The agreement on the “EU recovery fund” is ground-breaking in some respects and will contribute to recovery in countries hard hit by the pandemic, but it comes at a high political price. Here is my assessment of the #EUCO deal @wiiw_news: A thread /1
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Before Corona it would certainly have been unthinkable for the EU to take on so much additional debt based on guarantees from Member States in order to temporarily launch additional EU spending programmes to combat an economic crisis. /2
This is the first time that an EU-wide "safe asset" will be created, enabling investors to avoid different risk levels attached to bonds of EU Member States and to invest directly in EU bonds. /3
Issuing common bonds and introducing new own resources are elements that constitute a common European fiscal policy. With the agreement on the EU recovery fund, there is now an important temporary element of a common fiscal policy to combat the Corona crisis. /4
It is also noteworthy that 30% of the available money in the EU recovery fund must be used in the spirit of the "green and digital transformation". This establishes a link to the European Commission's longer-term policy agenda regarding the "Green Deal" and digitisation. /5
While some aspects of the agreement at the July summit can therefore be seen as positive and may also open up new opportunities for the future of the European integration process, it must be noted that this is not the best possible agreement. /6
First, the volume of grants could have been higher in order to ensure a greater macroeconomic impact in the countries particularly hard hit by the pandemic. This was prevented by the alliance of the so-called "frugal" states. /7
Second, the so-called "super emergency brake" creates a complex and burdensome governance structure that could slow down the process of disbursing money from the EU recovery fund - and contribute to political conflicts between Member States. /8
Third, conditionality could have been stronger with regard to compliance with the rule of law. In order to bring the Central and Eastern European Member States on board for an agreement, the link between the principles of the rule of law and the EU budget were softened. /9
Fourth, higher EU budget rebates for a few rich countries are an additional burden for those countries that have to pay these contributions instead. The European Commission originally wanted to abolish the rebate system, but the "frugal four" reinforced it. /10
Fifth, the opportunity to modernise the EU budget structure was missed with the summit agreement. Due to the pressure of the "frugal four", there were reductions in research, health and the financing of a fair transition in the fight against climate change. /11
In summary, the agreement is a mixed bag. Although the “frugal four” reduced the volume of grants, this does not change the fact that the €zone and the EU have now been given a temporary version of a macroeconomic stabilisation instrument through the EU recovery fund. /12
For the future, it would be important to get rid of strict net-position thinking when discussing the EU budget and focus more on increasing the EU added value provided by EU expenditures. /13
The European Parliament - with veto power over the EU budget - has threatened that it will reject the agreement and does not accept it as it stands. Time schedule is tight, as national parliaments will also need to approve the final agreement before it can be put in place. /end
