Government Budget Challenges

🔔 𝐆𝐞𝐫𝐦𝐚𝐧 𝐌𝐢𝐥𝐢𝐭𝐚𝐫𝐲 𝐀𝐭𝐭𝐚𝐜𝐡𝐞́: 𝐔𝐬𝐞 𝐨𝐟 𝐆𝐞𝐫𝐦𝐚𝐧 𝐚𝐫𝐦𝐬 𝐢𝐧 𝐔𝐤𝐫𝐚𝐢𝐧𝐞 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 "𝐝𝐢𝐬𝐚𝐩𝐩𝐨𝐢𝐧𝐭𝐢𝐧𝐠 𝐚𝐧𝐝 𝐬𝐨𝐛𝐞𝐫𝐢𝐧𝐠" A confidential German military report, obtained by NDR, WDR, and Süddeutsche Zeitung, paints a stark picture of German-supplied weapon systems on the Ukrainian battlefield. 🔹 Key findings: 🔧 PzH 2000 howitzer: Extremely high technical vulnerability — "its suitability is questioned." 🛡️ Leopard 2A6 tank: Very expensive to repair and cannot be repaired at the front due to drone threats. ⚙️ Leopard 1A5 tank: Reliable, but with weak armor, relegated mostly to artillery roles. 🛡️ IRIS-T air defense: Effective, but ammunition costs are prohibitively high. 🛡️ Patriot missile defense: Technically excellent — but logistically crippled due to outdated carrier vehicles and no spare parts supply. 🔹 Better performers: ✔️ Older "obsolete" systems like the Gepard anti-aircraft gun and Marder infantry fighting vehicle performed far better under Ukrainian conditions. 🔹 Operational realities: 📦 Logistics challenges — repairs are slowed by the long distance between the front and rear maintenance hubs (even Rheinmetall sites). 🧠 Ukrainian forces have less experience with Western systems compared to German expectations. 🌍 Conditions in Ukraine are far harsher than what German planners expect for a European battlefield. 🌍 𝐖𝐡𝐲 𝐢𝐭 𝐦𝐚𝐭𝐭𝐞𝐫𝐬: ✔️ Modern Western weaponry often struggles under the extreme pressures of drone-saturated, high-intensity warfare. ✔️ "Old tech" with simplicity, ruggedness, and easy field maintenance is proving crucial. ✔️ Future defense planning must consider combat environment realities, not just laboratory specifications. 🎯 The war in Ukraine is not just a battlefield — it is a crucible revealing what modern armies can (and cannot) rely on. #Ukraine #Germany #DefenseIndustry #Leopard2 #PzH2000 #Gepard #Marder #ModernWarfare #MilitaryLogistics #DefenseLessons #Bundeswehr

The European Commission's 2026 study on the climate transition and public finances arrives at a conclusion that should reframe board-level thinking on sustainability risk: a net-zero trajectory is fiscally sustainable, but the path there will fundamentally restructure how governments raise and spend money. The analysis, conducted using two independent macroeconomic models across all EU member states, finds that revenues lost from declining fossil fuel taxation are more than offset by new income streams, including ETS1, ETS2, the Carbon Border Adjustment Mechanism (CBAM), and the removal of fossil fuel subsidies. The fiscal arithmetic can work. What differs is the distribution of the adjustment. Several findings demand the attention of sustainability leaders, CFOs and board audit committees. The International Monetary Fund estimates climate-related public spending could increase sovereign debt by 10 to 15% of GDP by 2050. Delayed carbon pricing adds a further 0.8 to 2% of GDP annually. For businesses operating across EU jurisdictions, sovereign fiscal stress is not an abstract risk. It translates directly into tax policy volatility, subsidy withdrawal and regulatory uncertainty. Carbon pricing alone could generate revenue equivalent to 0.9% of GDP by 2050, but tax base erosion reduces the net figure available for balancing to just 0.4% without complementary measures. Corporates relying on current tax structures to model long-range cost bases are working with assumptions that will not hold. Member states are not starting from the same position. Poland and Romania remain heavily dependent on EU financing to fund their transition, whilst Denmark and Spain are mobilising domestic public and private capital at scale. Supply chain exposure to high-dependency member states carries regulatory and operational risk that boards should be stress-testing today. The broader message is clear: the transition does not threaten fiscal stability, but it will demand active management of the revenue and expenditure shifts it triggers. Companies that treat this as background noise rather than a strategic input are accepting avoidable risk. Understanding the intersection of climate policy and financial materiality is now a core board competency. Platforms such as Plan A (plana.earth) are built to translate this regulatory and fiscal complexity into the decision-ready data that leadership needs.

My latest for EUobserver: 𝗘𝘂𝗿𝗼𝗽𝗲'𝘀 𝗻𝗲𝘄 𝗠𝗙𝗙 — 𝗶𝘁'𝘀 𝗻𝗼𝘁 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗲 𝘀𝗶𝘇𝗲, 𝗶𝘁'𝘀 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗲 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝘆 🎯 𝗙𝗼𝗰𝘂𝘀 The 2028–34 EU budget debate is fixated on size when design matters more. The “~€2trn” headline masks a real increase of only ~0.02pp of EU GNI versus today—and, as in 2021–27 (-0.06pp), the Council has in the past reduced the Commission’s proposal. 🧭𝗔𝗿𝗰𝗵𝗶𝘁𝗲𝗰𝘁𝘂𝗿𝗲 Streamlined from seven to four headings. Over half of the envelope (53.7%) is “economic, territorial, social, agricultural & fisheries cohesion”. 🧩𝗡𝗮𝘁𝗶𝗼𝗻𝗮𝗹 & 𝗥𝗲𝗴𝗶𝗼𝗻𝗮𝗹 𝗣𝗮𝗿𝘁𝗻𝗲𝗿𝘀𝗵𝗶𝗽 𝗣𝗹𝗮𝗻𝘀 ~€771bn (around 44% of the total) merging CAP and cohesion lines with performance-based disbursements. Lessons from the RRF warn that weak outcome indicators and limited multi-level governance can undermine results—creating a risk of de-facto renationalisation. The Plans merge instruments under a single framework to align incentives, but without clear, measurable outcomes and genuine multi-level ownership the performance approach may not deliver. 🌍 𝗚𝗹𝗼𝗯𝗮𝗹 𝗘𝘂𝗿𝗼𝗽𝗲 ~11% largely preserves the EU’s external profile. Sub-Saharan Africa (€60.5bn) and MENA (€42.9bn) exceed resources for enlargement & neighbourhood (€43.1bn)—meaning more is allocated than to enlargement, potentially clashing with enlargement narratives. 💶 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗻𝗴 (𝗼𝘄𝗻 𝗿𝗲𝘀𝗼𝘂𝗿𝗰𝗲𝘀) ETS and CBAM proceeds plus an e-waste levy, a tobacco excise (TEDOR) and a Corporate Resource for Europe (CORE). CORE would charge firms with turnover above €100m, raising competitiveness concerns. Advancing BEFIT to harmonise the tax base would better support the single market. Before seeking new money, the EU should use under-deployed tools such as the ESM’s €420bn lending capacity. 📝 𝗣𝗼𝗹𝗶𝗰𝘆 𝗥𝗲𝗰𝗼𝗺𝗺𝗲𝗻𝗱𝗮𝘁𝗶𝗼𝗻𝘀 1. Do not export performance-based disbursements to the new framework until the RRF’s problems have been properly addressed. 2. Do not waste effort or political capital on the MFF size debate. 3. Centre the strategy on mobilising private finance and on well-designed MFF instruments that de-risk and crowd in investment. 4. Avoid CORE; it affects competitiveness. 5. Do not forget the ESM - European Stability Mechanism and its €420bn capacity. Real Instituto Elcano CEPS (Centre for European Policy Studies) https://lnkd.in/d7AmJsUG

The rapid rise of combat drones illustrates a classic pattern described by Clayton Christensen. Drones represent a 𝐥𝐨𝐰-𝐞𝐧𝐝 𝐝𝐢𝐬𝐫𝐮𝐩𝐭𝐢𝐯𝐞 𝐭𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐲: initially dismissed as inferior to established systems, yet capable of reshaping the entire competitive landscape. For decades, the Western defense industry focused on increasingly sophisticated missiles, precision bombs, and air-defense systems. These technologies became extremely advanced—and extremely expensive. In that environment, small and relatively crude drones seemed strategically irrelevant. Yet disruption often starts exactly there. Take the Iranian Shahed drones now widely used in conflicts. They are cheap, simple, and can be produced in large numbers. Their real power lies not in individual performance but in scale and swarm tactics. When launched in large waves, they overwhelm traditional air-defense systems designed to intercept a limited number of high-value missiles. Using million-dollar interceptors against drones costing a few tens of thousands of dollars is economically unsustainable. This is classic Christensen logic: incumbents optimize for high-end performance while the disruptive technology improves rapidly in a different dimension—in this case cost, scalability, and operational flexibility. But the real lesson is not only technological.Ukraine has shown that the decisive capability lies in how drones are used: agile combat strategies, distributed command structures, and operators who can adapt in real time. Human intelligence, battlefield learning, and tactical creativity matter as much as the hardware itself. It all has to go together. For Europe and the wider West, the implication is that defense strategies must shift from a narrow focus on expensive platforms toward learning systems that combine low-cost technology, rapid experimentation, and shared operational intelligence. And this knowledge already exists: Ukraine today is probably the world’s most advanced laboratory for drone warfare. Western militaries should accelerate collaboration and learning from that experience. The rise of low-cost drones and other low-end digitalized warfare technologies also forces a reconsideration of how military budgets are optimized. Rather than automatically increasing defense spending, the priority should be to reassess how military effectiveness can be maximized by reallocating resources—shifting a larger share of investment toward scalable, low-cost systems such as drones. #DisruptiveInnovation #Drones #MilitaryInnovation #DefenseStrategy #Ukraine #Security #ClayChristensen #DroneWarfare

𝗘𝘂𝗿𝗼𝗽𝗲’𝘀 𝗰𝗼𝗵𝗲𝘀𝗶𝗼𝗻 𝗮𝘁 𝗶𝘀 𝗱𝗲𝗳𝗶𝗻𝗶𝗻𝗴 𝗵𝗼𝘂𝗿 Gianfranco Viesti has sounded a stark warning in his new 𝘌𝘵𝘪𝘤𝘢 𝘌𝘤𝘰𝘯𝘰𝘮𝘪𝘢 article. The European #Commission’s proposal for the 2028–2034 EU budget risks unpicking one of the Union’s defining threads: its Cohesion Policy. What once symbolised Europe’s promise of shared prosperity may soon become a nationalised patchwork, modelled on the Next Generation EU approach. For four decades, cohesion policy has stood as the Union’s moral and economic ballast, rooted in Article 174 of the Treaties: to reduce disparities between regions and ensure that integration did not mean concentration. The new #budget proposal, unveiled on 15 July, dissolves this architecture. The very idea of cohesion is subsumed into a single national and regional fund, likely to decided in reality by national governments with minimal subnational or civic involvement. It is, in Viesti’s reading, a quiet renationalisation of what made #Europe European. The risks are stark: shrinking resources for vulnerable regions of all ilk, political discretion in distribution, and the erosion of the local partnerships that once tethered Brussels to citizens’ everyday lives. The shift of power from territories to capitals will nurture precisely the estrangement that #euroscepticism feeds on. Viesti does not romanticise the past. He is acutely aware #Italy’s implementation of cohesion funds has been uneven, sometimes slow, often bureaucratic. Yet to replace a shared, place-based policy with fragmented national plans is to trade imperfection for incoherence. For him, this reform would loosen the Union’s connective tissue, turning a shared European project into a mosaic of national schemes. Yet resistance is already forming. On 30 October, the leaders of the main political groups in the European #Parliament —the People’s Party, the Socialists, Renew and the Greens— issued a joint letter to President von der Leyen rejecting the very principle of a “single national fund”. Their language was unusually direct, signalling that the Parliament senses the danger of dissolving a common European good for administrative convenience. It is rare for Europe’s often fragmented legislature to speak with such unanimity. The fact that it does so here suggests that the stakes are being understood. The groups in the Parliament —like Viesti himself— are arguing that Cohesion Policy should be reformed, not erased. Cohesion, like democracy, may be slow because it listens. To discard it in the name of efficiency is to mistake the means for the end. Full article by Gianfranco Viesti in Etica Economica (for those who read italian): https://lnkd.in/duni5r-s For those who want to read further on the topic: https://lnkd.in/dusYJ8Ep (short read) https://lnkd.in/div-iWpi (long read)

Ukrainian instructors were shocked by the reckless use of air defense systems in the Gulf countries. According to Ukrainian military personnel, multiple missiles are often launched at a single target — up to eight Patriot interceptors costing around $3 million each — even when dealing with relatively simple threats. There have been cases where SM-6 missiles, costing about $6 million, were used to destroy inexpensive drones, even though the “Shahed” drones themselves cost roughly $70,000. In interviews, Ukrainian specialists emphasized that their approach is based on efficiency: using the minimum number of missiles per target whenever possible and avoiding the unnecessary use of expensive interceptors. “I have no idea what our allies were watching for four years while we were at war,” said Ukrainian military instructors currently in the Middle East. Notably, in the first 96 hours of operations against Iran, the U.S. and its allies used about 5,200 munitions of 35 types, including 168 Tomahawk missiles in 100 hours. Over 12 days, total costs reached $16.5 billion. According to President Volodymyr Zelenskyy, Middle Eastern countries launched more than 800 Patriot interceptors in just three days. Ukraine, over four years of war, has received just over 600 such interceptors. Rheinmetall CEO Armin Papperger noted that, at this pace, the U.S. could run out of air defense missiles within a month. It turns out that in the conflict with Iran, Washington’s main challenge is not finances but production capacity. The U.S. defense industry cannot rapidly scale output because: • missile production can take up to 36 months; • supply chains depend on critical components largely sourced from China; • there is outdated equipment and a shortage of skilled labor. The current ammunition shortage poses risks to other priorities, including support for Ukraine and the deterrence of China. Source: Anton Gerashchenko, The Times

🌍 Major Changes Ahead for EU Health Funding: From EU4Health to the Next MFF (2028–2034) 🌍 The European Commission has proposed a significant structural shift in how health policies and public health initiatives will be financed in the upcoming 2028–2034 MFF. Here are the key changes: 🔹 The End of a Standalone Health Programme Unlike the current 2021–2027 period, which is defined by the dedicated €4.6 billion EU4Health programme, the next MFF does not include a standalone health programme. Instead, EU4Health will be merged alongside 13 other programmes into the newly created European Competitiveness Fund (ECF), a single investment capacity worth €451 billion. 🔹 Where is the Public Health Budget? Health initiatives will be grouped under the ECF’s "Health, biotech, agriculture and bioeconomy" policy window, which has an indicative allocation of €20 billion. Crucially, the exact share of the budget dedicated specifically to health is not specified. This design aims to provide maximum flexibility to reallocate funds for unforeseen priorities during the MFF cycle. 🔹 Shift from Public Health Protection to Industrial Competitiveness The new framework represents a strategic change. While EU4Health focused heavily on disease prevention, reducing health inequalities, and crisis preparedness, the ECF integrates health into a cross-sectoral framework focused on competitiveness, biotechnology, artificial intelligence, and robotics. 🔹 New Public Health Focus Areas Despite the broader focus, the ECF does introduce new emphasis on areas that were not explicitly covered under EU4Health, including autism, degenerative diseases, and diseases related to pollution. 🔹 Risk of Fragmentation A major concern raised is that the ECF’s provisions are framed in general terms, blurring the lines between specific objectives and activities. This lack of precision creates a risk of fragmentation for public health priorities, which could weaken the coherence of EU actions, reduce predictability for applicants, and potentially cause crucial initiatives—like Europe’s Beating Cancer Plan and Safe Hearts Plan—to lose visibility without a dedicated financial envelope . 🔹 Other Key Funding Streams for Health Beyond the ECF, public health and health security will draw from: * Horizon Europe: Receiving a massive boost to €175 billion (nearly double its current budget) to drive health research and innovation. * Union Civil Protection Mechanism (UCPM+): An indicative €10.5 billion to integrate financing for health emergency preparedness and response. * National and Regional Partnership Plans: To support healthcare services, long-term care, and infrastructure. The Bottom Line: The COVID-19 crisis proved the importance of a strong, unified EU health policy. As negotiations for the 2028-2034 MFF continue, the key challenge ahead will be ensuring that public health policy retains its prominence and isn't diluted within broader economic and industrial goals.

My WSJ oped on Pentagon aspirations to manufacture "cheap, smart, and many" drones. Yet its flagship program has .2% allocation. Scale requires blunt force action. Paywall highlights: ------------- The Pentagon favors quality over quantity. For thirty years this theory had evidence. In the War on Terror, SOF engineered expensive drones to kill individual terrorists, creating enormous comparative advantage. Trickle down economics prevented surveillance-strike from being cheapened and scaled. Our adversaries did it. The kamikaze drone has emerged as the most startling change in warfare in decades. Ukraine will manufacture a million to keep up with Chinese and Iranian supplies to Russia—which replaced its defense minister with an economist fixated on drones. Drones will soon be autonomous. This improvement represents an opportunity for the U.S., which has a large technical AI lead. The Pentagon has not adapted. Paralyzed by its obsolete business model, CapEx is rigidly dedicated to a defense oligopoly that cannot produce at low cost. Following 9/11, half of the Fortune 500 disappeared. In contrast, our defense industry remains unchanged and unchallenged. Primes resemble utilities. Having mastered a complex regulatory system, they maximize profit when production costs are highest, stuffing fees into obscure line items. Asked why a bag of bolts costs $90,000, the Air Force secretary said that overpricing was a “systemic issue.” Our flagship effort, Replicator, is capitalized with less than 0.2% of the investment budget. Its self-described “poster child” is a $100,000+ loitering bomb. There aren’t sufficient funds to mass produce at that price. Change requires three steps. First, SecDef must insist that a million cheap AI drones are vital, as SecDef Robert Gates did when he declared “war on the Pentagon” to deliver MRAP. Initial scale can be achieved by shifting $20 billion over three years to new entrants. Second, reallocation must be guided by an investment committee, e.g. CAPE. The problem is, the military doubts CAPE’s ability to optimize the portfolio, and Congress is openly hostile. CAPE must be empowered. Third, Congress must authorize the secretary of defense to pivot on spending. This will cause political uproar, but modern enterprise management is stymied by over 1,000 regulations added since 9/11. Congress has additionally upended the budget with more than fifty continuing resolutions since 2010, creating a “use it or lose it” environment that handicaps new initiatives. Just as blitzkrieg caught Europe off-guard in World War II, so has the proliferation of drone munitions. Harnessing AI advantage requires investment risk. That only happens if our 4 stars and SecDef acknowledge that our expensive military machines risk being overrun by swarms of cheap versions of our tech. https://lnkd.in/gEuUebBc

A significant shift from Estonia. The decision to cancel a €500M combat vehicle procurement and redirect those funds toward air defence, drones, and unmanned systems reflects a deeper recalibration of how modern warfare is understood and prioritised. This is not just a budget decision. It is a recognition that the character of warfare has changed. Lessons from Ukraine, combined with market realities and military advice, are driving a move away from platform-centric investments toward capabilities that improve situational awareness, adaptability, and response speed. At the same time, this shift comes with real challenges that cannot be overlooked. * Counter-drone capability is still developing, especially in peacetime conditions where legal and operational constraints limit response options  * The cost-exchange problem remains unresolved, where expensive systems are often used against low-cost threats * Rapid technological evolution means today’s solutions risk becoming outdated quickly, requiring flexibility in procurement and planning  * Situational awareness and “eyes and ears” capability must scale alongside decision-making and integration, not as standalone investments * Data usage and sharing must be enabled by policies * Changes in processes, delegation, doctrine and bottom-up integrations are key What becomes clear is that this is not about replacing one capability with another. It is about shifting toward systems, integration, and adaptability under real operational conditions. The direction is right. The execution will define the outcome. #Defence #Drones https://lnkd.in/dYSVW-PR

The negotiation of the European budget has started this February in a totally new and unpredictable (geopolitical) context. The need to invest more public money to catch up on competitiveness in the industry, to strengthen a common EU defense, and to support Ukraine's military efforts has been made super clear by most policy makers. In such a situation, the pressure to reduce the share of the EU budget dedicated to agriculture – which still represents roughly a third of the EU budget – has never been so high. At the same time, the need to transform agricultural and food systems across the EU is as accute. The EU has indeed become highly dependent upon imported fertilizers (from Russia, Egypt, Bielorussia…) and imported feed (from the US and Latin America), while global changes (biodiversity collapse and climate shocks) do impact yields, that have been stagnating in Western Europe for the last 20 years, thus affecting supply strategies of most EU food processors. Despite this twofold dynamics, how the EU is going to spend its budget to ensure greater resilience, competitiveness and sustainability of its agriculture and food sectors in the next decade remains little discussed. Against this backdrop, the issue brief we published together with my colleagues Elsa Régnier and Valérie Noël, building on insights from Nikolai Pushkarev, Pieter Zwaan, David Baldock and Simone Westi Højte, shed light on risks and opportunities for the agrifood sector in the upcoming budget negotiations. We make three main points: 1️⃣ Given the number of issues EU leaders aim to address in the next MFF, the CAP budget may remain stable in real terms, though a decrease appears more probable. 2️⃣ Considering current political dynamics, this reduced CAP budget is likely to be “exchanged” by member states against (1) a weakening of environmental ambitions and (2) an increased subsidiarity – with risks of “race to the bottom”. The resulting CAP is likely to be insufficient to address the triple challenge of competitiveness, resilience and sustainability in the EU agrifood sector, even though these are stated objectives of the Commission, Parliament and Council. All three objectives however require careful consideration, as the long-term viability of the sector is at stake. 3️⃣ This Issue Brief suggests that strengthening the EU food system’s strategic autonomy–given its critical dependency on fertilizers and feed–could provide a path out of the status quo in the next CAP budget negotiations. This would also align with the strong focus on resilience put forth in the Vision for Agriculture and Food https://lnkd.in/edzrTmt5 Stéphanie Riso Catherine Geslain-Lanéelle Mathias Ginet Pascal Canfin Alan Matthews Christophe Hansen Lieke Brackel Tomas Garcia Azcarate Tassos Haniotis Karl Pincherelle Angelika Lischka Eulalia Rubio Barcelo Erjavec Emil Bettina Rudloff Johan Swinnen