Opinion Coronavirus recovery plan

A historic plan, but for what?

The €750 billion meant to help Europe recover from the coronavirus crisis could have a profound impact on the very functioning of the EU. However, it will be necessary to ensure that the EU has the adequate means available to transform this experiment and consider its future beyond the crisis, says expert Tremeur Denigot.

Published on 31 July 2020 at 07:00

Historic! This word has been repeated non-stop by defenders of the agreement reached on 21 July by the European Council on the recovery plan, announced – rather symbolically – at the first light of dawn. The agreement’s detractors did not wait to minimize the accord, quickly covering the brilliant pinks of dawn with a deep and lifeless black, while overlooking the fact that decisions coming out of the Council are always a question of nuance and color.

The overall assessment seems appropriate, especially given the ever-growing number of spectators who have been watching Europe improvise amid the turmoil. Everyone also knows that it will be necessary to convince public opinions, as well as the 42 regional and national parliaments of the EU’s 27 members who will vote on this plan. Historic as well as impactful. 

At the same time, the decision might have a number of qualifiers depending on what is assessed. Here is a possible list.

Historic, then

This word imposed itself as a number of “historic” taboos were well and truly broken: 1. Mutual debt (for the disciples of the European market, this is the Trojan Horse of the waning federalist dream of European policy); 2. Massive public investments (the suspension of the Stability and Growth Pact was a warning sign); 3. European transfers (with grants for Italy and Spain first, the countries hit hardest by the pandemic who were already ailing and threatened the stability of the interior market as well as the euro zone). This progress is certainly great news as well as a surprise, particularly as only a few days before the agreement, certain states among the “frugals” (the Netherlands, Austria, Denmark, Sweden, joined by Finland during the Council) were still claiming that they did not wish to hear about mutualized debt.

Proportional

The Commission predicts that the EU’s economy will contract by more than 7% in 2020. With €750 billion, €390 billion in grants and the rest in the form of loans, Europe is responding strongly to the crisis. As much as €540 billion in loans have already been mobilized and the ECB has bought back €2,000 billion in bonds that should also be added to national recovery plans. Of course, the distribution of grants was scaled down compared to the initial proposal of €500 billion, but in fact many expected it and agreed behind the scenes on the €400 billion in necessary funds (390 is simply a symbolic concession). But will it be enough? It’s still hard to say, especially if a second wave of the pandemic were to complicate things further and hit states which are not among the first beneficiaries of this plan. But a bet, especially on the future, inevitably carries risk.

United

Of course, the decision is united in financial terms because there is common debt and transfers. But it is also united in terms of governance, with the abandoning of the veto in matters of spending oversight in favor of qualified majority voting, despite Mark Rutte’s objections. It remains to be seen if the solidarity expressed by the plan constitutes a precedent. For now, it is a temporary plan born of circumstance which will exhaust its funds in 3 years, even if there is until 2058 to repay. At this stage, nothing can guarantee that the principle will be long lasting and will be integrated into future treaties.

German

If taboos were broken one after the other, this happened in Berlin as much as in Brussels. Until recently the uncontested champion of the frugals, Germany had held fast to austerity, even during the 2008 financial crisis and the ensuing EU sovereign debt crisis. However, the Germans ended up changing their minds in the space of a few weeks, for without them, nothing was going to be possible. The change in course arose from the leadership of an experienced chancellor who has arrived at the age where she is considering her legacy, in a state of political grace where she has the support of a comfortable consensus, and especially by German business leaders who fear a domino effect. She understood the gravity of the moment and sensed that the population would follow her, if they didn’t get there before her. The crisis finally forced Germany to grant France’s requests which had remained unanswered for so long. When France made a proposal, it was necessary to wait until Germany was ready to be ready. The Franco-German relationship was once again able to demonstrate its driving force, all the more so as the Commission stood up to them.

Post-Brexit

Another country played a role in this affair, but only by its absence. The Council’s decision is also the first major decision carried out by 27, without the United Kingdom, the number-one European obstacle to debt sharing. The Netherlands had hoped to take up this role, but did not have the same stiffness of spine. Their frugal alliance of circumstance could not achieve the critical mass necessary to tip the scale in their favor.

Intergovernmental

Despite what treaties call for, the European Council is more than ever the place where Europe’s future is decided by heads of state. The financial crisis revealed this European institutional bias, which the recovery plan confirms, while Parliament stays on the sidelines. The latter did request in a resolution from May 2020 a sum of €2,000 billion for such a plan, though they are sure to be disappointed. We must hope that the Commission, to whom the task of monitoring and guiding the plan – according to conditions which still largely remain to be decided – will be conferred, will find a way to guarantee that the Union’s interests and values prevail over national interests. This is essential. But nothing is guaranteed. The Parliament knows this and says so.

Too short sighted

This is the legitimate concern stemming from the resolution that the European Parliament recently made subsequent to the agreement. It expresses the anger of the MEPs to see the 2021-2027 Multi-year Financial Framework (MFF) be limited to €1,074 billion, which is more or less the amount of the Commission’s previous proposal. The Council’s proposal is deemed to be largely insufficient for addressing Europe’s challenges, especially since severe cuts have been made in community policies deemed to be for the future. We find among the policies affected, to name just a few, those relating to health, research, and even defense, which raises questions about a self-proclaimed geopolitical Commission which wants Europe to become a world power. The pill is difficult to swallow as the president of the EU Commission Ursula Von der Leyen has said herself. The interinstitutional battle surrounding the MFF is undoubtedly just beginning, and we can bet that Parliament will work to obtain additional credits and the start of a mid-term review, as with the previous budget.

Revival or recovery?

Translations are always difficult in Europe; they can also be important. The French and English versions of this plan have not resolved the ambiguity surrounding “recovery” and “relance”, whose meanings are supposed to be identical. Are they though?

Thus, what are the guarantees that this fixed-term contract, freshly signed among the 27, truly benefits all, MEPs wonder? How can we be sure that states will exercise sufficient honor and competence to resolve their national problems through allocated grants and loans, all while trying to anticipate the long-lasting effects of their investments on other Europeans? Even if all this is done under the close (and necessary) oversight of the Commission in accordance with alleged conditions, how then to assure “future generations” – to echo the official name of the plan which has been baptized “Next Generation EU” – that the recovery will look towards the future and will conform to the Union’s green and digital priorities?

These questions must be asked. This small overview of the qualifiers associated with the decisions made by this extraordinary Council make it possible to understand that while certain aspects of the agreement are very encouraging, other aspects are quite puzzling. We must remove all ambiguity, for it is the long-term, historical significance of the Councils’ agreement that depends on it. For this, we must consider the following three questions, age-old questions, that this agreement more than ever compels us to answer:

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How do we continue with unanimity?

How can we be satisfied with a style of governance inherited from a past that made unanimity a significant rule when the decisions result from an increasing solidarity and interdependence? Where is the coherence between taking shared risks and leaving the possibility of a single country blocking all the others? Unanimity is not compatible with the mutualization of risks and resources. The Conference on the Future of Europe should at the very least be the occasion to reconsider institutional plumbing by proposing a reform of the Council’s voting system by requiring the systematic use of a qualified majority.

How do we continue without specific resources?

How can we open the door to a European budgetary policy with mutual indebtedness without driving further forward the logic of endowing the EU with its own resources in order simply to fund its existing budget? The agreement provides for this, which is to be welcomed, but the tax on plastics will not be sufficient and will only just cover the amount of new reductions granted to states. It is a zero-sum game. It would also require more ambition as well as a commitment to a strict timetable to consider new taxes which would allow national contributions to be significantly reduced – as well as the flawed logic of fair return associated with it. If an expansionist budgetary policy will require the ECB to monetize public deficits and keep states solvent at the risk of potential bubbles, especially in housing, these deficits risk rising in any case. The solution of specific resources would make it possible to reduce them and to confirm the political priorities of European recovery through a European tax-system.

How do we continue without considering how to spend before borrowing together?

Economist Tito Boeri noted in a recent article that in order for Italy, which will be the first to benefit with €209 billion, not to miss the incredible opportunity that the recovery plan represents, the country must first ask itself how to spend the money before asking for it. He added that Italy had unfortunately been last to publish its national reform plan – a plan considered “verbose” and which has not yet even been communicated with Brussels… The same hesitation applies to the whole of the EU when we see the difficulty it has in organizing and implementing combined and concrete transnational industrial projects beyond the definition of the total budgets that are supposed to be devoted to them.

The recovery will therefore depend on the ability to make future plans together, which is the only way to commit Europe in the long-term to the path of ecological and digital transition. A recent policy note from the OFCE (Observatoire français des conjonctures économiques) also posed the question on “how to spend” the money from the post-COVID recovery plan, and suggested paths for an investment program organized around three major axes: public health, transportation infrastructure, and zero-carbon energy. Those are the paths forward. They must be expanded upon; there are a lack of ideas as well as concrete plans.

It is the answers to these three questions which will form the basis of how the historic agreement reached by the 27 will contribute to change. We must consolidate the integration and mechanisms of common action by pushing on the levers of governance, taxation, as well as transnational industrial strategies and projects. In short, the agreement must be open to “concrete realizations”, to borrow a Schumanesque phrase, and give itself the means to produce tangible and fast results that Europeans will be able to see as soon as possible. This is how our Union will be able to prepare itself for the future while considering future generations, just as the agreement asks us to do.

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