European military union is fast becoming the successor to monetary union as the next big idea for Europe. The dynamic new European Commission president, Romano Prodi, has declared that establishing a unified European military will define his tenure in office, just as his predecessor, Jacques Delors, made creating a European economic and monetary union (EMU) his hallmark. Building a European military capacity is also the first item on British Prime Minister Tony Blair's "to do" list as he tries to make Britain irreversibly a full European partner. Prodi and Blair's center-left counterparts -- Gerhard Schroeder of Germany, Lionel Jospin of France, and Massimo D'Alema of Italy -- are all on board, for both economic and political reasons. American officials have signaled that they, too, are now comfortable with the European military push, having already signed a general agreement to support a European military union at NATO's 50th anniversary summit this April in Washington.

Within weeks of this gathering, Europe's new leaders followed up with a historic decision at their Cologne summit to create an autonomous defense force with the political and military muscle to fight its own battles. They were goaded by the war in Kosovo, which highlighted in vivid and embarrassing detail Europe's dependence on the U.S. military. Far from fostering internal dissension on the continent, Kosovo actually brought the common foreign and security objectives of the European Union (EU) member states into focus. Honing the West's war machine allowed senior European policymakers to score a series of important victories that had eluded their predecessors for decades.

Structurally and symbolically, the most important decision taken at Cologne was to appoint NATO Secretary-General Javier Solana as the first EU foreign policy representative. Finally there will be someone to answer the phone in Europe when Henry Kissinger calls.

The EU leaders also committed themselves at Cologne to creating a fully operational European military, and their concluding communique asserted their intention "to take the necessary decisions by the end of the year 2000" to make European military union a reality. Together, these steps provide a solid foundation for translating the EU's financial muscle into geopolitical clout. And the dynamic works both ways: wealth will breed armed might, and might will breed wealth. Ultimately, moving this military venture forward will yield important long-term economic gains for an increasingly unified Europe.

To see why, consider the three goals that European military union achieves that make it irresistible to the new crop of leaders. First, it assures them of the kind of personal historical legacy that European heads of state still crave. With EMU firmly on track, constructing an EU defense pillar would put them at the center of history in a way that tucking in the corners of monetary union never could. Second, military union moves Europe one giant step closer to political parallelism with the United States. This alone is certain to keep the French fully engaged, come what may. Third, building a military union means building European-based weapons, aircraft, ships, and satellites -- and that means jobs for a job-starved continent. Whereas the United States creates three million jobs per year, Europe has not managed to generate that many new jobs over the past decade. Indeed, these economic benefits will be the glue that holds the push toward military union together for its first few years. Europe desperately needs an excuse for a robust employment program, and a "European" defense initiative is a made-to-order solution. Even the miserly European Central Bank would be reluctant to criticize a defense effort designed to bring the EU onto a more level footing with the United States and improve Europe's economy in the process.

SHOW ME THE MONEY

Blair has already begun pushing other EU leaders to build a substantial new capacity to transport troops, equipment, and weapons. This goal was endorsed at a drumbeat of recent summits, including the NATO celebration in April, the Franco-German summit in May, and the Cologne summit in June. The Cologne communique explicitly cites the need to expand EU "intelligence, strategic transport and command and control."

Agreements in principle aside, a great deal of work remains to be done on the force-projection front. Luckily, Europe has plenty of room to spend without bumping into the three percent budget-deficit ceiling enshrined in the Maastricht Treaty, particularly if the French proposal of "averaging" the deficits across Euroland is adopted. By any definition, EU defense spending is far less than that of the United States, and the money is allocated in a way that yields far fewer side benefits -- from jobs to investment to follow-on research applications. Larger, more sensibly targeted EU military expenditures would prove a shrewd long-term investment.

Even though the U.S. and EU economies are roughly the same size (around $8 trillion each), the United States spends $290 billion a year on defense, while Europe spends less than $140 billion. Although the historical reasons for this divergence are well known, the effect that Europe's long-term reliance on U.S. defense capabilities has had on continental strategic spending decisions is less obvious. The difference in the U.S. and EU approaches to divvying up their defense budgets is particularly profound. While the United States spends $30 billion per year on advanced research and technology, the EU nations together spend less than $10 billion. And even the relatively paltry sums individual European countries do spend on R&D are largely wasted on projects duplicated elsewhere on the continent, sharply limiting the EU's ability to produce a coherent European military force and destroying any possible side benefits for the union as a whole.

A quick look at the differences between U.S. and European technological and command capabilities during the Kosovo war makes the inadequacy of today's European military glaringly obvious. European forces have no airborne ground-surveillance capacity, no aircraft capable of transporting heavy equipment such as tanks, no long-range cruise missiles, and only one military reconnaissance satellite (which belongs to France, since U.S. officials usually share degraded imagery with Paris). As a result, European forces played a basically insignificant role in the Kosovo air campaign and were largely removed from active engagement after the first few days of bombing.

By moving to close this gap, European leaders can realize important gains that will help both the fledgling European military union and the newly minted euro. As Europe downsizes its standing armies, it can spend much more on procurement and research and much less on personnel, a cost that adds little economic value. Despite severe pressure to cut spending as part of EMU, the EU's leaders understand fully that a more robust European military presence will require both more smartly targeted spending and, perhaps, an increase in overall defense spending. In a New York Times op-ed, Blair wrote, "We need to identify the gaps in our capability and plug them. We need to do more to plan our defense together at a European rather than a national level. . . . We need to reconstruct our forces together, and make sure spending on defense matches the need." It is not just the hawkish Blair who supports more spending. German Defense Minister Rudolf Scharping, a stalwart of the Social Democratic Party (SPD), has been fighting pressure to cut his budget and is actively lobbying to spend more on European military transport aircraft. In early July, he told a Suddeutsche Zeitung interviewer, "Your question assumes that we pay too much for our security. But the SPD has, like all the experts, strongly proclaimed that the Bundeswehr is underfinanced, particularly in terms of investment. . . . We need information technology and satellites. We need transport capacity." Even Italian Prime Minister D'Alema, the leader of the former Communist Party, said at the April NATO summit, "If this European defense initiative takes off, then Italy will have to spend more on defense."

In fact, the primary reason for the stark disparity between U.S. and EU field capabilities during the Kosovo conflict is that EU countries spend as little as 12 percent of their defense budgets on procurement and research -- areas where the United States spends nearly 40 percent of its budget. European military leaders have not yet adapted to an age with no threat of Soviet invasion; Europe's generals still rely on large-scale conscription programs to provide a surplus of bodies to throw in front of invading Soviet tanks. Several European countries have more than one percent of their population in uniform -- a complete waste of money and labor.

Large standing armies are not only ill suited to Europe's current military needs but economically counterproductive. To remedy this, European leaders have decided that the first goal of their push toward military union will be to develop a European rapid response force, requiring smaller and far more highly trained military units.

Economic logic should also prod EU leaders to conclude that smaller and more agile professional armed forces are the way to go. Although conscription drives can be viewed as thinly veiled jobs programs for younger workers, they are as economically unsuited to the new global economy as large standing armies are militarily to the new world order. Conscription programs give jobs to people who could be easily employed in other areas while denying the full benefits of military training to those who could use it as a springboard to other, perhaps more permanent, jobs. A smaller professional military would let European governments maximize their current defense dollars on both the employment and procurement fronts. To minimize the impact of a smaller, professional military on already stressed European job markets, total forces should be reduced only as fast as current conscripts' tours of duty end -- in most cases, after two years. Since it would presumably take longer than that to recruit an all-volunteer force, the transition could be stretched out to assure that minimum personnel commitments were maintained. That would further ease unemployment totals across the continent.

Ideally, the EU leaders will also agree that their standing armies should be ratcheted back to the same level as in Britain, where only 0.3 percent of the population is in uniform, and use the money freed up by having smaller armies to expand procurement programs first and R&D programs later. Blair and his ministers are pressing other European leaders not to cut their military spending as a percentage of GDP. He is also urging them to view the Cologne communique as an important step toward reinforcing Europe's "capabilities in the field of intelligence, strategic transport and command and control" -- exactly the areas where major economies of scale and investment returns are present. And the need for more spending is clearly not lost on European officials such as Scharping and D'Alema.

LOOKING FOR RICARDO

If the EU were to match British and American spending proportions for these categories, nearly $70 billion would be spent buying equipment from European manufacturers and directing research toward European labs -- a sevenfold increase from the present $10 billion total budget. That would be equivalent to about one percent of European GDP, giving a significant boost to economies groping to find a firm foothold.

Obviously, those benefits would clump in certain sectors. The first beneficiaries of this shift in strategy would be European defense companies, who have been struggling as their governments adopt a "Europe-first" procurement policy even as they are buffeted by a tumultuous wave of mergers and acquisitions. But those benefits would multiply quickly if European leaders follow up on a suggestion made at the Cologne summit to apply a little Ricardian analysis to defense research and procurement.

David Ricardo, the famous nineteenth-century British economist, assumed that countries would use international trade to exploit their natural advantages, and European leaders are now considering whether that kind of proposal could work as military union moves closer. In its most fully realized form -- as laid out by Charles Grant of the Centre for European Reform, a London-based Blairite think tank -- such specialization would look something like this: Britain would do the R&D for nuclear submarines and fighter planes and build them; Germany would specialize in tanks and diesel submarines; the French would focus on satellites, helicopters, and aircraft carriers; and so on.

Following this model, European industry could maximize the economies of scale that a $70 billion dollar budget should provide. This, in turn, would improve Europe's chances to begin having its share of technological breakthroughs that could be commercialized and fed back into broader technological applications. A unified European military would not only change world politics, it would also change European economies, with benefits that we cannot yet fully imagine. After all, although Al Gore may not have invented the Internet, the Pentagon did.

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  • Richard Medley is Chairman and CEO of Medley Global Advisors, a New York-based research and intelligence consultancy specializing in political analysis for international investors and corporations.
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