Introduction
At around 1 percent of GDP – a level unchanged since the 1980s – the EU budget pales in comparison to the United States federal budget (around 22.5 percent of GDP in 2023) and the national public spending of EU countries (almost 50 percent of GDP in 2022). In the EU, of course, spending responsibilities are split, with social protection, health, education, defence and debt service funded from national budgets while at EU level, a large, though gradually declining, share of the budget has traditionally gone to the common agricultural policy and cohesion funds – money intended to help lagging parts of the EU to catch up.
The general principle of public spending is that governments should only interfere with the provision of goods and services when there is a market failure. Otherwise, provision should be left to the private sector. In the EU, there is an extra layer. The EU should only step in when a market failure is supplemented by a national public failure: the EU should intervene whenever private agents or national budgets fall short of financing goods that would benefit the EU as a whole. This is the principle behind European public goods (EPGs) – public services financed through common EU resources and delivered directly from the central level or via the national level.
EPGs can be defined as “policies and initiatives whose value to the citizens are higher when conducted at EU rather than at national level” (Fuest and Pisani-Ferry, 2019). As the EU’s priorities change, often in response to dramatic external developments, the question has arisen of whether some public goods typically provided at national level would be more efficiently provided at EU level. Vaccine procurement during the COVID-19 pandemic was one example. The EU has also effectively doubled its budget in the post-pandemic period (2021-2026) through the NextGenerationEU (NGEU) initiative, under which €800 billion was raised for economic recovery (5.5 percent of EU GDP in 2021, therefore about 1 percent per year for five years).
In favour of provision of public goods at the EU level are greater economies-of-scale and stronger cross-border spillovers of the good (leading to under-provision if left to the national level). In favour of provision at the national level are differences in national preferences and better information held at the national level (Claeys and Steinbach, 2024).
About the Authors
Kalin Anev Janse is the Chief Financial Officer and Member of the Management Board of the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF). He is Executive in Residence at IMD Business School and affiliated to the University of Amsterdam in terms of economic and financial research. He Chairs the CFO community at the World Economic Forum.
Roel Beetsma is Dean of the Faculty of Economics and Business of the University of Amsterdam and Professor of Macroeconomics. He is also Visiting Professor at Copenhagen Business School and Research Fellow of the CEPR and CESifo.
Marco Buti holds the Tommaso Padoa-Schioppa Chair in economic and monetary integration at the European University Institute. Former Chief of Staff of the Commissioner for the economy, Paolo Gentiloni, and until 2019, Director-General for Economic and Financial Affairs at the European Commission (DG ECFIN).
Klaus Regling was the first Managing Director of the European Stability Mechanism and the CEO of the European Financial Stability Facility (EFSF), a position he has held since the creation of the EFSF in June 2010 until his retirement in October 2022.
Niels Thygesen was Chair of the European Fiscal Board from 2016 to 2024. Professor Emeritus of International Economics at the University of Copenhagen, he also worked for the Danish government, Harvard’s Development Advisory Service (in Malaysia), and the OECD in Paris. Former adviser to the Governor of Denmark’s national bank, Chair of the Danish Economic Council and member of various expert groups on European monetary and financial integration – the subject area of most of his research and publications.