The Future of the EU: Too Many Plans, Too Many Hands

There are now numerous Covid rescue plans on the table for European leaders to consider. There is no need to run them down here because Prof. David Cameron of Yale has provided an excellent summary of their provisions. Briefly, the central bone of contention is whether EU assistance will be provided in the form of loans, ultimately to be reimbursed by member state recipients, or as grants. In both cases, the EU itself will amass the funds to be disbursed by borrowing in its own name, and it will repay those loans in one of two ways: through taxes it will somehow acquire the power to levy, or through repayment of secondary loans to member states. There is also a further question: to what extent will grants or loans to member states be conditioned on domestic reforms and other political criteria?

The European Commission is proceeding as though the Merkel-Macron proposal for loan-financed grants will ultimately be approved by the Council, although there is no assurance this will happen, given the declared opposition of the so-called Frugal Four: the Netherlands, Austria, Sweden, and Denmark. Other countries have expressed reservations in less adamant terms. But even the Frugal Four recognize that something must be done lest the Single Market crumble and the EU founder. It’s just that they want no part of outright grants and want all transfers to be made in the form of loans.

Given the universal acknowledgment of urgency, hope for progress is not unreasonable, but this is hardly the “Hamiltonian moment” that some commentators have imagined. Merkel has certainly moved a good distance toward Macron, but she is still portraying the plan as a one-off, not a permanent reform of the European Union.

Nevertheless, the distance between the Frugals and–what to call them?–the Reformers is not insuperable. Both sides want funds to flow across borders, and neither is embracing the insouciant stance of so-called Modern Monetary Theory (unless, of course, it turns out that the ECB is the only buyer of corona bonds). There is a good deal of room for maneuver on every aspect of the various proposals on the table: the ratio of loans to grants, the nature and extent of conditionality imposed, the duration and interest rate of loans to member states, the acceptable purposes to which EU funds may be put, the degree of institutional oversight, etc. The necessity of fine print leaves plenty of leeway for bridging the gap between the needs of Eurocrats and the needs of national governments, hence for the bargaining–and fudging–at which the EU excels. It also leaves plenty of room for side-payments to entice the recalcitrants.

The sticking point is not in the financial details, then, but in the question of political will. In the best of cases this could be an opportunity to revise the EU’s key institutions to repair the inadequacies revealed first by the financial crisis of a decade ago and now by Covid. But institutional reform cannot be achieved by obscuring the details. It has to be tackled forthrightly and must win unanimous approval by member states. That’s a tall order in view of the apparent depth of disagreement and the urgency of immediate action to meet the short-term needs of the hardest-hit states. The most prominent actors–Merkel, Macron, von der Leyen–seem to be taking a Micawberesque line: believe in your stars and “something will turn up.” Optimism of the will is a fine thing, but even in the best of circumstances its reward is likely to be reaped only in the long term. Meanwhile, there is an economic crater to be filled forthwith.

Photo Credit: Andersen Pecorone, Berlaymont building 2015, via Wikimedia Commons, CC BY 2.0.