The EU’s historic leap into mass debt issuance will usher in a revolution in Brussels’ economic governance, whether governments like it or not.
That’s partly the contention of a paper from the Delors Centre, which sets out how Brussels’ economic management tools will undergo a major shake-up following the creation of a landmark €750bn recovery instrument.
The Brussels Briefing has written often about the growing irrelevance of eurozone governance structures that were set up in the heat of the financial crisis but have increasingly faded in influence in recent years.
The Delors Centre’s recommendations, co-written by Lucas Guttenberg, Johannes Hemker and Sander Tordoir, are a welcome intervention in the debate about “what happens now?” following the creation of a common borrowing facility that will give Brussels significant power over member states’ crisis spending.
Titled “Everything will be different”, the paper points out the potentially lasting significance of the Covid-19 crisis architecture that many EU governments would rather not contemplate.
Chief among them is that the Recovery and Resilience Facility has created a de facto eurozone asset, and with it, ended the interminable debate about the need for a joint fiscal capacity in the bloc.
With the RRF, the EU will have a mass pool of common debt held by investors and bought up by the European Central Bank. The fund will also hand out billions in grants and loans to economies, taking into account the asymmetric impact of the pandemic. The fund also provides a portion of cash to “stabilise” crisis-hit economies, an element that has largely settled “the debate on the design of the fiscal capacity”, claim the authors.
These assertions will sit uncomfortably with hawkish eurozone governments that downplay both elements. Northern eurozone diplomats continually stress the “temporary” nature of the RRF borrowing and spending and insist that normal budgetary rules must be applied as soon as the pandemic’s emergency phase is over.
The paper also highlights how the crisis response has exposed some of the worst-functioning parts of existing economic governance. These include the largely toothless “country-specific recommendations”, which Brussels sends to countries every year on how to improve deficiencies in their economies. They are usually roundly ignored. The RRF, however, will use these recommendations as the basis for judging national recovery plans — finally giving them teeth.
So is the RRF really the point of no return for EU integration?
As the paper points out, EU policymakers and future governments will ultimately need to grapple with how and under what conditions common borrowing can be carried out. The Covid-19 crisis has shown that the legal instruments exist and can be used with minimal political resistance. Similarly, the permanence or otherwise of the RRF and the revenues needed to fund it will become fights for the coming years.
These will be intensely political debates that will probably revive old divisions between Europe’s integrationists and Hanseatic sceptics. Still, the significance of the Covid-19 measures and the precedent they have created should not be underestimated.
Reversing the logic underpinning a common borrowing to spend mechanism will be tough once it is set in motion. History would suggest that the EU’s grand leaps towards ever-closer union often happen through stealth.
Chart du jour: Migrants stay at home
The pandemic has stemmed the flow of skilled migrants to richer nations, with successful residency permits in OECD nations dropping off at the start of 2020. The lack of young, skilled migrants could take a toll on countries such as Germany and Italy, which rely on migrant flows to offset their ageing populations. (chart via FT)
Around Europe
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The war of words between the EU and UK escalated on the day of a crunch meeting over the Northern Irish protocol. EU commissioner Maros Sefcovic sent a warning shot on Wednesday night to his counterpart Michael Gove over the UK’s “shortcomings” implementing customs rules in Northern Ireland. Brussels has also rebuffed crucial UK demands for flexibility on food exports and pet travel. The two meet in London on Thursday.
The EU is also standing firm on an export ban on UK oysters, mussels and clams, officials told the Financial Times. One winner from Brexit is Amsterdam, which has usurped London as Europe’s largest share trading centre. Philip Stafford has the scoop.
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Italy’s populist Five Star Movement will hold a referendum of members to decide whether to back the unity government led by Mario Draghi. Five Star have won a promise for the creation of a ministry to oversee the country’s green transition. The party’s backing would secure a clear majority for Draghi’s government. The binding vote will be carried out on the party’s Rousseau platform between 8am and 6pm on Thursday. (La Repubblica)
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European Commission president Ursula von der Leyen told MEPs that “mistakes were made” in the EU vaccine strategy. The mea culpa was welcomed by parliamentarians but the German’s leadership is still the target of caustic criticism in her home country’s media. (FT) Von der Leyen also raised eyebrows by temporarily leaving the parliament’s plenary session as MEPs debated her leadership credentials.
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The World Health Organization has backed the use of the Oxford/AstraZeneca jab for use by all adults. The ruling comes after several European countries, including France and Germany, recommended the vaccine not be used for over-65s. (FT)
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Several large private media companies in Poland took part in media blackout on Wednesday to protest against a proposed government tax on advertising that has been criticised as stifling the free press. Brussels said it expected Poland to ensure that the tax “will not affect their duty to ensure a free, independent and diverse media ecosystem”. (Gazeta Wyborcza/FT)
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The European parliament has overwhelmingly approved the EU’s €672.5bn recovery fund. (Euronews) Christian Odendahl and Yiannis Mouzakis argue that Greece could use the money to fix issues in its economy that have plagued the country since its debt crisis. (Centre for European Reform).
Coming up today
The European Commission releases its spring economic outlook, reflecting the impact of prolonged lockdowns and a sluggish vaccine rollout (12.00 CET).
Former EU chief Brexit negotiator Michel Barnier discusses the impact on business of the UK’s withdrawal from the bloc at the European Business Summit at 11.00. Maros Sefcovic and Michael Gove meet in London for talks over the Northern Ireland protocol.