Two weeks ago, European leaders reached a historic coronavirus recovery deal to save the European economy hammered by the pandemic. The European Union is now evaluating the decisions made by the bloc.
What should have lasted two days turned into the longest EU summit in almost 20 years. Over tough negotiations, member states agreed on a seven-year €1,074 billion budget and €750 billion coronavirus recovery fund, made up of €500 billion in grants and €250 billion in loans. The Frugal Four, Austria, Denmark, the Netherlands, and Sweden, initially withheld their agreement, but ultimately came around, in exchange for lump-sum rebates in the EU budget.
In the final agreement, the balance of grants and loans was modified so that the funds borrowed through the €750 billion in shared debt – a first for the EU – provided for € 390 billion in grants and €360 billion in loans.
“Lack of European-ness”
Now, European institutions are trying to close the deal. If negotiations within the EU go smoothly, Austrian Budget Commissioner Johannes Hahn hopes to be able ratify the new legislation by the end of the year. Currently, the European Council is finalizing the details and will submit a proposal for the general budget to the European Parliament, whose consent is needed to adopt the new package.
But this is not as easy as it sounds. Members of parliament have recently voiced their opposition to cuts in essential EU programs and threatened to “withhold their consent” from the deal. Funding was slashed for a range of critical areas, including research, climate change, foreign policy, and health.
The commission is also not particularly pleased with the leaders’ allocation of funding, which was vastly different from the body’s initial proposal, drafted in 2018. Commissioner Hahn referenced a “lack of European-ness” in the leaders’ decision-making: To his disappointment, the bloc did not offer much financial support for the student exchange program Erasmus+, one of Europe’s biggest success stories, and InvestEU, which aims to strengthen European autonomy in the business sector.
But at the same time, Hahn expected “painful interventions” and acknowledges there was a need for compromise to reach a deal. Even Council President Charles Michel was forced to propose a compromise plan to ease negotiations in the days leading up to the summit.
“We have to be particularly ambitious in areas where the management is done at the European level, because member states cut more in programs where they cannot calculate precisely their national return,” said Hahn in a July 29 online discussion hosted by the Institut for the Danube Region and Central Europe in collaboration with Globsec. “Even if we had been more modest we would have nevertheless faced cuts.”
The Benefits Outweigh the Costs
The European Parliament must also be informed about the coronavirus package. Then, it needs to be ratified in the national parliaments of 23 out of 27 member states. Officials are concerned that the Frugals may still object to the recovery package at home. But, given the urgent need to bolster the hard-hit southern economies, the EU is on a tight deadline to pass the deal and cannot suffer any setbacks.
Hahn, who has been optimistic about the possibility of an agreement, dismisses the fears. “If there is joint political will, it should be possible to have it ratified to the end of the year,” he said.
The opposition of the Frugal Four, especially the Dutch Prime Minister Mark Rutte’s tough stance, was “only symbolic,” he said, and never a real threat to the deal.
“The Netherlands will have national elections in March next year, and European topics are often misused for internal domestic debates. Therefore, there was some uncertainty,” Hahn said. “But I hope that among the lawmakers there is a general understanding about the urgency to have an MMF in general and the urgency due to the economic situation in Europe and the potential problems we will still face in the autumn and most likely in the next year.”
Additionally, the benefits of being part of the EU outweigh the costs. These small, exporting countries tend to be labor and resource-dependent, and their prosperity is largely due to the free movement of goods, capital, services, and labor within European states.
“Particularly richer, smaller- or medium-sized countries like the Netherlands benefit over proportionately from the European single market, which can only function if each parcel of it performs,” said Hahn. “This is exactly what we aim at with the recovery and resilience package, and therefore, each country should have a huge interest.”
Now, it is up to the individual member states to “accelerate” the ratification process. Only then can the EU provide the necessary financial support to the collapsing economies.
“We really want to have a quick ratification process ideally by the end of the year, which is extremely ambitious,” admitted Hahn. “But we cannot start borrowing on the financial markets if we don’t have the agreement from all the member states.”
However, he also sees no reason for skepticism about the European aid efforts: The deal should be viewed as an instrument to strengthen the bloc as a whole.
“We have a system in place that is well-spent, sustainable, future-oriented, and respectful of our identity, our political priorities, the green deal, and digitalization,” Hahn said. “It should be seen as an investment in making Europe and the different member states more resilient, because there will always be another crisis and global competition will further increase; it is important Europe
can react and still be a key player.”