Wednesday, 12 August 2020

EU south hails step towards federalism, but north sees one-off handout

This article was published by Al Jazeera International.


Greeks awoke pleasantly surprised to the news that Europe’s leaders had agreed on a 750bn euro stimulus package for the continent’s economy, called NextGenerationEU.


With newspapers having gone to bed hours before the dawn deal in Brussels, most people got wind of it from the airwaves.


“Will I be able to finance the new shop windows?” asks Jenny, a butcher’s wife in central Athens who wants to remodel her husband’s shop so that people can sit down and sample the cold cuts.


Greece’s economy is forecast to shrink by as much as 9 percent this year, as the coronavirus hits tourism and merchant shipping, two industries Greece relies on for much of its exports. Merhcants like Jenny’s husband are feeling the pinch.


“It’s a good thing on the whole,” she says of the fund, adding, “I do find it odd that they gave so little to health, considering that this is all about coronavirus. Giving money to hospitals was a no brainer.”


Money earmarked for the health sector was whittled down in a gruelling five-day summit that was meant to have ended on Saturday. But France and Germany, which pushed for the fund against the objections of a frugal lobby consisting of Sweden, Denmark, Austria and the The Netherlands, declared a victory.


The European Commission will raise the money through borrowing – a historic step for Europe’s executive. The so-called frugal four did achieve a compromise in the balance of loans to grants – 360bn euros of the fund will have to be repaid by governments, more than the one-third originally proposaed by the European Commission.


But the overall size of the fund remained intact, and the European  Council of heads of government also approved the next seven-year EU budget of 1.074tr euros.


“We’re returning to Athens with an overall package that surpasses 70 billion euros, an unheard-of sum for our country,” declared an elated Kyriakos Mitsotakis, Greek prime minister, in the early hours of Monday. Almost half of this, 32bn euros, comes from NextGenerationEU, and 19bn euros of that is in the form of grants. Over a five year period, the grants alone amount to a boost of about 2 percent of GDP per year.


“We shall soon present a detailed plan for the reorganisation of our productivity that will transform our country,” Mitsotakis said. “This is a great, unique opportunity for Greece and for Europe.”


The pandemic is set to claim 8.3 percent of the EU economy, but other countries in the European south stand to lose even more than Greece. Spain, Italy and France will see recessions in the order of 11 percent.


Yet it is in Athens where Europe first developed its financial reflexes and where such leaps forward resonate most.


When the post-2008 global financial crisis bankrupted Greece ten years ago, the euro area created a fund to bail it out, eventually bailing out Ireland, Spain, Portugal and Cyprus as well. 


But distressed sovereigns had to acccept emergency loans at their own risk, and Europe’s frugals, which then included Germany, staunchly refused to issue so-called Eurobonds together with the heavily indebted south.


NextGenerationEU marks the first time all 27 EU members are selling debt together, and it’s the first time the European Commission is to be given powers to levy taxes and raise resources of its own to service that debt.


“The single greatest thing about this fund is that it advances fiscal union and paves the way to Eurobonds,” sais Panayotis Ioakeimidis, political scientist at Athens University.


The International Monetary Fund estimates that the post-2008 financial crisis cost the world roughly a tenth of its GDP. The pandemic, it believes, will cause almost twice as deep a recession. 


The combination of recession and higher borrowing means countries’ debt levels will rise – in the case of the EU from an average of 75 percent of GDP, to 95 percent – just because of Covid-19.


The European south, already heavily indebted by the last crisis, lacks the ability to borrow its way out of this crisis without building up unsustainable levels of debt. The emergence of the European Commission as a new debt-issuing entity is a great relief to them, because the Commission’s debt doesn’t appear on their balace sheets.


The political import of this deal is even greater than the economic, says political economist George Pagoulatos, who heads the Hellenic Foundation for European and Foreign Policy.


“Italy has growing eurosceptic momentum… we’ve seen that with [fmr. Interior minister Matteo] Salvini. [Premier Giuseppe] Conte is probably the last thing separating Italy from sliding to a new wave of anti-europeanism that could be fatal, not just for Italy’s participation in the euro, but for the entire european integration project and the single market. So it’s extremely important for europe to signal to italian public opinion that it’s there to show solidarity.”


Speaking in Athens on Tuesday, German foreign minister Heiko Maas hailed the deal as “a restart of Europe on the basis of solidarity.”


The battle for European solidarity is not definitively won, however. Pagoulatos sees a new cleavage within the EU.


“[The frugals] do not want to be sidelined by the Franco-German alliance,” he says. “What this group of countries is trying to prevent is [NextGenerationEU] becoming a structural feature of the EU – cross-border transfers in the form of grants resulting from EU borrowing. They don’t want this to happen again. They want this to be a one-off thing.”

No comments:

Post a Comment

Note: only a member of this blog may post a comment.