A miracle in Europe – almost

The coronavirus pandemic has generated something like a miracle in the European landscape, namely the sharing of the debt among the European Union member states that makes it possible to inject $500 billion into their economies. It would be nothing less than astounding since it amounts to 3 1/2 times the present European budget. The dramatic turn of events on the Old Continent is a master stroke by the German chancellor Angela Merkel who caught all by surprise and reinstated the fundamental role of Germany in Europe, particularly at a time when the British have finally unmoored themselves from the Union. It was barely a month ago that Merkel was talking down any chance of a common debt, an idea that was anathema to the so-called “puritans” of tight budgets and fiscal severity: Austria, Denmark, Holland and Sweden. Unbeknownst to them, Merkel was opening a common front with French President Macron for a more equitable European integration. Chancellor Merkel had gained new strength from her policies to control the epidemic – something that other leaders did not achieve, particularly in the U.S. – and rightly felt that it was time to show the solidarity that some COVID-19 stricken members demanded and that Holland et al denied them. What Merkel grasped was that assuring financial help to those countries (particularly Italy and Spain) was in the national interest of Germany and the most viable strategy to keep Germany on top.

The devil, as always, is in the details and the European Commission has yet to establish the modalities for disbursing the money. The four “puritans” reject the idea of non-repayable outlays and impose conditions such as direct control by the Union as it does with structural funds. In addition, the European Union would provide such “emergency funds” for a period of two years. In other words, the “puritans” would consent only to loans on favorable terms. The position taken by Holland et al does not amount to a full rejection of the German-French plan but to a negotiating stance that calls in particular for the adoption of “reforms” in the heavily indebted member countries with a view to introducing “better resiliency” in the public health sector.The long and the short of the diatribe over the terms of the emergency aid is in reality that no one doubts the need to finance a fund for the recovery of the European Union through the issuance of a common debt by the European Commission. Two big tests are coming in Brussels: the first concerns the next move by the German chancellor to impose her will on Holland, the point man in restricting the solidarity to the member countries in trouble. The second falls upon the new president of the commission, the German Ursula von der Leyen, who is working out the proposal for the next community budget. The budget is a true jigsaw puzzle, as it must satisfy support for the member countries, the reactivation of the European economy, and the strengthening of existing programs. The hope is for the 2021-2027 budget to be approved by the end of summer. For those who follow the unending confrontation within the U.S. Congress over the recovery program, the European tug of war may appear mere child’s play. Yet, a miracle may come about in Europe thanks to the coming negotiations. It is up to Angela Merkel, who is one year away from retirement, to make it happen.

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