George Ross, ad personam Chaire Jean Monnet and CJMM, Université de Montréal
Jean Monnet’s remark that “Europe will be forged in crises…” is oft cited these days, but it is not yet clear what the covid 19 crisis will eventually “forge.” Health policy is a member state prerogative and the EU’s health crisis roles have been small - providing information, suggesting, but not deciding, collective health actions, communicating and coordinating members’ responses, and helping organize medical supplies. However, economic matters are the core of the EU’s mission and the crisis’ threats to the health of EU economies have been great. The European Commission’s July, 2020 forecast noted that the Eurozone economy had shrunk between by 13.6% between April and June, the largest quarterly drop since beginning European integration. For the year 2020, the Commission predicted a GDP decline of 8.3% for the EU 27 (-8.3% for the Eurozone). Its 2021 projections, +6.1% for the Eurozone and +5.8% for the EU27, were precarious given uncertainty about what the pandemic might still bring. Southern EU economies, Spain, Italy, and others, were harder hit than others, implying new threats to an already-tense Single Market.
EU members have been crisis first responders. Most have sought any to prevent layoffs and unemployment by subsidizing firms, furlough schemes, and sustaining citizens’ employment status. These efforts, financed mainly by national debt, have come to be supported by a spring 2020 €540 billion EU package combining the new SURE program to mitigate unemployment risks, loans to companies from the European Investment Bank, and funding from the European Stability Mechanism. The Commission has also propped up the agriculture and food sector, and loosened rules on EU regional and state aid competition policies. Wealthier EU member have more resources, however, meaning that less well-off countries, like Spain and deeply indebted Italy, have done less.
Given member state limits, the burden of response has fallen on the EU. The European Central Bank, drawing on earlier quantitative easing experience, launched a €750 billion Pandemic Emergency Purchase Programme (PEPP) in March 2020, increasing later to €1.35 trillion, primarily to prevent Eurozone credit markets from freezing. PEPP purchases member state bonds, monetizes them, and loans the proceeds back to member states. PEPP transactions are meant to be commensurate with the size of member state economies, but have initially been used to more confront the largest threats, particularly to the EU south. Christine Lagarde, ECB president, following EU “Green Deal,” has promised to encourage greener incentives in ECB’s loaning.
The most significant EU crisis policy proposals, originating in a Macron-Merkel agreement that revealed major changes in German outlooks and elaborated into a “Recovery Plan for Europe” by the von der Leyen Commission, have involved creating EU bonds. The plan, fiercely fought over in the July 2020 European Council, originally proposed €750 billion in “mutualized” EU debt - EU borrowing directly from financial markets. €500 billion of this would become grants to member states, with the neediest getting the most, and the rest loans, all containing Green Deal provisos and packaged into the EU’s next seven-year MFF (Multiyear Financial Framework) budget plan. The EU bond plan was opposed by four small, wealthy, and “frugal” EU members -Austria, the Netherlands, Denmark, and Sweden, joined more recently by Finland, all long opponents of the EU as a direct borrower because of concerns about sovereignty and moral hazard and, more generally, disinterest in funding economically “irresponsible” members. The “frugals” advocated more traditional conditional loans that would oblige recipients to reform their economies under EU surveillance and decided by unanimity. Bargaining at the European Council was complicated and exhausting, however. In the final deal the frugals accepted mutualized EU borrowing but reduced the grant portion of the package to €390 billion (the rest becoming conditional loans), in exchange for raises in their own EU budgetary rebates. Their efforts to include vetoes and conditionality into the grants, based on member state detailed proposals with, again, Green Deal stipulations, were limited but real. They inserted an “emergency brake” clause that could be invoked by member states if grantees were alleged to be failing the changes they had proposed. This would then open a three-month investigating period by the Commission. The European Council also passed a seven-year MFF budget (all told €1,074 trillion, plus the Recovery Plan sums), with small cuts to various, sometimes “greenish” programs. The European Council also backed away from blocking certain member states from transfer funding it they were in violation of the “rule of law” (i.e. Hungary, Poland, and others).
The decisions of the European Council, seem to confirm Monnet’s “change from crisis…” hypotheses. The EU had to respond to the huge economic problems posed by the covid 19 crisis, and it has done so. Hopeful talk that Germany’s acceptance of “Euroborrowing” might mean greater EU financial federalization may be overoptimistic, however. The new borrowing measures were presented as a “one off,” not permanent, emergency measures. In addition, however impressive the covid crisis decisions and “Green Deal” commitments may be, the EU still faces many unresolved problems – completing Banking Union, confronting immigration-refugee-border issues and “illiberal democracy,” the lack of an EU energy policy, citizen Euroscepticism, weak defense and security policies, dealing with Trump, China, Russia, Brexit, the Middle East, among others. New proposals may come from the eventual Conference on the Future of Europe, but nothing is certain. As in most democratic polities, key EU decisions are taken after dense, conflictual, and sometimes misleading exchanges that boil down to “not enough of this vs. too much of this,” whether the “this” be public spending, pooled sovereignty, “green” concerns, or the size of budgets. Two further remarks are in order. The first is that the EU appears ever more divided and many citizens will find this uninspiring and hard to understand. The second, and more important, is that no one knows yet what the future of the covid 19 crisis will be, how much more EU help may be needed, and whether the EU will have the political will to provide it. There has been EU change in this crisis, therefore, but there may well have to be more, and perhaps soon.
George Ross is ad personam Jean Monnet Chair at the Université de Montréal and serves as Morris Hillquit Professor emeritus at Brandeis University. He is a faculty associate of the Minda de Gunzburg Center for European Studies at Harvard. His research interests include the political economy of the European Union, EU elites and institutions, European politics and industrial relations, globalization, and social structures.