On Tuesday 21 July, the €750 billion Next Generation EU (NGEU) recovery fund was agreed upon by European leaders. The summit took place over four days, the longest meeting of EU leadership in the last 20 years, and the second longest ever to take place. The deal was reportedly an exercise in compromise, as the various European heads of state voiced their concerns about the domestic social and economic implications of various policies, and their visions for the future of the Union. In early June of this year, I wrote a publication on The State of the Union: How Striving for a Hamiltonian ideal could divide Europe, in which I examined the European Commission’s (EC) initial proposal for Next Generation EU. The agenda was based on the Franco-German recovery plan of €500 billion to be financed by borrowing from capital markets and paid off by the EU as a union, and not by the individual member states. This represented a remarkable move, both for Union solidarity and German economic policy, yet the deal remained uncertain in its contemporary form due to opposition from the self-styled ‘frugal four’ – Austria, Denmark, Sweden and the Netherlands. Nevertheless, only two months later, the bloc’s leaders have agreed upon a compromise. With the deal nearly done, now only needing to pass through the European and national parliaments, it is prudent to look back at the four main points of emphasis that I highlighted in June and identify the winners and losers of Next Generation EU.
Firstly, money talks. During the early phases of the deal’s deliberation, the main opposition arose from the European frugal four who often push for more fiscally conservative EU budgets. The Dutch Prime Minister, Mark Rutte, surfaced as one of the deal’s most vocal critics and it was clear that the figure of €500 billion worth of grants would not be accepted. Furthermore, these states were worried that the deal could set a precedent in the EU for crisis response, effectively turning the organisation into a wealth-transfer union, much to the benefit of the southern and eastern European states and to the detriment of the richer, northern countries. While the EC initially proposed a total recovery package worth €750 billion with two-thirds being distributed as grants and the final third as loans, the final NGEU package is made up of €390 billion in grants and €360 billion in loans. This is good news for many of the actors involved. The frugal four, who eventually had to compromise without the backing of oft-neoliberal Germany reduced the value of grants by over 20%, limiting their national financial exposure to states with more volatile records of public spending. Additionally, the final deal, announced early Tuesday morning, appears to have quelled wealth-transfer union worries with Prime Minister Rutte reaffirming that this package is a time limited, one-off programme. Despite still committing to a shared commitment of providing €390 billion in grants, of which all four of the frugal states will be net contributors, these states are winners with regards to the new NGEU package although it will be interesting to see whether this is reflected in public opinion at their next general elections.
Secondly, the net beneficiaries. Two of the most vocal supporters of the recovery package have been Spain and Italy. Both of these states have suffered as a result of the pandemic in terms of health and economics. Whilst national lockdowns and border closures were necessary steps to control the spread of Covid-19, the resulting Eurozone economic downturn, which some experts say could shrink by as much as 9%, will have devastating effects on the Spanish and Italian economies, both of which have debt levels already far exceeding their GDP and a reliance on one of the hardest-hit industries, tourism. As such, the provision of grants that will not increase state debt and will instead be paid off at the Union level represents a lifeline for Prime Ministers Pedro Sanchez and Giuseppe Conte. Although the frugal four were able to trim the grants budget down by over €100 billion, the two southern European nations will be net beneficiaries from NGEU, potentially saving them and, indeed, the Union from bankruptcy. As Angela Merkel reportedly said to Mark Rutte, “if southern countries go bankrupt, we all go bankrupt eventually”. From this perspective, Spain, Italy, the Eurozone and the Union all benefit from this aspect of the recovery fund, as it provides long-term financial security and an immediate counterbalance to the damaging effects of the coronavirus.
Thirdly, political reunification. Not only was NGEU a landmark decision for the EU in the sense and scale of collective borrowing, the proposal also brought together the two most influential players in the EU, France and Germany. Often, these two states have been split over European economic policy and their differing visions of what the Union should be, with France spearheading the push for tighter fiscal union and Germany generally advocating more neoliberal economic policies. It is in the interest of these two states that the EU maintains its cohesion, and it is possible to see how the various compromises that were made during the summit were to the benefit of both Macron and Merkel. Not only does the speed with which the proposal was deliberated and decided on demonstrate the strength and influence of the two leaders, the nature of the final consensus provides an indication of what a more unified European Union is capable. Acting together, France and Germany were able to protect the most vulnerable states, whilst also convincing the frugal four to comply. Potentially, this deal was only possible with Brexit having occurred and the United Kingdom having left the EU, otherwise the frugal four could have found themselves, once again, backed by one of the big players in the EU political arena. Without the UK, these states complied and the Union, under the guidance and leadership of Macron and Merkel, has a meaningful and large-scale recovery plan established for the post-Covid-19 era.
Finally, the Hamiltonian moment. In my original article, I took issue with the suggestion that this deal represents Europe’s ‘Hamiltonian moment’, suggesting that to strive for such an objective was to aim for greater factionalism, divergence and disparity. With that in mind, was this, in fact, Europe’s Hamiltonian moment? Thankfully not. As the President of the European Council, Charles Michel stated, “We did it. Europe is strong. Europe is united.” Indeed, the final state of the deal appears to have been with the aim of reducing potential points of conflict: the ‘net beneficiary’ status of Spain and Italy rescues their economies whilst also suppressing anti-EU populist sentiment; the vague language used in reference to the ‘rule of law’ requirements helped to win over the governments of Poland and Hungary; and, as stated prior, the reduced amount of grants helped to convince the frugal four that together Europe was stronger. In this regard, the health of the Union wins in the NGEU proposal.
Of course, compromise is a necessary part of progress when dealing with an international union of states, each with their own national and international priorities. Coming from the think tank world, and having written on the state of think tanks amid the pandemic, it is unfortunate to see that ‘future-oriented’ areas such as research and development have had their budgets cut in the final version of the recovery package. All that one in research can do is push on, adapt to the changing environment, advocate for clear results in the deal’s foci on the European Green Deal and economic digitisation, and ultimately hope that the NGEU will help to reinvigorate the European economy such that forgotten areas can once again receive the necessary funding.
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Biggins, E. (2020) Next Generation EU: The Union United, IDRN, 24 July. Available at: https://idrn.eu/economic-development/next-generation-eu-the-union-united [Accessed dd/mm/yyyy].