That big EU Summit: Too little, too late?
№ 13/2020 from Jul 28, 2020
Progress in European integration has always been piecemeal. The marathon summit of July 17-21 represents a gigantic step toward an economic and fiscal union – and one that will obtain the necessary democratic legitimation through parliamentary approval at the EU and national level
Covid-19 hit liberal societies that were unprepared for the brutality with which the virus struck them – trucks full of coffins, exhausted hospital workers, closed businesses, restaurants, schools, empty streets.
National governments responded with unprecedented measures to combat the spread of the disease. As for the European Union (EU), it was heavily criticized for having failed again to prevent the unfolding of the crisis and mitigate the hardship inflicted on people inside and outside its borders.
The billions of Euros of emergency funds the European Central Bank, the European Commission, the European Investment Bank, and the European Stability Mechanism mobilized in the first months after the outbreak of the pandemic were deemed too little too late. Pundits and politicians called for a (more) forceful sign of European solidarity including fiscal transfers and the mutualization of national debts.
Hopes were high when Germany took over the rotating EU presidency on July 1 and the European Council met in person for the first time in months.
Yet, Europe seemed to fail to deliver again.
For four days, member state governments engaged in shameless horse-trading over the proposed recovery fund and the EU’s budget for the next seven years to come. Indeed, the pandemic has sharpened the rifts between the member states which had formed during the Euro and the migration crises.
At the same time, the member states have been acutely aware that the Covid-19 crisis could cause irreparable distortions or even the break-down of the Single Market. So, in the end, the heads of states and governments agreed on a financial deal of historic proportion.
First, the recovery fund and the multi-annual financial framework (MFF) constitute the largest budget the member states have ever agreed on – €1.8 trillion. The €750bn Next Generation EU (NGEU) may pale in comparison to the €1,000bn the German government alone has pumped into its economy in form of loans, grants, bonds, and securities. Yet, NGEU is the first truly European recovery fund and comprises €250bn more than originally envisioned by an earlier plan put forward by French President Emmanuel Macron and Merkel.
Second, to mobilize the €750bn for the NGEU, the Commission is authorized to borrow funds on behalf of the EU on the capital markets. For the first time, the member states gave the Commission the right to borrow. Furthermore, unlike Euro bonds, all member states will be liable. And member states will no longer leave it to the European Central Bank to provide EU financial support for economic recovery. The required consent by the European Parliament and the national parliaments ensures democratic legitimacy mitigating possible concerns of national constitutional courts, particularly the German Federal Constitutional Court.
Third, to repay the joint debts, the EU shall receive its own new resources in the form of a tax on non-recyclable plastic waste, a digital levy, a carbon border adjustment mechanism, a financial transaction tax, and an extension of the EU Emission Trading Scheme.
Taken together, the member states have come up with a forceful European response to the Corona crisis, which will complement national measures to support the recovery and resilience of economies, particularly in the member states most hit by the crisis.
Granting the Commission the power to borrow money and collect EU-level taxes are major steps in bringing the EU closer to a truly economic union. This was only possible because Germany gave up its opposition to any form of “transfer union” and “common debt” joining forces with France and abandoning the “frugal four”. Naturally, the negotiations of this historic deal were tough and brought diverging national interests to the fore.
Criticism that member states sacrificed the EU’s green and digital priorities on the altar of the recovery seems to be exaggerated. The European Council made cuts to health, research, education, digital transformation, defense, innovation, asylum, migration and border management. Note, however, that these cuts refer to what the Commission had proposed in May as top-ups for EU programs in the MFF by NEXGEN, not to the previous MFF of 2014-2020. The new research program, Horizon Europe, for instance, will still see a slight increase compared to Horizon2020.
The Just Transition Fund for carbon-dependent regions may run counter to the EU’s Green Deal agenda. At the same time, it was cut in half. The financial package may not provide enough low-carbon investments to meet EU climate target. Still, around a third of the MFF and NGEU will have to be spent on climate action.
Finally, for the first time, EU funds will be conditional on the respect of the rule of law. Critics say this falls way short of what is required to prevent countries such as Hungary and Poland systemically undermining the rule of law.
This conditionality is not directly linked to the protection of the EU’s fundamental values enshrined in Article 2 of the TEU - the rule-of-law mechanism. It will fall to the Commission to raise the issue of conditionality if the financial interests of the Union are at stake. This will include cases of severe corruption whose control requires independent courts.
In sum, those denouncing the deal as “too little, too late” and that foreign and security issues, enlargement or neighborhood policies didn't get a look-in, lack a sense of history.
Progress in European integration has always been piecemeal; this one, however, represents a gigantic step toward an economic and fiscal union that will obtain the necessary democratic legitimation through parliamentary approval at the EU and the national level.
Prof. Dr. Tanja A. Börzel is Director, Cluster of Excellence “Contestations of the Liberal Script”
Berlin Center for European Studies
Otto Suhr Institute for Political Science
Freie Universität Berlin