Historic day for Europe? Depends who’s asking.

The “marathon” of negotiations in Brussels, led by EU Council President Charles Michel, have come to a close Tuesday after nearly 4 days and nights of intense debate over the EU response to the Coronavirus pandemic and the Multiannual budget, the details of which were covered in our article published on the start of the second day of negotiations. And now, with European leaders back to their respective capitals for some well-deserved rest before the intense work of selling the deal to their constituents starts, I wish to outline the content of the deal as well as its important consequences for Europe and the 27 national states which make it up. Primarily, I will argue that the package as a whole will achieve the bold vision of Europe which leaders such as Emmanuel Macron and Angela Merkel envisioned for it. To that extent, it also deals a significant blow to Mark Rutte’s short-sighted and egotistical vision for the Union. However, I will also argue that this special Council Meeting has also made clear important flaws in the structure and composition of the Union, which will have to be addressed seriously and concretely in future.

The final deal agreed to is comprised of €390 billion in grants given directly to member states, of €360 billion in long-term loans, for a total of €750 billion. This is the same total package that the EU Commission had proposed in May, but the negotiations considerably reduced the amount that will be borrowed by the EU itself and given out as loans. On top of this, the Council agreed to give Member States the authority to pull an “emergency super-brake” on any of the money’s disbursement if any state has serious and extraordinary concerns about the content of another state’s reform and spending plan. The brake allows any member state to raise these concerns with the Council before the money is disbursed. This is the compromise reached after Dutch PM Mark Rutte demanded that any state be given a full veto over another state’s reforms. Lastly, the Council approved a budget of 1,074 billion for the Multiannual Financial Framework (MFF), which included some “regrettable” (Ursula Von der Leyen’s words) cuts to the Commission’s proposed MFF. Notably, these cuts came from health, foreign aid, research, and an EU solvency fund proposed by UVdL.

So far, so good. Most leaders hailed the accord as “historic” for Europe and for their countries. In a press conference, Giuseppe Conte (who had more staked on this Council than most of his fellow leaders) hailed the great success of the deal for Italy and for Europe: The Dutch Veto – a red line – over national reforms was neutralised, and Italy had received a comprehensive package of grants and loans (more than it had originally expected to receive), comprising of 28% of the overall Recovery Fund. When asked if he had any point feared Rutte would block a deal from being found, he remained optimistic in the Council’s good faith ability to reach an agreement. He thanked his government coalition for the support, as well as the opposition forces in Parliament, who have not always been kind to Mr. Conte. He returns to Rome with a clear win, confident in the strength of his governing coalition and its ability to take Brussels’ package and lead his economy to a greener, more modern recovery and future.

Yet now, he will also have to tackle more directly the question of how to improve the conditions until 2021, when the Recovery Package will begin to be disbursed. Many members of the opposition, as well as at least one party in the governing coalition, have backed his use of the European Stability Mechanism (ESM, or ‘Mes’ in Italian) a programme developed in 2012 to address the shortcomings of the response to the Eurozone crisis. It would give Italy access to more loans, but these loans would be more immediate and could help the Italian economy reach 2021 already on the road to recovery. The trouble is that his main allies in Parliament, the 5 Star Movement (M5S) are considerably opposed to the ESM, in part due to its association with Greece’s troubles in 2008-2010. The opposition is quick to remind M5S parliamentarians that the ESM was created after the crisis and was developed to address the shortcomings of the Greek experience. It remains to be seen if Conte will embrace the EMS or if he will try to rearrange Italian finances to carry the recovery for the rest of the year on his own.

Back to Brussels. Like Conte, most leaders are aware of the consequence of the deal they have just approved. As I highlighted in my previous article, the level and scope of the common debt taken on by Europe for the purpose of the recovery of its national economies is both unprecedented and ground-breaking for the European Union. While it is not the first time that the Union has taken on joint debt, it is the first time that this shared responsibility is taken on to the massive tune of nearly €400 billion, and it leads in one direction very clearly: the further unification and solidarization of the European Union. Some pundits have (un)ironically compared this moment to the content of Alexander Hamilton’s plan following the U.S. states’ debt following the revolutionary war. Ironic or not, this is in large part a very apt analogy.

With the advent of the European project, the Member States gained access to an enormous market for their domestic products, and yet the wealthier northern states, despite receiving significant sums of money from Brussels, are sceptical about further unification, and indeed treat the common market as way to gain an edge for their own economies. The Netherlands is a prime example, as its competitive tax policies attract much European business (the ironic – read: offensive – part of this is that this ends up costing countries like France and Italy significantly in terms of tax revenues, weakening their ability to respond alone to financial crises). The cherry on top of the financial cake is, of course, the rebates which the Frugals receive back from their contributions to the EU budget. These have been significantly increased under this deal, in essence reducing the Frugals’ contribution to the MFF.

Up until yesterday, the EU was a conglomeration of Member States contributing money and ceding limited sovereignty to work together in tackling certain issues, from climate change to regulations. But now, the European Union is moving to embrace the unity: for common challenges, like the Coronavirus, it is no longer each struggling country for itself, occasionally getting help from its partners. It will be Europe that takes on the burden, together. Europe will be able to work as a unit within and outside of its borders more strongly and coherently than ever before; it will become more able and competent to compete on the global stage. It is the difference between a Europe which coordinates and a Europe which, in Union, acts together in lockstep, with shared benefits and shared responsibilities. Sometimes, there will be a disconnect between who benefits and who has to pay up; however, this is the case for any political union, and it is on the premise of unity and being more competitive and prosperous together that this can work.

Rutte and his Frugal partners did all they could to derail it, but the European tide had already passed them by the time they reached Brussels on Friday. Europeans approved the Recovery Fund for the Next Generation EU, and a new, reinvigorated, and united Europe is upon us. Much work lays ahead for this tide of unification and common governance that Merkel, Macron, Conte, Costa, and others negotiated. These funds will have to be successfully disbursed and Europe’s economy, particularly in the South, has a long road to recovery (not to mention reform). I hope that Conte for one takes on this duty earnestly and not only with humility but also with ambition. Italy’s economy, like all the other Member States’, has a potential to become greener, more digital, more modern, and more sustainable on the flip side of the COVID crisis. Conte must deliver on his press conference promise of investing in schools and universities, and in providing opportunities for younger Italians that have until now been almost entirely forgotten by governments all too focused on spending money on their older populations. Regardless, the big battle for the future of Europe has been won, and despite the challenge ahead, the strong base for this Union has been built.

The foundations of this new Europe, however, still have some cracks in them. Namely, the current method of governance in the Council is exposing a disconnect between countries that are committed to the European project, and those who use the mechanisms of governance to gain goodies in Brussels and then tout them as important victories in their national capitals. I speak, of course, of the Frugals, but also of the Visegrád 4, Hungary / Poland / Czech Republic / Slovakia. Both of these groups, mainly the Netherlands, Hungary, and Poland, used to varying extent their veto power for their own small section of national interests. While for the Netherlands, this is perhaps less concerning, the Hungarians managed to flex their Nem!-shaped muscles, and the Council’s unanimity rule in essence rewarded them for doubling down on their authoritarian and aggressive stand on the rule of law. Specifically, Hungary managed to reduce conditionalities for aid money on the rule of law to one short sentence in the agreement, stating that the Council believes in … upholding the law... The specific language might end up not working out for Poland and Hungary in the long run, some say, but the “threat” has at least for now been neutralised.

So, in essence, Hungary can continue to flagrantly violate the basics of European legal norms and continue to take European Union money to do so. Poland did the same thing with climate change conditions, opposing the use of a scheme that uses carbon emissions to fund the recovery. This scheme is now gone, and the climate portion of this deal is weak at best. Dutch Premier Mark Rutte, instead, decided to stake the entire recovery plan for Europe’s economy so they could get even more money from the EU (they negotiated the ability to take a higher portion of EU Custom fees at their ports for their own budget, and increased budget rebates).

I appreciate, of course, that each national leader must go to Brussels with the aim of promoting their nation’s interest, much like how US Governors must promote their state’s interest at all times over the Federal government’s priorities, when the two are not aligned. I do, however, find it problematic that not only does the unanimity rule in the Council enable authoritarians such as Orbán to continue benefitting from EU funding, aid, trade, and so forth, while facing little to no repercussions for their behaviour domestically. The Dutch, in turn, here again treated the EU as a tool to gain comparative advantage and grow their economy, where their fundamental responsibility is first and foremost to themselves and not to the bloc’s wellbeing. In fact, they contribute significantly less to the European Union than they gain from its many advantages, and they continue to draw resources away from the bloc, by taking more customs money for themselves, for example, while remaining uncommitted to the mantra of working together when it does not benefit them.

It is clear that the European Union’s governance mechanisms, its varied membership, and the complexities of representing, leading, developing common policies for, and governing a diverse population of over 400 million with a total productive output of $18 trillion create important and lasting difficulties for European politics, regardless of what direction the EU is taking. This weekend’s summit, no matter what Mark Rutte would have you believe (historic? “That's a term I wouldn’t use,” he says) has created a new future for the EU to work towards. Despite its frustrating side effects, the overall negotiated deal is positive for those rooting for a more united, solidary, and competitive Europe. The following years will yield many more ground-breaking events to analyse and it remains to be seen exactly how this venture into common fiscal policy turns out. But the Council’s deal also sheds light on the imperfect nature of the Union, on the disparity of ambitions between its members, and on the challenges yet to tackle, in week-long summits as well as in national capitals and regions throughout the continent.

Photo Credit: Pool / Agence France Presse (AFP)