Will Europe’s Recovery Fund Cause More Problems for the EU?

After five days of grueling and at times ill-tempered talks, European countries this week finally agreed on an $870 billion recovery package to help the weaker members of the European Union weather what’s shaping up to be the most testing recession in the bloc’s history. There was relief when the negotiations concluded, and much talk in its immediate wake from EU bosses that the ill-natured Brussels summit had succeeded in strengthening the bloc and demonstrated that Europe is not too divided to handle the coronavirus pandemic and the economic repercussions. But the shouting is not entirely over, and what was agreed to may cause more problems for a bloc that remains divided about what sort of club the EU is or wants to be, warn some analysts. FILE – European Commission President Ursula von der Leyen, left, and European Council President Charles Michel address a media conference at an EU summit in Brussels, July 21, 2020.The package, which will see the EU for the first time collectively borrow large sums using the creditworthiness of the economically stronger members, like Germany, to lend and grant money to weaker ones, like Italy and Spain, still has to be approved by the European Parliament. And midweek some EU lawmakers from the so-called frugal four countries — Austria, the Netherlands, Denmark and Sweden, all of which are skeptical about the fund — served notice that they intend to try to derail the package.  They are planning to oppose a series of new taxes agreed to Tuesday, including on digital services and on goods imported into the EU from countries with lower CO2 emission standards, to help pay for the recovery fund. FILE – German MEP Manfred Weber attends a session in the Plenary chamber of the European Parliament in Brussels, March 10, 2020.The leader of the center-right European People’s Party, the largest party in the European Parliament, Germany’s Manfred Weber, is also unhappy. He said Thursday that he was pleased the heads of government and state managed to reach agreement but added “I’m not happy about the deal.” Addressing the European Parliament on Thursday, European Commission President Ursula von der Leyen acknowledged the deal would be “a pill difficult to swallow,” but she urged lawmakers not to waste time in ratifying the seven-year EU budget of $1.2 trillion — as well as the $870 billion recovery package. “Ursula, we for the moment are not ready to swallow the pill you referred to,” warned Weber, who wants cuts in the overall budget. He says the parliament will want to make some major changes. If it does vote for amendments, that will mean the entire budget and recovery fund will head back to the EU heads of government and state for agreement or further negotiation, delaying disbursements to southern European states and adding more friction. Other opponents in the European parliament say they will press their governments or national parliaments to hold referendums on the EU budget.  Derk Jan Eppink, a Dutch MEP, says the recovery package is a wealth redistribution plan and that the people in the Netherlands should be allowed to vote on it themselves. Others want the European Parliament to be empowered to monitor disbursements to ensure they’re being well-spent. Analysts say it is highly unlikely the parliament will squash the recovery fund — a majority will in the end endorse it and the budget. But the harsh response from some in the European Parliament is adding to the picture of European disarray and further exposing a dangerous level of mistrust at a critical time between different arms of the EU and between member states themselves. FILE – France’s President Emmanuel Macron takes pictures from a document held by German Chancellor Angela Merkel during the first face-to-face EU summit since the coronavirus outbreak, in Brussels, Belgium, July 20, 2020.The Brussels summit negotiations have left European leaders bruised. The intensity of the disagreements over the recovery fund shocked several people. Even the patience of the normally calm German chancellor, Angela Merkel, appeared to be stretched to a breaking point — at one point she yelled at her Austrian counterpart. France’s leader, Emmanuel Macron, slammed his fists in frustration on a table. Hungarian leader Viktor Orban, a former anti-communist dissident, accused the Dutch leader, Mark Rutte, of aping the Soviets in his bid to overcome dissent. Future disputes The clashes augur badly for the inevitable disputes ahead over the actual working of the fund and disbursements, worry some analysts, including Lucas Guttenberg of the Jacques Delors Institute, a research group headquartered in Paris.  The leaders of the frugal four managed to get written into the deal a so-called brake that allows any member government to object to another’s spending plans when using loans or grants from the recovery fund. That spells trouble, he says, and could lead to some nasty squabbles. He also says there is considerable ambiguity about the brake mechanism, how it will be invoked and enforced, as well as other conditions attached to disbursements. FILE – President of the European Council Charles Michel meets with prime ministers of Czech Republic, Poland, Hungary and Slovakia during European Union Council over a post-virus economic rescue plan, in Brussels, Belgium, July 19, 2020.Under the deal there are restrictions on disbursements to countries deemed in breach of rule-of-law standards. Hungary and Poland have both clashed with Brussels on judicial reforms that the European Commission says are eroding the independence of judges. But while disbursements can be cut for breach of the standards, it is unclear how that will be done. ‘Historic step’Nonetheless, Guttenberg agrees with EU bosses that “the Recovery Instrument is nothing short of an historic step.” He tweeted, “It will substantially contribute both politically and economically to a stronger recovery, in particular in countries like Italy,” which is set to receive $242 billion from the fund in the form of loans and grants. Others are not so sure the amount of the fund is sufficient to cope with the scale of the economic crisis caused by the coronavirus pandemic. “The macroeconomic value of the EU’s 750-billion-euro Recovery Fund lies somewhere between modest and trivial,” says Ambrose Evans-Pritchard, the international business editor of Britain’s Daily Telegraph. “Part of it is reshuffling money that would have been spent anyway. The rest is spread thin over many years.” None of the grants, he notes, will start being disbursed until next year, blunting their effect as COVID-19 disaster relief, and the fund will do little, he says, to reduce the growing economic inequality between member states, which is seeing richer states doling out huge state aid and subsidies to support their pandemic-struck businesses, giving them an even greater competitive edge over rivals in poorer countries. And an uneven economic recovery across the bloc risks fueling populist anger and anti-EU sentiment in the countries that lose out. 
 
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