Some wealthier nations in northern Europe see the proposed recovery package as a step too far, using their money to prop up poorer debt-ridden countries.
(CN) — To bring a divided and battered continent together, the chief executive of the European Union on Wednesday laid out an ambitious $823 billion plan to help Europe recover from the coronavirus pandemic and move toward a greener and more technologically advanced future.
But the 750 billion euro plan must be approved by all 27 EU member states and negotiations are bound to be bitter because it envisions the EU, a unique political and trading bloc, accruing debt as a whole. In other words, the European Commission is proposing the EU take a step – albeit a one-time baby step – toward federalizing Europe’s economies.
“We are at a defining moment for the European Union,” said Ursula von der Leyen, the European Commission president, during a news conference. “The past weeks have shown that there is a growing awareness of the need to invest together in the European common good and to do this by laying the foundations for Europe’s next generation.”
Under the proposal, about $550 billion would be allocated as grants to countries and the rest as low-interest long-term loans. Each member state would then distribute those funds to sectors most in need. The recovery fund would be affixed to the EU’s $1.2 trillion seven-year budget, which is up for renewal this year.
Von der Leyen said an overarching goal will be to ensure the funds help lower emissions of carbon dioxide and help combat global warming and make Europe more technologically advanced.
She said the recovery funds also will be targeted toward strengthening Europe’s health care systems, boosting scientific centers and making the bloc more resilient. This is in line with goals European policymakers have to bolster European sovereignty, especially because of growing divergence with the United States over a range of issues.
Von der Leyen said the recovery fund could be paid for with new taxes on carbon emissions, single-use plastics, digital services and corporations that benefit the most from the EU’s single market.
Supporters of joint EU debt are calling this Europe’s “Hamilton moment,” drawing parallels with Alexander Hamilton’s push to set up a federal banking system in the U.S. to handle the debts racked up by individual states.
The European bloc initially was set up after World War II to ease trade and foster peace among old European foes but since the 1990s it has become ever more integrated with member states abiding by shared rules, laws, standards and fiscal policies, and most use the same currency, the euro. Still, each nation is responsible for its own finances and budgets.
However, the EU’s dynamics have led to growing disparities between countries, especially between those in the north and the south. Generally, southern countries have become burdened with growing deficits, high unemployment and slow growth with many blaming the EU system for their problems.
Now, crippled by the colossal crisis caused by the pandemic, countries like Italy and Spain face going broke if they are forced to borrow the funds they need to overcome the pandemic. Already saddled with heavy debts, on their own these countries face hefty borrowing costs. In the case of Italy, it could find itself defaulting on loans if it incurs even more debt, economists warn. In such an event, the EU as a whole would be plunged into a mess that could end in its unraveling.
But for many richer northern Europeans, even in such a moment of crisis, the commission’s recovery package proposal is a step too far because they abhor the idea of allowing their money to prop up poorer debt-ridden countries in the union.
Reactions from some northern politicians were negative on Wednesday. European media quoted one Dutch diplomat who said “positions are far apart” and that a lot of changes will be needed before the Netherlands will accept the funding scheme.
The proposal will need to be approved by the European Council, a body made up of heads of state in Europe, and the European Parliament, composed of elected representatives.
One Dutch member of the European Parliament, Derk Jan Eppink, equated the commission’s proposal to “a coup d’etat.”
“We are on the threshold of a transfer of powers without precedent,” he said, according to Ansa, an Italian news agency. “We’re like Icarus flying toward the sun and we need to stop this. It’s only right to listen to what the people who will have to pay for this think.”
Nonetheless, the protestations that the EU is becoming a continental welfare state from politicians in the Netherlands, Sweden, Austria and Finland may fall short because Germany, Europe’s biggest country and its strongest economy, now backs the idea of joint debt to recover from this crisis.
In a surprise U-turn, German Chancellor Angela Merkel last week came out in favor of the mutual debt scheme and the issuance of billions of dollars in grants. She said the crisis was so bad that it was necessary to help debt-ridden neighbors.
Von der Leyen made that same argument on Wednesday.
“We either all go it alone, leaving countries, regions and people behind and accepting a union of haves and have-nots, or we walk that road together,” she said during a speech to the European Parliament.
She dismissed the notion that the plan amounts to federalizing Europe’s treasuries and insisted the scheme is a temporary one-time solution to this crisis.
“This is one-off, this is exceptional,” she said.
The top priority, she said, was getting the package approved quickly.
“It is in our common interest that we move fast forward,” she said. “If we wait too long we will have bankruptcies, we will have rising unemployment. The costs of not being fast, in my eyes, are way higher than we could afford.”
But it could be many more weeks, if not months, before the aid package is approved. European leaders are likely to vote on the proposal at a summit in mid-June.
Still, some economists warn this package is not enough because, despite its size, it is tiny in comparison to the EU’s total economic output, amounting to about 1% of the EU’s gross income. The pandemic is expected to cripple Europe’s economies, causing a 7% economic drop. To offset the damage, the EU also is providing about $1.4 trillion in stimulus spending through bond buying and loan programs. But the targeted grant-based bailouts envisioned in the commission’s proposal are viewed as critical to rescuing many businesses and livelihoods.
Courthouse News reporter Cain Burdeau is based in the European Union.