Facing the summit: EU’s political economy discussed at an extraordinary meeting

The first face-to-face meeting of the EU leaders in almost half a year is taking place this week-end. The summit is extraordinary, as the deals to reach are of such importance and dimension that they couldn’t be made online. Two important issues are under discussion during a first summit under German Presidency in the Council: e.g. the Multiannual Financial Framework, MFF (the long-term Union’s budget) and the pandemic recovery fund. To reach agreements, EU-27 leaders need political, financial and economic drive to tackle the controversies. The EU’s political priorities, post-pandemic recovery and other urgent issues require “mitigation” of often polar state’s interests and expectations in modern European integration. This article sheds some light on some most vital aspects in reaching solutions…

  A week before the “extraordinary summit”, the European Council President Charles Michel put forward preliminary suggestions for a seven-year EU budget (MFF) of €1.072 trillion and a recovery fund (initiated by Germany and France) with €750 billion to be discussed and, probably, finally approved. The EU President’s “baseline budget proposal” (known as a “negotiating box”) is in fact the only basic proposal at the EU leaders’ special summit, though some modifications have been voiced from the states. The “calculations” are known to all EU states’ leaders: hence the final figures would show the real “winners and losers”.

  However, there are several options “to move up or down”, which can finally slightly alter the summit’s expectations concerning both the budget and a recovery fund.

 

  United we stand…

  Some differences in approaches and opinion to both main issues do exist: e.g. The Netherlands stressed the need for democratic legitimacy in a unanimous decision-making on the MFF budget and fund’s disbursement, as it is about the EU taxpayers’ money.

  Others stressed the need for a “swift decision-making”: e.g. Spain, Portugal and Greece (as well as Latvia); these countries were still holding daunting memories of 2008-crisis’ rescue programs with strings attached. Also in this group, Italy is of an opinion that the austerity measures and shrinking public spending shouldn’t be imposed on their country due to dreadful present economic conditions. The whole EU-27 is suffering: recent figures show about 8, 3 per cent drop in economic activity by the EU on average with higher indications for some.

  Everybody strives for results during the summit: the main raison d’être in negotiating all aspects of the budget and a fund – big and small – is that the solution shall be found as quickly as possible; there is no alternative. European citizens are looking for a “real decision” by the leaders during the summit even if the rile-of-law shall be softening to reach a deal.

  The rule of law is definitely becoming vital too: Laura Codruța Kövesi, the head of the new European Public Prosecutor’s Office, EPPO (the EU body created to crack down on fraud and other crimes related to the EU budget) correctly underlined that the “more money, more flexibility and less rules means a higher risk to have new crimes”.

https://podcasts.apple.com/us/podcast/id1244862657?i=1000483821134

 

  During the pandemic time, all EU states revealed difficult time for governing elites in political and economic decisions. It’s true: the health crisis accompanied by the socio-economic problems needs unprecedented measures to deal with the critical situation. Thus, numerous gains achieved during last decade seem to be discharged in the year(s) to come, squabbles over the MFF and the appropriate recue measures could turn nastier; the member states are expected to emerge from the pandemic crisis at different speeds…  

  The amounts at stake are really gigantic: some EU leaders cannot even comprehend such MFF amounts calculated in trillions: e.g. for Latvians with the yearly GDP of € 30 bn and state budget of € 10 bn it’s really hard to grasp. As well as the issue of the EU’s funds distribution: for countries with almost no industries and with the local consumption as a driving growth force it is becoming really a big issue.

 

  Rethinking “own resources” and financing recovery

  However important are the both issues (i.e. the budget and the fund) they are closely inter-connected and closely intervened with the issues of implemented reforms in the states. In order to ensure recovery, it is important to provide all EU states with the adequate financial means: that is another vital issue to resolve… 

  At the same time, a long-standing debate reflecting views on the future of the EU’s financial package in “green post-coronavirus recovery” has shown at least four main “ingredients” to be taken into consideration. As soon as financial consequences are important for both the MFF and the recovery fund, the new proposals can provide additional resources of about € 27-35 bn for the MFF in the so-called “new EU’s own resources” and stimulate the rescue fund:

  •  emission trade system, ETS with about € 10 bn addition to finances;
  • carbon border adjustment mechanisms, CBA with € 5-14 bn;
  • digital tax (France has already approved one) with € 1,3 bn; and
  • big companies’ tax (for those with a turnover of over € 750 mln), with about € 10 bn. Suffice to say, that a “green share” of additional support (i.e. ETS and CBA) accounts for about € 15-24 of the total sum.  

  Published earlier this year, the EU Circular Economy Action Plan is not to be forgotten and is expected to play an important role in Europe’s green recovery plan. It aims to reduce the bloc’s overall environmental footprint by decoupling economic growth from the use of natural resources.

 

  Behind closed doors…

  The future of European integration – after pandemic crisis and Brexit, to name a few – depends on German-French leadership (i.e. during German Presidency, in hands of the former). On the European continent, Germany is regarded as the EU’s economic locomotive driving the whole “European project”: the share of German GDP is about 20 per cent of the EU’s total.

  Therefore, during the Presidency, Germany’ “leading actions” include two main tasks: a) to show the EU elites’ ability to recover economically and politically after pandemic, and b) enable the EU-27 block to be a more credible international actor, in particular, in safeguarding European values and interests in an increasingly complicated and divided world.

  The UK’s decision to leave the EU showed that European integration had ceased to be a one-way street towards ever-closer union. In most EU member states, nationalist and populist forces have entered parliaments and shifted the contours of political discourse. In some countries, where they have entered government, illiberal forces have eroded European core values and undermined the rule of law – and the EU has been struggling to respond. Governing parties have certain and often overwhelming advantages, in promoting mainstream policies supported by major media outlets.

  Hence, the member states’ governments want to get away from some abstract terms such as “solidarity” or “responsibility” and put a new blood into nasty words. The risks of “entrenched” economic, financial, and social divergences certainly pose the greatest threats to European unity, i.e. whether the EU-27 is a “community” with a common destiny…

 

  As to the views of increasing MFF, there is another suggestion: the economic benefits of the “old EU-15” from the European common market greatly outwait the costs of their membership: i.e. German GDP during first 5 years after the “big enlargement” (2014-18) increase by over 120 bn euros, while its contribution to the EU budget was about 10-15 bn/year.     

  However, not all the countries benefit from the “common market”: less than one-third of the EU states are having only about 5 per cent of their intra-EU trade share in their GDPs: only Germany has over 22 per cent, Netherlands gets 13.5, France – about 9, Belgium – 8.4, Italy about 8, Spain and Poland with about 5.7 per cent each and Czech Republic with 4.6 per cent of their GDPs. All other EU states are having much smaller share of trade in GDP, e.g. the Baltic States are at the level of 0,5 per cent. So, why not to amend the national contributions according to the benefits the countries are getting from participating in the Union?

https://securityconference.org/assets/02_Dokumente/01_Publikationen/MunichSecurityBrief_EN.pdf 

 

  EU’s leadership role

  The modern “near-constant” crisis management among the EU institutions lasting already almost a decade has increased popular concerns over an optimal leadership in the EU. These include:  demands for decisive action when European treaties lack proper guidelines, calls to build bridges in the wake of growing rifts and states’ controversies with the EU, as well as requests to provide stability and the public goods’ sufficiency in the moments of crisis.

  In most EU-wide political decisions two issues are vital: defending the block’s political, socio-economic, and moral obligations in the continent and in the world; and preventing at all cost the EU from falling apart while paving the way for solidarity against nationalism.

  It is, of course, not easy to “assemble” the European-wide and national interests: but we have to remember that in our EU citizens’ passports the highest line on the cover is the “European Union” and lower one depicts the native countries! Quite often the realities show the other way around…

  It not unexpected that a previous Commission President, Jean­-Claude Juncker once argued about the threat of a political crisis (“polycrisis”) in the EU; something shall be done, indeed… 

  Source: Speech at the Opening Plenary Session of the Ideas Lab 2018 “Europe-Back on Track” at the Centre for European Policy Studies, 22.02.2018, in: https://perma.cc/J7JT-DH7U.

 

  The way the EU is going to deal with the pandemic crisis will in a great extent determine the Union’s future; if nationalist movements and nationalism in the member states prevail and the strong signals of solidarity would not be heard, the “European project” would be in great danger!  The EU-27 leaders shall remember: only a strong, united and prosperous Union is capable of taking collective action in the present unstable situation and numerous crises to come…  

  The “dispersal leadership” has been present in the EU during the last decades; just to mention already existing and often quite influential such “sub-groups” as e.g. Visegrad, “Alliance of Europe’s South” and “Frugal Four” to mention as an example of existing divide. And the rifts are becoming greater between the East and West, South and North in Europe… Already at the February’s European Council meeting, for example, the frugal countries weren’t ready to take any steps toward a compromise.

 

  A swift political agreement on the next multiannual financial framework and on the recovery package, so-called “Next Generation EU” is needed. In this regard, the member states’ leaders have to focus on European longer-term challenges, such as the green growth and the digital transitions.

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