerable in other domains.

For example, the procedure for financing and building a new electricity interconnector to Ukraine – which might become increasingly essential as Russia intensifies its strikes on energy infrastructure – would probably not differ from the pre-war procedures. Now as then, a project that could be built in, say, one year, can easily take several more years, owing to bureaucratic barriers.

Consider that in autumn 2022, when Russia began destroying Ukraine’s electricity-generation capacity, Romania requested funds for an electricity interconnector to Moldova – which had started experiencing blackouts as well – from NextGenerationEU, the bloc’s pandemic-recovery program. After nine months of preliminary work, the EU reached the obvious conclusion that the project made little economic sense. While correct from the criteria for financing projects under the NextGenerationEU s and from a profit-maximizing perspective, such an assessment ignores the broader risks of Russia’s brutal war on the EU and candidate countries.

Similar issues arise with other types of infrastructure spending. Today, if Poland or Estonia needs to build a road or bridge for security purposes – to boost its capacity to deploy military assets along the border or to some hard-to-reach border village, for example – it would be difficult to access or fast-track funding from international financial institutions, the EU’s Cohesion Fund, or NextGenerationEU, let alone the World Bank, the European Investment Bank, the European Bank for Reconstruction and Development, or the Council of Europe Development Bank. But what may be fiscally unsound in normal times takes on new meaning in a war economy. Indeed, all member states would benefit from improving the ability of the EU’s frontier countries to move troops and defense equipment.

While diplomatically firm, Europe is still wobbly when it comes to committing resources. The situation is comparable to the first years of the multi-year eurozone debt crisis that began in 2009 – at least until then-European Central Bank president Mario Draghi delivered his famous vow in 2012 that the ECB would “do whatever it takes” to save the euro. The EU has yet to commit to “do whatever it takes” to deny Russia’s victory. The contrast between the bloc securing €750 billion ($798 billion) for the pandemic-recovery fund and struggling to raise even €100 billion for Ukraine’s existential struggle in the continent’s largest war since 1945 reflects Europe’s aversion to common projects beyond the economic sphere.

The EU must change – and fast – to mitigate the Russian security threat. That means providing more aid to Ukraine, devising an emergency plan for ramping up domestic military production, and adopting a European Defense Production Act (DPA).

First, the EU should consider supporting Ukraine with a lend-lease program, similar to the one that the United States used to supply the Allies with military equipment, food, and other material resources before officially entering WWII. The US dispensed around $50 billion (roughly $800 billion today),worth of goods, deferring payment.

Most of these debts were repaid in “joint action” toward the creation of a liberalized economic order, but some were eventually reimbursed – the United Kingdom paid its final loan installment in 2006. The EU could use common borrowing to finance such a program, like the pandemic-recovery fund before it. The threat posed to the bloc by the Ukraine war is arguably greater than that of COVID-19.

Second, European policymakers must devise contingency plans for military emergencies, including the conversion of civilian factories into defense plants. After all, Ford began assembling B-24 bombers and Chrysler shifted to manufacturing tanks during WWII.

Lastly, a European DPA would help mitigate the effects of hybrid aggression against the EU by hostile powers, including on electricity infrastructure, gas supplies, and telecommunications equipment. It would also establish a robust framework for addressing military and security shortages, with guidelines for fast-tracking acquisitions, expanding industrial sites, managing contracts, introducing trade controls, and securing supply chains.

This new legislative framework should be modeled on the US DPA, which was enacted in 1950 and allows the president to expedite and expand the supply of materials and services needed to promote national defense, broadly defined, by regulating – or even commandeering – private industries. For example, during the COVID-19 crisis, companies were mandated under the DPA to assign the highest priority to government contracts for medical supplies and equipment. In addition to direct purchases and purchase commitments, the DPA authorizes the use of other financial incentives, such as loans and guarantees, to enhance domestic preparedness, which includes funding research and development.

A European DPA would establish a framework for addressing hybrid – and possibly more conventional – threats by hostile powers acting and help fast-track processes for public procurement and spending, while still preserving institutional checks and balances. Adopting such legislation, together with a lend-lease program for Ukraine and contingency plans for military emergencies, would represent a credible commitment by the EU to its own defense and to its NATO commitment. Given the full-scale war next door, it is high time the bloc confronted reality: it must protect itself.

Copyright: Project Syndicate, 2024. www.project-syndicate.org

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