The European Union requires a substantial increase in investment to achieve its goals, particularly improvements in defense capacity, according to former European Central Bank president Mario Draghi. In a report on the bloc’s competitiveness published this week, Draghi suggests that Europe must invest more than twice as much in its economy compared to what it did after World War II.
To digitalize and decarbonize the economy and increase defense capacity, the investment share in Europe will need to rise by around 5 percentage points of GDP. This is unprecedented, Draghi explained, noting that the additional investments provided by the Marshall Plan between 1948-51 amounted to around 1-2% of GDP annually.
The Marshall Plan, officially the European Recovery Program, was an American initiative enacted in 1948 to provide foreign aid to Western Europe. Most EU nations are members of NATO, which insists upon a financing target of 2% of each member state’s GDP.
In June, the European Commission estimated that over the next decade, additional defense investments of around €500 billion would be needed. The EU has relied on decades of geopolitical stability, protection by the US and relatively lower defense spending to support its domestic goals. However, it now has a fragmented defense industry that is unable to produce at scale.
The current geopolitical environment, particularly due to the conflict between Russia and Ukraine, adds urgency to the need for increased defense investment. Draghi warns that without action, Europe will face an existential challenge as it may have to compromise its welfare, environment, or freedom. To achieve strategic independence and increase its global geopolitical influence, the bloc needs a plan to strengthen defense investment.
Draghi suggests that the EU issues new debt to fund these needs. The bloc first used common borrowing in 2020 to help countries pay for the recovery from the coronavirus pandemic. However, several nations, including Germany, Denmark, Finland, and the Netherlands, have since opposed any form of new common debt.
The current government debt to GDP ratio in the EU stands at nearly 82%, according to Eurostat. The United States has long played a central role in the bloc’s defense. Since the outbreak of the Ukraine conflict in early 2022, the White House has been sending additional forces to the EU. Some nations, such as the Czech Republic and the Baltic states, have warned that Russia would attack them if it secures a victory against Ukraine.
Moscow has repeatedly dismissed these claims. President Vladimir Putin said in June that there is no threat of Russia attacking NATO countries, as it has no “imperial ambitions,” and described such allegations as “nonsense.