The week began with good news: France and Germany have come to an agreement. Merkel and Macron held a virtual press conference on Monday and proposed a sensational plan: they intend to establish an enormous EU rescue fund of five hundred billion euros. The European Commission would borrow the money and the funds would be dispersed through grants to countries in need.
It is possible that in future 18 May will be marked in textbooks as the beginning of a new era. In the past, the European Commission did not have the powers to borrow money under the EU’s name. Each country takes out loans on its own as much as possible. There is a common criterion in place: foreign debt should not be higher than 60% of GDP. Last year, seven EU countries met this criterion. Estonia’s debt is still the smallest.
When the economy is at risk, it is normal for a country to borrow money. For example, in 1945 the USA’s debt was 113% of GDP but decreased to a third of that in the following 35 years. True, during the Reagan presidency, this process reversed and now the United States has the largest debt in the world, which does not stop them one bit. The EU countries have been more cautious; however, the situation dictates extraordinary measures. Money is necessary to give the economy a push, and it would be better to borrow at a low interest rate and pay the loan back in subsequent decades from earnings generated through the rescued economy.
What is sensational about this initiative is that Merkel and Macron propose making a step towards a solidarity financial policy. The EU’s budget is a seven-year budget, and it is common only in that countries pool their money and then take money back from this shared pool. This pool can be filled with a shared loan. If we say ‘A’, then we also say ‘B’: if the market and debt are shared, social welfare and taxes should also be common.
The second sensational aspect of the plan is that this money would not be given as loans but allocated as grants, meaning that the countries have no obligation to pay the money back. This is what Italy, Spain and Greece, the countries worst hit by coronavirus, have been asking. If this makes someone’s blood boil and he or she says “What? We are going to feed Italy?”, then calm down because the truth is that the Italians feed us. The difference between Estonia and Italy is that Italy gives more to the EU budget than it receives from it and the amount of money Italy invests in the budget is third largest after Germany and France.
Hence, restoring Italy’s economy is also useful to us. The EU economy is common – should something go wrong, we would go down together. To avoid this from happening, these 500 billion euros are necessary.
Next week the European Commission will present a draft budget that takes into consideration the initiative proposed by Germany and France. Everything hangs on whether the leaders of other countries understand what Merkel and Macron understand. There is a chance of success; however, when we recall how the Netherlands, Austria, Denmark and Sweden fought over the tenths and hundredths of a per cent of the European budget, the task Paris and Berlin are facing is not an easy one. True, that fierce fight took place in February before the pandemic. We will just have to see whether there be a new fight.
Anyway, the coming weeks will decide a great deal for the EU. France and Germany are on a warpath for the future of Europe. The hatchet has been dug up. As Macron said: ‘With the chancellor, we believe that the European dream has become our identity. When it comes to principles, we cannot back off.’