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Financing ESDP

21 April 2003

Curiously enough, after Iraq, CFSP may be in trouble but ESDP seems to be faring well. The main reason is that there is no longer any significant transatlantic or intra-European divergence over how to deal with Balkans: we all agree on both the principles and the means to be applied to the region, and act accordingly. As a result, ESDP has just become operational - first in Bosnia then in Macedonia - and the `Berlin-plus' framework is being tested and used for the common good. In a few weeks, the Europeans will also assess their capability goals and discuss the ways in which their relevant shortfalls can be addressed. Meanwhile, the European Convention is about to focus on how to improve the `constitutional' provisions in this domain and, once again, the main novelties are expected rather on ESDP than CFSP proper. For the latter, the problem is clear: `high politics' issues affect more directly the sovereignty and powers of elected governments and ministries, and disagreement over policy (especially over how to deal with Washington) only makes things worse. For the former, instead, the immediate challenges of action and the imperatives of effectiveness - however small the present size of operations - push national and EU officials into cooperative mode. If ESDP wants to prove its relevance and, possibly, have a positive impact also on CFSP, it has to set the right political and institutional incentives to common action. Financial resources are scarce, appropriate capabilities limited, political will intermittent - at best.
A crucial angle from which to address the current limits of ESDP is the one related to its financing. It affects both capabilities and operations, and it matters also for any future `core group' that might be interested in marching ahead with ESDP.

Capabilities<br />As for the capabilities, Europeans clearly spend too little and too inefficiently on them. This is in part a legacy of the Cold War (outdated force structures), in part a consequence of Europe's societal configuration (demography, Welfare entitlements), in part the upshot of self-imposed limits on public spending (the Stability Pact for the euro), and in part also the result of a `post-modern' view of the world (widespread reluctance to resort to coercive diplomacy and the use of military force). The combined effect of all these factors is hard to be countered in the short term. There is no magic formula to do so, especially in the absence of any direct traditional threat to the EU territory. The only way to try and reverse the trend is to start &quot;pooling&quot; capabilities - old and new - at the European level. And a possible example to look at is the way in which NATO built its AWACS system by setting up a common budget (run by an autonomous agency), building common bases, and training multinational crews and support technical personnel. As a result, the AWACS represent common (though not `communautarised') supranational capabilities no ally - not even the US - can do without, as both operation `Enduring Freedom' and `Iraqi Freedom' have proved. The EU could try and do the same with strategic naval and air-lift as well as satellite reconnaissance and command-and-control systems - by developing them in common and putting them at the disposal of both the Union and the Alliance.
To be fair, the current EU Treaty does not prevent this: art. 17 TEU already envisages &quot;closer cooperation&quot; in the military field, if compatible with WEU and NATO obligations. Yet it does not encourage it in any particular way. The provisions on &quot;enhanced cooperation&quot; approved at Nice and now inserted in art.27 cons. TEU, in fact, do not apply to &quot;matters having military or defence implications&quot;. On top of that, art.43 states that any such scheme should involve &quot;a minimum of eight member States&quot;: even if not modified in the wake of the forthcoming enlargement, such threshold would make it difficult to develop &quot;enhanced cooperation&quot; in the field of armaments cooperation, where the interested actors - especially on the industrial supply side - are 6 or 7 at best (as in OCCAR and LoI). It would therefore be advisable for the European Convention to abolish the proviso on ESDP enshrined in art.27a, soften the threshold in art.43, and set additional incentives to developing such schemes. For instance, some form of co-financing (between participating member States and the EU budget, perhaps through `matching funds') could be foreseen as it would be entirely in line with the logic of &quot;enhanced cooperation&quot;. The main challenge would probably be the setting of the `entry' criteria, that should be high enough to make the scheme interesting to the main actors but, at the same time, open and achievable enough to make it acceptable also to the other partners (and future potential entrants), who would be called to co-finance it anyway. The specific conditions and criteria, however, may vary from scheme to scheme. This is also why, among other things, pre-determining in advance the potential participants is unfair and counterproductive.
On the whole, &quot;enhanced cooperation&quot; could have a remarkable impact on the medium-term development of common capabilities, especially if the extra money member States would pour into it was, at least temporarily, exempted from the Stability Pact rules. This, in turn, would require a very high level of political consensus in the EU on the desirability of common assets and capabilities.

<br />Financing of operations<br />The financing of operations - as separate (but not entirely separable) from the financing of capabilities - constitutes another important factor, albeit sometimes neglected, for the effectiveness of ESDP. As such, it encompasses administrative expenditure, on the one hand, and in-theatre expenditure proper (from infrastructure to personnel), on the other.
The current Treaty does not say much in this respect. According to art.28 TEU, &quot;administrative&quot; expenditure for CFSP has always to be charged to the EC budget. So does CFSP &quot;operational&quot; expenditure (now budgetary line B.8), although there can be cases in which the Council may unanimously decide otherwise: one in point was the initial phase of the administration of Mostar in 1994-96. There is, however, another important proviso: operations &quot;having military or defence implications&quot; are to be charged to the member States in accordance with the GDP scale unless, once again, &quot;the Council acting unanimously decides otherwise&quot;.
In actuality, the few external operations conducted until recently - all of a purely `civilian' nature - have often been financed in a fuzzy way, combining a) funds formally earmarked for first-pillar regional programmes (PHARE, TACIS, MEDA, CARDS) and other resources in the B.7 budgetary line for &quot;external action&quot;, including de-mining and DDR (demobilisation, disarmament and reintegration) programmes, b) the use of reserve funds, and c) more or less explicit national secondments and contributions.
Such a practice of juggling with allocation lines does not increase transparency nor facilitate scrutiny and accountability. It also makes the planning of comprehensive and durable operations very difficult and particularly liable to specific national interests. However, the procedures for resorting to the CFSP budgetary line proper are so tortuous and slow that they ultimately contribute to such a state of affairs, leading up to delays and under-spending.
Conversely, NATO's practice for purely military operations - whereby &quot;costs lie where they fall&quot;, i.e. participating States pay for the personnel and equipment they deploy - is not necessarily adequate to the Union's requirements and principles, which entail a higher degree of financial solidarity coupled with substantial political equality. In addition, especially the bigger European countries often end up paying twice (and disproportionately so) for one and the same operation, namely as main contributors to the common &quot;administrative&quot; budget (in NATO as well as the EU) and as main contributors in terms of forces and equipment deployed on the ground. This may well engender a `free-riding' problem, especially inside the European Union.
Finally, future ESDP operations are likely to be of a `mixed' nature, encompassing both civilian and military components, and both long-term and short-term measures, none of which can be placed in neatly separate boxes. Such, at least, seems to be the ambition and the peculiarity of EU crisis management policy, and one that will require an extra element of institutional and policy coherence.
Therefore, a comprehensive and fair rationale - i.e. one capable of setting the right rules and incentives - needs to be discussed and agreed upon, well beyond the tentative agreement on &quot;common costs&quot; reached at the Seville European Council in June 2002. On the one hand, in fact, it has to try to prevent inaction if due to lack of money or lack of interest by the member States (who, incidentally, through art.23 also have the option of abstaining `constructively' and thus not paying for common missions). Most member States do not want to negotiate with the European Parliament (EP) over funds for EU operations and/or to involve too directly the Commission in CFSP. Hence an institutional turf battle that produces a policy bottleneck whereby, for instance, the EP has progressively reduced the B.8 line (a ludicrous 30 million EUR for 2002, raised to 47 only in 2003) i.a. in order to draw both Council and Commission to the negotiating table. For their part, the member States prefer to resort to first-pillar allocation lines because it is simpler and faster, though politically inconsistent. As a consequence, the Union had to struggle hard, scratch the leftovers in different EC budget chapters, and devise bureaucratic stratagems to put together a pittance 14 million euros to finance the launch of its first ever ESDP operation - namely the Police Mission in Bosnia-Herzegovina (PMUE), that has taken over from the United Nation's MIBH in January 2003.
Finally, a consistent and effective rationale for financing ESDP operations has also to strike an acceptable balance between participating and non-participating EU partners (irrespective of the reasons for/against their participation) in order to prevent the risk of a `burden-sharing' dispute inside the Union - a risk that is likely to grow with the forthcoming enlargement, that brings in countries with very limited capabilities for crisis management and even more limited financial resources.
The first whistle-stop along this process of improving existing rules and setting the right incentives should be the CFSP operational budgetary line in the EC budget. In general terms, it seems difficult to argue against the primacy of the European Parliament in CFSP budgetary matters: if for no other reason, it is the main source of legitimacy, transparency and commonality for any EU policy or action. What can be modified - in order also to meet the legitimate worries of some actors - is the procedure through which allocations are made and funds spent: up-stream and down-stream, so to speak, by involving more directly those Council bodies that are in charge of ESDP.
While some of these improvements require procedural (and partially also institutional) reforms, an increase in the overall size of the CFSP budget - including its emergency reserves, which may be crucial for managing crises - is something that could be decided upon right away, especially if MEPs accept to interpret consequently the preferences expressed by EU public opinion for &quot;more Europe&quot; in foreign, security and defence policy.
Beyond and apart from that, a possible complementary funding model for art.17 missions - and one that could well cover the aspects &quot;having military or defence implications&quot;, especially if art.28 TEU is not modified - could be that offered by the Union's European Development Fund (EDF). Established at the onset of the European Communities, the EDF has accompanied bilateral development aid and EC trade policies throughout the decades, growing steadily in importance and size. As such, it is not an invoice in the EU budget (therefore not under the control of the European Parliament or the Commission), not strictly GDP-based, not just an addition of national contributions, and it has an ad-hoc and modifiable `key' for sharing costs. The advantages of resorting to an EDF-type budget for future ESDP operations - covering e.g. training and exercise, logistics, in-theatre expenditure and, possibly, also some military personnel costs - would be threefold. First, the advantage of putting in common (and according to pre-identified criteria) expenditures that are presently a) dispersed across the Union, b) increasingly eating up national resources, and c) being decided on a case-by-case, mainly reactive and purely contingent basis. In other words, the same amount of money (and possibly more) that is now being spent without a common rationale and time plan could be transferred to Brussels and `pooled' for better use: it would not be `communautarised', again, but would generate economies of scale as well as a fairer sharing of the burden. It is also important to stress that, while the &quot;administrative&quot; expenses of CFSP are presumably light, the operational expenses for sustained crisis management operations are likely to be significant, as the experience of NATO/UN operations in the Balkans shows - hence the importance of devising an appropriate budgetary perspective.
A first advantage would be speed: if a sudden evacuation or humanitarian operation proves urgent, there would be no need to trigger long and complicated parliamentary procedures (at national or EU level) in order to mobilize the necessary means: a special start-up fund could thus serve a similar purpose to that of the Rapid Reaction Mechanism for civilian emergencies and be linked, for instance, to a `lead-nation' (nation-pilote) or `framework-nation' (nation-cadre) scenario, whereby the member State(s) willing and able to intervene fastest could act on behalf of the Union and count on some financial backing. For such a Rapid Reaction Fund to be established there would be no need to change the letter of the Treaty: art.28. 3 TEU already encompasses the possibility of a coverage of operational expenditure other than GDP-based &quot;if the Council, acting unanimously, decides&quot; so.
The other substantial (and complementary) advantage of setting up an ad hoc fund for the military aspects of ESDP operations would be its medium-long term employability. It would create a common and sustainable financial basis for peace-building missions that normally have a longer duration than pure crisis response operations. If the Union takes over a growing share of the current NATO/UN missions in the Balkans, it will also need a less contingency-driven financial perspective for a durable military presence in the area: one that could go, for instance, as far as to include - at least in part - the per-diems of the personnel involved on the ground, as do the UN and the OSCE (but not NATO). In this respect, the scheme could also encompass a direct contribution from the EU budget: the EP, for instance, could decide to reimburse a fixed sum, a somme forfaitaire - since per-diems vary enormously by country - for each EU soldier employed in a given mission. It could do so ex post facto, i.e. at the end of the year and without conditioning the planning and implementation of (or establishing a formal droit de régard on) ESDP operations.
A third and final advantage would be the direct management of the `returned' materiel and equipment that, after having being procured and used for a given operation may have to be kept in storage (and adequately maintained) before being earmarked for another one.
In order to bring ESDP more in line with the `philosophy' of other EU policies, such fund could also take into account the fact that some member States may pay a bit more than their due, thus partially relieving the bigger contributors or those who are in a difficult financial situation: this is what happens, incidentally, with the operational budget of the OSCE, as distinct from the institutional one. This logic could usefully be applied to ESDP operations by factoring in, for instance, the degree of actual or foreseeable participation of member States. In other words, those who participate relatively less would pay a little more into the common fund, and vice versa. Of course, for such a EU Operational Fund - which, once again, could be established without necessarily changing art.28 TEU - fair criteria should be set, periodical reassessments made, and extreme situations (only payers or only participants) avoided. In perspective, this principle of `mixed pooling' could also be extended to the participation of third countries in EU-led operations, especially if one considers that, after the forthcoming enlargement, the `format' for possible ESDP missions will be, instead of the current `15 + 15', either 25 (when the EU acts alone) or `23 + 5' (when it acts in cooperation with NATO, but without Malta and Cyprus) - where the five external partners would all be NATO members with significant military capabilities and/or infrastructure, namely Norway, Iceland, Turkey, Romania and Bulgaria.
Operation &quot;Concordia&quot; in Macedonia, that has just taken over from NATO's &quot;Allied Harmony&quot;, constitutes the first ESDP military operation proper. However small in size (some 300-odd personnel) and short in duration (6 months in the first instance), it may well set precedents for other ones in the future, starting with the possible takeover of NATO's SFOR in Bosnia (12,000 military personnel) next year. It constitutes also the first joint EU-NATO crisis management operation and the first one conducted within the `Berlin-plus' framework. To this end, the Council has put in place an ad hoc budget of some 6,2 million EUR that covers the `common costs' and be managed by a &quot;Special Committee&quot; of participating States, chaired by an `administrator' based in Brussels but with some discretional powers for the military commander on the ground. Participating `third' countries contribute to the budget by 15 % and according to a pre-determined `key' that takes into account (but only as a general term of reference) their respective GDP.
It is generally assumed that some of the principles that have been put in place for &quot;Concordia&quot; will be preserved. At the same time, precisely its ad hoc nature and its limited scope (hardly usable as a yardstick for the future) vindicate the argument made above about the need for a more coherent and durable solution. After all, there is no no-go area for the Convention, and existing provisions and procedure can be improved wherever deemed necessary.