With the proposal, Wednesday 27 May, of the 2021-2027 Multiannual Financial Framework (MFF), which includes a recovery plan called Next Generation EU that could generate €750 billion in expenditures and additional investments through 2024, the ‘von der Leyen’ Commission’s mandate has taken a new turn.
Heckled since her unexpected arrival in Brussels in summer 2019, when she was narrowly elected by the European Parliament, the President of the European Commission is demonstrating that she has taken the measure of the socio-economic crisis provoked by Covid-19 by proposing to reorient expenditures to fill gaps identified during the crisis and by releasing an overall budget of a scope that was unthinkable 2 months ago. And she has done so without neglecting the defence of European values by linking’ granting European financing to respect for the rule of law.
The chosen approach, prepared in record time under difficult logistical circumstances, seeks a balance by giving something to all stakeholders without completely satisfying their demands. It represents the beginnings of a compromise that takes the forces at play into account.
By placing the MFF at the centre of the European response to the most severe socio-economic crisis since 1945, Ms von der Leyen has weighed in on the side of Community-based action. In 2012, the euro zone countries established the emergency European Stability Mechanism, a €500-billion intergovernmental fund, to address the sovereign debt crisis. In 2020, the crisis is affecting the entire EU27, and there is a risk that the response will be uneven because of the disparity of means in national budgets. Choosing a Community-based approach has the effect of putting the Commission in the driver’s seat and of giving the European Parliament the room to fully play its role in terms of budgetary authority. MEPs will not forget it.
The €750-billion envelope corresponds exactly to the amount of the European Central Bank’s PEPP program. Whether this is a happy coincidence or a deliberate step, the Commission seems to have heard the message from the German constitutional court in Karlsruhe, by setting the additional fiscal response to the same level as monetary policy. On Thursday, Commissioners Dombrovskis and Gentiloni nevertheless asserted that this comparison is not valid. Didn’t the European Union also adopt three safety nets—for States, short-time workers, and companies—in the amount of €540 billion?
The Commission has adopted the Franco-German proposition to provide €500 billion in assistance to the Member States most severely affected by the crisis, exclusively through transfers. It has gone even further by suggesting the possibility of granting, on a voluntary basis, €250 billion in very long-term loans to be reimbursed beginning in 2028. This is the approach preferred by the so-called frugal countries—Austria, the Netherlands, Denmark, and Sweden—who are still chanting the ‘loans for loans’ slogan. And, from now until then, to facilitate the reimbursement of shared loans, the European legislature should try to establish new own resources (plastic or digital taxes, ETS fees), as the European Parliament regularly demands.
The Commission’s chosen budgetary approach has already been used to avoid a payment default by Greece in 2015. But this time the scope is unprecedented. Increasing the margin under budget ceilings by combining it with national guarantees to borrow massively in the EU27’s name certainly seems like the miracle of the five loaves and two fishes, but this approach will make it possible to raise a substantial amount of money at a lower cost and without asking for a single additional euro from the Member States, whether or not they are ‘frugal’ countries or net contributors like France and Italy, whose public debt will grow significantly given the crisis.
Each State will remain responsible for its national contribution to the EU budget, as a function of their economic weight. There will be shared borrowing, but there will also be no joint or third-party responsibility for the debt raised. The red line established by Germany and the frugal countries has not been crossed. There will be no pooling of debt, and this initiative does not represent the creation of an embryonic European Treasury, Ms von der Leyen clarified on Wednesday, underlining the temporary nature of Next Generation EU.
In the end, the 2021-2027 MFF proposal (apart from Next Generation EU) more or less picks up the negotiation from where the EU27 left it in February. Brexit necessitates, and the Commission is still suggesting, the elimination of budget rebates, but over a longer period than previously envisaged. This is a move to reassure the frugal countries, who want to spend less and to reorient investments towards what they consider to be the real expenses to come. But the countries that are friends of cohesion and those affected by the transition to a decarbonised economy have not been forgotten—far from it. The €750-billion envelope makes it possible, for example, to hand out extensions targeted to cohesion policy (€55 billion euros for the REACT-EU initiative), rural development (€15 billion), and the Just Transition Fund (€32.5 billion).
It is now Charles Michel’s turn to take up the torch! The game is far from won, given the divisions between the EU27 and the challenge of negotiating under sanitary measures. But the urgent need to solidify aide by September 2020 to revive the paralysed economy is likely to expedite the search for a compromise.
(Original version in French by Mathieu Bion)