Where to, Europe?
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talkpoliticsThe Corona-crisis has faced the EU with dramatic choices. Until now, whenever a crisis struck the Europeans had a rather lengthy time frame to come up with solutions, things are different now. Right from day one of the pandemic, all eyes were fixed on Brussels. Sure, Brussels has rather limited prerogatives and financial resources for such situations. But still, compared to previous crises, the institutional response from the European Commission and European Central Bank had to be swift - and they sure were. Albeit a bit insufficient, at least in the initial stages of the Corona-induced economic downturn.
In the first weeks, South Europe made it clear that a repetition of the approach to the Eurozone crisis would be unacceptable. Confidence in the EU basically went through the floor there within days. France joined the warnings, clearly outlining the changed political dynamic. Germany took a waiting stance, but the deeper the crisis went, the more they realized urgent and resolute actions were needed. Merkel might be all things, but she does have the nose for the right politics, so she decided the whole structure wouldn't hold politically.
In fact, the EU is in a situation of a severe need for a new political agreement. The last decade has been dominated by crisis management, and the globalized world is going into a period of deep turmoil and major shifts. The EU would hardly survive in these circumstances if it keeps the old ways. Thus, the political clash around the new anti-crisis EU budget turned out to be a battle for the future. Europe's future.
The new EU financial package was presented, and the difficult negotiations began. In theory, the member states have until the end of the year to find a compromise, but the unusual situation is pressing them to do it sooner. The questions and points of disagreement are quite a few, and first they have to be outlined very clearly. There's still no final consensus on the principles of acquiring new debt for dealing with the crisis, although the EC has already been doing that on a small scale.
The balance between EU grants and loans is also of fundamental significance for the nature of the political perceptions of the new finance package. The current ratio is 2 to 1 (500 billion euros of grants vs 250 billion euros of loans), and if it remains, the overall perception would likely be positive. Conversely, if it's changed to 1 to 1, the political picture will instantly be changed.
The situation gets complicated by the need for a simultaneous approval of the entire 7-year finance framework and the new recovery fund. Both financial instruments look bloated and overestimated at this point. The overall budget is planned to be 1.1 trillion euros, which, it seems, is beyond the politically acceptable. The recovery fund is 750 billion, again much above what France and Germany were hoping for. From this perspective it's possible that both tools could get trimmed a bit for the sake of compromise. Some of the more critical members have already made hints in that direction, mostly in regards to the EU budget. What's more, this exact ceiling was already rejected once by the European Council.
Beyond this, a number of complicated issues remain. One of the more complicated ones, the conditions for spending the proposed grants. The Northern members insist that these should be tied to a number of reforms that would make the Southern and Eastern members more competitive, fiscally responsible and economically sustainable. Their concern is that the public funds could just be poured into a sinkhole and spent as national public expenses with a minimum effect on the overall economy and public system of the recipients.
This problem is much more difficult to solve than the vague words and promises of strict control and audit of the funds suggest. Most of these countries have the so called "rebates", i.e. partial refunds of their installments in the EU budget. They'd certainly want this mechanism to be kept, contrary to the wishes of many other members.
There's no universal formula for distributing the new funds from the recovery fund, either. Various amounts are being discussed, the EC itself having made calculations of its own - but the final compromise could end up very different from the current calculations.
There's no clarity as to how a balance would be struck between the newer, and the more conventional policies. the East wants to keep the funds for agriculture, infrastructure and institutional cohesion, while the West and North insists on the "Green Deal", innovation, digitalization, and industrial policies. A compromise ratio should be found here as well, then. The ways of paying back loans, the exact time frames, and the possible tax changes, are also issues that have to be cleared out in the weeks to come.
A closer look at the current EC proposals reveals the presence of a myriad of comprpomise definitions, upon which the negotiations will certainly be resting for the next few weeks. The idea of a shared debt has rather been formulated as a one-time element during a crisis situation, not a long-term overall framework of an emerging fiscal union for the future. While this may sound like a short-term rhetorical trick, it largely reflects the realities. In this sense, the precedent is not so much in the tool, rather than the political consensus that a shared debt should be the knee-jerk response at times of crisis.
Ursula von der Leyen, the chairlady of the EC, underlined the fact that the current proposal has nothing to do with the preceding loans and their future, and she did that for a reason. Increasing the loans-to-grants ratio is also a temporary move for the sake of compromise.
The decision to integrate the recovery fund into the overall financial framework was important. This move is meant to address the concern of the "prudent" North that these funds won't just be dumped onto the sinking pits of the Corona-struck countries. Tying them to long-term policies meets two important goals. One is to make them part of long-term sector policies, not just use them to fill temporary gaps. Another is to ensure a synchronization of that investment with the already existing plans for national reforms in those countries. After all, specific investment plans will have to be crafted and approved as a condition for giving all that money.
Another gesture meant to appease the skeptics was keeping the ambitious Green Deal, which they very much count on. It was expected that the deal would be sacrificed, but it wasn't.
The current plan contains some good news for the East as well. Some more support is planned for agriculture, cohesion, more compensation for the green energy transition, more infrastructure. There'll be special funds for improving the health-care systems. Eastern Europe may insist on a full participation in the construction of the strategic industrial backbone and reserve of the union, plus inclusion in the process of restoration of some production lines that were scrapped in the past. The EC proposals seem like a sufficiently stable basis for finding a reasonable future compromise.
Sure, every deal has its victims as well. As of now, contrary to most expectations, the EC is prone to cutting the funding for security, defense and foreign policy somewhat. Although geopolitics was announced as one of its priorities initially. the EU's future will inevitably have to go through ambitious decisions, if it were to recover quickly from the deepest economic crisis since WW2.
Apart from that challenge, Europe has long been facing deep geopolitical instability. A new Trump term would mean unprecedented pressure on the Trans-Atlantic bloc, and the concept of a solidary West as a whole. Russia remains a uncontrollable and unpredictable revisionist factor that isn't likely to relinquish its pressure on the Old Continent. China is in a process of changing its global strategy, and the years of ignoring the real dilemmas they're facing, may soon be over.
The deep recession will certainly generate new migrant flows from Africa, the Middle East and South Asia, and those will come knocking on Europe's door soon. That's inevitable. Without a new political solidarity pact between the member states, the EU would be unable to withstand the wave of turmoil and conflict that's coming. So it better get its act together, and soon.
In the first weeks, South Europe made it clear that a repetition of the approach to the Eurozone crisis would be unacceptable. Confidence in the EU basically went through the floor there within days. France joined the warnings, clearly outlining the changed political dynamic. Germany took a waiting stance, but the deeper the crisis went, the more they realized urgent and resolute actions were needed. Merkel might be all things, but she does have the nose for the right politics, so she decided the whole structure wouldn't hold politically.
In fact, the EU is in a situation of a severe need for a new political agreement. The last decade has been dominated by crisis management, and the globalized world is going into a period of deep turmoil and major shifts. The EU would hardly survive in these circumstances if it keeps the old ways. Thus, the political clash around the new anti-crisis EU budget turned out to be a battle for the future. Europe's future.
The new EU financial package was presented, and the difficult negotiations began. In theory, the member states have until the end of the year to find a compromise, but the unusual situation is pressing them to do it sooner. The questions and points of disagreement are quite a few, and first they have to be outlined very clearly. There's still no final consensus on the principles of acquiring new debt for dealing with the crisis, although the EC has already been doing that on a small scale.
The balance between EU grants and loans is also of fundamental significance for the nature of the political perceptions of the new finance package. The current ratio is 2 to 1 (500 billion euros of grants vs 250 billion euros of loans), and if it remains, the overall perception would likely be positive. Conversely, if it's changed to 1 to 1, the political picture will instantly be changed.
The situation gets complicated by the need for a simultaneous approval of the entire 7-year finance framework and the new recovery fund. Both financial instruments look bloated and overestimated at this point. The overall budget is planned to be 1.1 trillion euros, which, it seems, is beyond the politically acceptable. The recovery fund is 750 billion, again much above what France and Germany were hoping for. From this perspective it's possible that both tools could get trimmed a bit for the sake of compromise. Some of the more critical members have already made hints in that direction, mostly in regards to the EU budget. What's more, this exact ceiling was already rejected once by the European Council.
Beyond this, a number of complicated issues remain. One of the more complicated ones, the conditions for spending the proposed grants. The Northern members insist that these should be tied to a number of reforms that would make the Southern and Eastern members more competitive, fiscally responsible and economically sustainable. Their concern is that the public funds could just be poured into a sinkhole and spent as national public expenses with a minimum effect on the overall economy and public system of the recipients.
This problem is much more difficult to solve than the vague words and promises of strict control and audit of the funds suggest. Most of these countries have the so called "rebates", i.e. partial refunds of their installments in the EU budget. They'd certainly want this mechanism to be kept, contrary to the wishes of many other members.
There's no universal formula for distributing the new funds from the recovery fund, either. Various amounts are being discussed, the EC itself having made calculations of its own - but the final compromise could end up very different from the current calculations.
There's no clarity as to how a balance would be struck between the newer, and the more conventional policies. the East wants to keep the funds for agriculture, infrastructure and institutional cohesion, while the West and North insists on the "Green Deal", innovation, digitalization, and industrial policies. A compromise ratio should be found here as well, then. The ways of paying back loans, the exact time frames, and the possible tax changes, are also issues that have to be cleared out in the weeks to come.
A closer look at the current EC proposals reveals the presence of a myriad of comprpomise definitions, upon which the negotiations will certainly be resting for the next few weeks. The idea of a shared debt has rather been formulated as a one-time element during a crisis situation, not a long-term overall framework of an emerging fiscal union for the future. While this may sound like a short-term rhetorical trick, it largely reflects the realities. In this sense, the precedent is not so much in the tool, rather than the political consensus that a shared debt should be the knee-jerk response at times of crisis.
Ursula von der Leyen, the chairlady of the EC, underlined the fact that the current proposal has nothing to do with the preceding loans and their future, and she did that for a reason. Increasing the loans-to-grants ratio is also a temporary move for the sake of compromise.
The decision to integrate the recovery fund into the overall financial framework was important. This move is meant to address the concern of the "prudent" North that these funds won't just be dumped onto the sinking pits of the Corona-struck countries. Tying them to long-term policies meets two important goals. One is to make them part of long-term sector policies, not just use them to fill temporary gaps. Another is to ensure a synchronization of that investment with the already existing plans for national reforms in those countries. After all, specific investment plans will have to be crafted and approved as a condition for giving all that money.
Another gesture meant to appease the skeptics was keeping the ambitious Green Deal, which they very much count on. It was expected that the deal would be sacrificed, but it wasn't.
The current plan contains some good news for the East as well. Some more support is planned for agriculture, cohesion, more compensation for the green energy transition, more infrastructure. There'll be special funds for improving the health-care systems. Eastern Europe may insist on a full participation in the construction of the strategic industrial backbone and reserve of the union, plus inclusion in the process of restoration of some production lines that were scrapped in the past. The EC proposals seem like a sufficiently stable basis for finding a reasonable future compromise.
Sure, every deal has its victims as well. As of now, contrary to most expectations, the EC is prone to cutting the funding for security, defense and foreign policy somewhat. Although geopolitics was announced as one of its priorities initially. the EU's future will inevitably have to go through ambitious decisions, if it were to recover quickly from the deepest economic crisis since WW2.
Apart from that challenge, Europe has long been facing deep geopolitical instability. A new Trump term would mean unprecedented pressure on the Trans-Atlantic bloc, and the concept of a solidary West as a whole. Russia remains a uncontrollable and unpredictable revisionist factor that isn't likely to relinquish its pressure on the Old Continent. China is in a process of changing its global strategy, and the years of ignoring the real dilemmas they're facing, may soon be over.
The deep recession will certainly generate new migrant flows from Africa, the Middle East and South Asia, and those will come knocking on Europe's door soon. That's inevitable. Without a new political solidarity pact between the member states, the EU would be unable to withstand the wave of turmoil and conflict that's coming. So it better get its act together, and soon.
