The eurozone economy could fall by 15% due to the coronavirus pandemic. The impact is clear when you put it next to the 4.9% drop that was experienced in 2009. It is the warning to sailors with which the President of the European Central Bank (ECB), Christine Lagarde, tried to raise awareness leaders so that they do not do “too little and too late” and approve a “fast, firm and flexible” recovery plan. And the Twenty-seven know that, but they still don’t agree on how to do it. In recent days, positions have come closer, especially after the South renounced any debt pooling. Yesterday they agreed to create an economic recovery fund that will be linked to the new EU budget, but they have not agreed on the size, the form, or how to distribute the money, if it sees more credit (as the north wants) or to through direct transfers (as required by the south).
The brutal work will be up to the Commission, which, after listening to everyone and gathering ideas from all over, has to come up with a proposal in the coming weeks that tries to gather all the concerns. Then the leaders will have to give the final green light, and all this leaves the final decision for June, when they hope to meet physically. And this despite the “emergency” awareness that the President of the European Council, Charles Michel, admitted yesterday after a video conference that closed without a document of conclusions, despite the fact that it was a key appointment to avoid the unequal collapse of the European economy and for the integrity of the single market itself. As the President of the Commission, Ursula von der Leyen, warned, without “decisive and collective action, the recovery will not be symmetrical and divergences will increase”.
But after so many comings and goings, where is the discussion now? Coronabons are definitely ruled out and a half-trillion shield in credits (for companies, ERTOs and healthcare systems) has been approved, which will be launched in June. With this decided, the debate revolves around how to articulate an economic recovery fund linked to the EU budget for the period 2021-2027 and which must be debated again. The discussion is stalled precisely because the north did not want to contribute more money. All of this will now be mixed up, which for some may further delay the discussion while for others it may be the necessary push.
The figures also generate some consensus around 1.5 trillion, but how this sum will be reached is a mystery. That is why, after gathering all the positions of the different European blocs, the leaders have left the final proposal in the hands of the Commission, also because it is Brussels that has the legislative initiative. Von der Leyen presented to the leaders yesterday a proposal for funds linked to the European Community budget that “will find the right balance between loans and direct transfers”. To reach up to 1.6 trillion euros (which is the plan he is working on), it would be necessary to raise the spending ceiling of the EU budget for the coming years and support a debt issue from the European Commission itself ( which has already been done before) and which, in practice, does not involve mutualization of the debt, precisely because the money is then made available to states that request it through transfers or cheap credits. From there, different internal or budget-related mechanisms would mobilize this high amount. In fact, the draft proposal foresees that the fund will only contain about 320 billion euros and that the rest of the money, up to 1.5 trillion, would be activated through various mechanisms of the community budget.
The Commission has presented this first draft after France presented the first fund idea with shared debt, the Netherlands its with gifts from north to south, and Spain its with perpetual debt issued from Brussels, a proposal that finally Italy take on. Perpetuity is already completely ruled out, but Paris, Madrid and Rome are pushing for the debt to be issued in the very long term. Knowing all this, now the battle is between credits and transfers and also in the pace of response. Therefore, the different European leaders appeared with relative satisfaction and full of nuances.
French President Emmanuel Macron was blunt: “Europe’s borrowing is not up to the task. Because? Because loans would already add to the debt of the most fragile countries and worsen financial imbalances. ” Macron is clear that with more credit the problem is not solved: “They must be real transfers, budget transfers.”
In the same vein, Italian Prime Minister Giuseppe Conte called for urgency and even called for a “bridge” mechanism to gain access to these transfers, given that they may not be effective until the end of the year. But for his Dutch counterpart, Mark Rutte, the emergency is resolved with half a trillion credits activated by the Eurogroup and which include the rescue fund that neither Spain nor Italy want to ask for. “There are 520 billion euros available, I would be stunned if we spend them all before the end of the year,” said the Dutchman yesterday, assuming that to finish detailing everything will take time and also that the recovery fund it will be structured mostly in the form of credits. Pedro Sánchez did not appear in Spain, but the Minister of Foreign Affairs, Arantxa González Laya, did so, claiming the role of Spain “at the center of the game” in changing the tone of the talks, although the demands Spanish initials have been diluted and that the south, for now, is the one who has yielded the most.
The country most affected by the pandemic and also one of the weakest economies in the EU with 135% debt. From the beginning he demanded to share risks, mutualizing debt so as not to have to borrow more, but he has already yielded in this line and now accepts a fund of 1.5 trillion euros in perpetual debt to give direct transfers , no credits.
It’s the other end of the story. He has managed to remove the coroners from the debate and now focuses his opposition on how to distribute the money from the recovery fund. He wants it to be just credits and that if there are transfers they are made through the EU budget, a budget that The Hague does not want to see fattened at the expense of its southern neighbors.
It has made hinge. He was on the side of Italy at the beginning of the discussion, but has abandoned debt pooling. Italy made the turn after Spain presented a proposal similar to the French one and it picked up ideas that the socialist commissioners had already dropped: a fund of 1.5 trillion through debt issued by the Commission and backed by an increase in EU budget and that would be perpetual. The latter part is ruled out by the northern opposition. Spain asks for transfers and not credits, but would accept a combination of the two.
He always stands firm against the coronabons and on the side of The Hague, but seeking to focus the debate. That is why Berlin said this week that it was willing to increase its contribution to the EU budget has been key to making the issuance of debt by the European Commission a viable project.