(CN) — After marathon negotiations in Brussels, bitterly divided European leaders on Tuesday approved a landmark $857 billion economic stimulus package to help Europe pick itself up from the coronavirus pandemic.
But it's far from certain whether this deal will be the Marshall Plan many have called for to get the European Union out of its deepening economic and political troubles. The massive recovery fund is attached to a convoluted deal watered down by compromises to satisfy conflicting demands among the European Union's 27 member nations.
Still, the breakthrough deal caps months of quarrels between EU leaders over how the bloc should respond to the economic crisis caused by the coronavirus pandemic, which has infected 2.7 million Europeans and killed more than 135,000.
In a groundbreaking move, the EU's 27 member states agreed to fund the recovery package through shared debt, a long-debated and controversial step in European politics.
Some have called this Europe's “Hamilton moment” because it pushes toward a federalization of the EU's fiscal policies and echoes the centralization of debt in the United States as advocated by Alexander Hamilton.
The recovery funds were approved alongside a new seven-year $1.1 trillion EU budget that funds everything from European institutions to subsidies for European farmers. The deal was approved by the European Council, made up of European heads of state. It still needs the approval of the European Parliament, but the parliament is unlikely to stop it from going through.
Europe's leaders hailed the deal even as they acknowledged its flaws.
“There is no such thing as a perfect world,” French President Emmanuel Macron said at a news conference where he called the deal “historic.”
“But we have made progress,” he said. “I think we can legitimately rejoice.”
What makes the deal historic is the use of the EU's collective financial clout to borrow massive amounts of cash on the international money markets. The EU as a whole is doing this because many of its member states, including Italy, Spain and France, are heavily indebted and face hefty borrowing costs on their own. In Italy's case, with its public debt already about 130% of its gross domestic product, adding more debt to get itself out of the coronavirus crisis could lead the nation into defaulting on loan payments and in turn endanger the entire EU economic zone, the world's largest single market.
Under the deal, the European Commission, the EU's executive body, will be able to distribute about $446 billion in grants and $411 billion in loans to EU states to help various economic sectors weather the economic storm caused by the pandemic.
The commission will have a lot of money to play with, but the deal also sets up potential problems. For example, it allows European leaders in one country to scrutinize how money is being spent in another, and potentially stop funds from flowing to another country.
In a briefing note, Alessandro Leipold, the chief economist at the think tank Lisbon Council, called this a major flaw that runs the risk of turning the recovery fund into a vehicle for toxic politics.
“I do agree it is historic,” he said on Euronews, a news broadcaster based in Lyon, France. “This is something that shows solidarity, and which was completely unthinkable before Covid.”
But he said the deal's good intentions may be scuppered by including devices that allow individual countries to object to how funds are spent elsewhere.
“Perseverance on this road is worrying,” he said. He said relying on such “intergovernmentalism” has damaged the EU in the past.
Another potential problem is that the size of the recovery fund may not be up to the task. The European Commission estimates an 8.3% decline in economic activity in the EU this year and even steeper declines in the hardest-hit countries, such as Italy, Spain and France.
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