Whenever the EU is in crisis, you can count on the doomsayers to predict its imminent demise.
Even Europhiles. Former European Commission chief Jacques Delors warned that “the lack of European solidarity pose[s] a mortal danger to the European Union.” Italian prime minister Giuseppe Conte threatened the “destruction of the single market” if other EU countries didn’t agree with his demand for a €750 billion coronavirus recovery fund consisting wholly or largely of debt-financed grants.
Lucas Guttenberg, deputy director of the Jacques Delors Center in Berlin, warned that Austria, Denmark, Finland, the Netherlands and Sweden — the “frugal five” — were “playing with fire” by demanding verifiable economic reforms in return for financial support.
Christopher Wratil, an assistant professor in European politics at the University College London, argued “anyone with a sense of solidarity” would exclude those five countries from the recovery fund altogether.
As the EU summit, where the size and terms of the recovery program were hashed out this weekend, dragged on for days, the patience of pro-Europeans wore thin and inevitably World War II entered the discussion. Philipp Heimberger, an economist at the Vienna Institute for International Economic Studies, tweeted:
Thinking about the Marshall Plan and debt forgiveness after World War II. Striking: leading European politicians today are oblivious to history. How else could you become a nitpicker on essential common efforts for an EU recovery fund, harming your own long-term interests?
Pay up, or war!
Some people never learn. Ulrich Speck, one of Germany’s leading foreign-policy commentators, has pointed out that we heard the same do-or-die rhetoric during the European debt crisis, and we heard it again when the coronavirus reached Europe in March.
The BBC wondered if the EU could “get a grip” on the disease. Bloomberg asked if the EU would survive. The Daily Express was certain it wouldn’t. An article in Foreign Policy accused the EU of “abandoning Italy in its hour of need.” A column in The Telegraph argued COVID-19 was “devastating the EU’s superstate pretensions.”
I cautioned against rushing to judgement, pointing out that the European Central Bank was already injecting €750 billion into the European financial system and that leaders had already agreed the existing €500 billion European Stability Mechanism (created during the euro crisis) could be tapped to help pay for extraordinary health costs.
The €750 billion recovery fund comes on top of that, consisting of €390 billion in non-repayable grant and €360 billion in loans. France, Germany and the European Commission had proposed €500 billion in grants. The frugal five wanted zero grants.
The fund will be financed by debts issued by the European Commission on behalf of member states, a step toward eurobonds, another thing the frugal five — and until four months ago Germany — didn’t want.
Italy, which has suffered the worst from coronavirus, would qualify for some €209 billion in aid: €82 billion in grants and €127 billion in loans.
On top of the €750 billion fund comes the EU’s regular seven-year budget, worth nearly €1.1 trillion, which also includes spending to cushion the long-term effects of the pandemic.
On top of that, the 27 member states are spending hundreds of billions of euros on recovery and stimulus programs themselves.
It seems reports of the EU’s death were — again — exaggerated.
View from abroad
The view from outside the EU is positive. The Financial Times, which last week editorialized that the Netherlands’ Mark Rutte (“Mr No”) was singlehandedly putting the European economic recovery at risk by demander fewer grants and more oversight, calls the outcome a “huge breakthrough” for the EU.
Eurasia Group’s Mujtaba Rahman writes that the agreement “has the potential to redraw the way the European Union operates.”
Richard Haass, the president of the Council on Foreign Relations, argues nationalism and Brexit “have given way to French-German cooperation and a stronger, more relevant EU.”
They did the job
Europhiles grudgingly agree.
Conte argues the deal gives Italy the chance to “change the face of the country” by investing in education (it should), infrastructure and the green economy.
Ana Luís Andrade of the Economist Intelligence Unit still wishes the fund had been more “ambitious” but knows that the end result “never fully mirrors starting positions” and calls the introduction of joint debt issuance “great news”.
We can disagree about the fine print, but Europe had to stand together in this crisis and it did.
Maria Demertzis, deputy director of the Bruegel think tank:
If you had told me a year ago that the EU would be agreeing to massive common debt issuance and a budget like this, I would have said you’re daydreaming.
John Springford of the Center for European Reform:
This isn’t a revolution, but if you’d told me last year that the EU would be borrowing €390 billion and transferring it [to] recession-hit countries, I’d have been very surprised.
Even Guttenberg concludes:
The [European Council] did what it always does. It produced a messy compromise that cannot make anyone truly happy.
But at least on the recovery instrument, it did the job.
Claus Vistesen, a Danish economist, once joked that the EU could have a nuclear umbrella, ten aircraft carriers, a direct monthly solidarity transfer from Bavaria to Palermo and a €10 train ticket from Helsinki to Malaga, and it would still be a disappointment to the consensus.
Better commentary in the last few days has come from Duncan Robinson, the Brussels bureau chief of The Economist. He tweeted about Mark Rutte:
Is it fair to call someone Mr No if they end up backing the best part of €400 billion in grants, having originally demanded €0? Mr Yes To 80% Of What You Asked For.
Robinson knows the leaders of the frugal five will have to spend way more political capital at home to defend this deal than their counterparts. He urges Europhiles to “take the win” and see this as a “big political moment”:
It’s a political “whatever it takes” moment. Merkel and even the frugals (pantomime boooo hisssss) crossed Rubicon of common debt. They have taken politically difficult but necessary decision to help protect EU’s future.