AT 5.31am last Tuesday, European Council president Charles Michel tweeted one word: “Deal!” After four days and nights, and into the morning of the fifth day, one of the longest summits in EU history came to a successful conclusion. With it, not only did EU leaders agree a landmark package to underwrite the coronavirus recovery in Europe, but they paved the way for a step change in European integration.
The summit settled two distinct, yet interrelated, issues. The first is the Multiannual Financial Framework, the EU’s long-term budget for 2021-2027. The second is the Next Generation EU programme, the Union’s dedicated coronavirus recovery deal. The two will now be used together to rebuild the European economy.
Next Generation EU will be worth €750 billion (£682.9bn), of which €360bn (£327.7bn) will be given as loans to member states. Crucially, the remaining €390bn (£355bn) will be distributed as grants and will not have to be repaid. Most of the funding will be committed early in the budget cycle, in 2021-2022, and the intention is that countries worst affected by the coronavirus will benefit most – particularly Italy and Spain.
To fund the programme, the European Commission will raise the money on the financial markets. This will be the first time that the EU borrows collectively on such a large scale. It will mark a historic step in the fiscal integration of the member states. Fiscal integration is certainly not a new concept – it has been floated by proponents of more Europe for some time. The difference is that the circumstances posed by the coronavirus has spurred European leaders to action.
Securing a deal with the required unanimity is a good victory for Charles Michel. We might wonder though whether the summit could have been shorter if he had been more successful in preparing the ground beforehand. Michel has a different style compared to his predecessor, Donald Tusk. His outward appearance is more of an ebullient advocate than a pragmatic coordinator. The deal is also good news for the new German Presidency of the EU Council. Germany was eager to have the MFF completed as soon as possible, so it could put forward its own views rather than have to act as facilitating moderator.
Despite the agreement between EU leaders, the matter is not yet over. The European Parliament also has to approve the MFF – though it has no veto over the coronavirus recovery plan. The Parliament likes to make its voice heard, particularly on the budget. It has expressed reservations about some cutbacks from the original proposals.
Yet it is unlikely to torpedo the MFF, given the importance of this deal to Europe and to public confidence in the EU.
While the focus in recent days has been on the summitry and its aftermath, it is worth recalling how the recovery plan began.
In May, German chancellor Angela Merkel and French president Emmanuel Macron jointly announced a ground-breaking proposal – €500bn (£455bn) in grants to build the recovery. The European Commission eventually transformed the Franco-German plan into the Next Generation EU programme.
It would be difficult to overstate the significance of Germany’s decision to back major EU fiscal transfers. The German reputation for caution and aversion to fiscal integration (in the absence of wider political integration and national reform) had been reinforced by its response to the Eurocrisis – loans, conditionality and austerity. Yet, in the face of the coronavirus pandemic, Merkel chose to side with Macron and drive forward their plan.
Before their announcement, “eurobonds” had been advocated by Spain, Italy and others, but largely dismissed as unachievable. By reactivating the Franco-German motor – the partnership between France and Germany which has largely driven European integration – Paris and Berlin set the process in motion which made it happen. Their unity on this initiative was undoubtedly grounded in a sense that the EU’s future depends upon it proving its worth to citizens and countries in this period of profound challenge.
In the European Council, three points were central to the negotiations on the recovery plan: the amount of money, the proportions of loans and grants, and the methods of distributing and spending. While most member states were willing to find a consensus earlier on, five countries had substantial reservations. These “frugal” member states – the Netherlands, Austria, Denmark, Sweden and Finland – pushed for more loans than grants in particular.
In the end, the grants total was reduced from €500bn to €390bn. The awarding of grants will depend on national recovery plans and meeting agreed goals. A member state can refer a lack of progress by another member up to the European Council.
All the existing budget rebates have also been retained, benefitting the frugal five and Germany. Proposals to attach conditions on following the rule of law (aimed at Poland and Hungary) did not make it into the final text. So the frugals were able to shape the deal, but they did not stop the move towards fiscal integration.
These frugal states are all comparatively wealthy and net contributors to the EU budget. Yet Germany, France and Ireland – advocates of the plan – are also net contributors. The Taoiseach, Micheál Martin, made clear that the point was not how much money Ireland would get, but helping countries in greatest need and getting Europe back on track (which would also be good for Ireland). That is exactly the kind of approach which I would argue an independent Scotland should take as an EU member state, since Scotland’s interests would be best served by a successful and prosperous European Union.
The coronavirus recovery deal is a milestone for the EU. Through it, France and Germany have rediscovered the will to use the Franco-German motor to drive forward European integration. It is good for Europe to have such leadership, as long as other countries have a real say in shaping policies as well.
The Netherlands has emerged as the principal opponent of fiscal transfers, backed by its frugal allies, now that the member states have reconfigured themselves without the UK.
Despite the difficulties ahead, this historic deal signifies a commitment to meet the challenges of the coronavirus pandemic and bring real solidarity back to the heart of the EU. It marks a welcome change and a decisive step on the path to European unity.
Anthony Salamone is managing director of European Merchants, the political analysis firm in Edinburgh
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