Beyond ad-hoc responses: Strengthening the EU's fiscal capacity for security and climate

Given an increasingly volatile geopolitical landscape and growing climate-related risks, this paper argues for strengthening the EU’s fiscal capacity for crisis prevention, preparedness and response, focusing on two fields: security and defence on one hand and natural catastrophes on the other. The analysis highlights lessons from responses to COVID-19, including not only the benefits of joint financial instruments (e.g. NextGenerationEU and SURE) but also their shortcomings, such as their temporary nature, weak alignment with long-term resilience, and inadequate parliamentary oversight. The current EU budget framework remains rigid, prioritising mid-term investment while offering limited flexibility for emergency responses. To address these shortcomings, the paper advocates for systematically integrating crisis preparedness and readiness considerations into EU budget and scaling up investments in defence and security, as well as in natural disaster prevention and response. Defence funding remains inadequate and fragmented, with insufficient EU-level contributions despite escalating security threats. Apart from repurposing cohesion funding towards security goals and better leveraging the spending power of national promotional banks, the paper proposes a permanent off-budget solution for defence financing using existing mechanisms like the European Stability Mechanism (ESM) to build a new European Security Funding Facility (ESeFF). Similarly, EU disaster relief funding is under-resourced. The EU Solidarity Fund and Civil Protection Mechanism require significant expansion, along with stronger incentives for climate adaptation. The introduction of a public-private climate catastrophe reinsurance scheme could help mitigate financial risks.