BRUSSELS — When European finance ministers agreed on a half-trillion euros’ worth of joint measures to shore up their economies in the face of the coronavirus, it felt like an accomplishment. But two weeks later, when European Union leaders met to vote on that package, the deal already looked like too little, too late.
While the leaders of the 27 member nations did approve the bailout package in a teleconference on Thursday night, they also shifted their attention to what more still needs to be done, asking the bloc’s executive arm to come up with a proposal for a recovery fund from what is set to be an economic calamity unseen on the continent outside wartime.
But what that fund will do, how big it will be, when it will be introduced — and virtually every other detail pertaining to its function — is still to be determined, and those gaping blanks lay bare just how far away the bloc’s leaders are from agreeing on a bolder joint effort.
A recovery experienced evenly across the 27 member nations — population 440 million, wealth $20 trillion, forecast recession this year 10 percent — is crucial for the European Union to continue functioning as a single market for goods and services, its main purpose. It is also crucial to the stability of one of the world’s most important currencies, the euro, which is shared by 19 European Union countries.
“The single market is a bloc,” President Emmanuel Macron of France said after the meeting. “If we abandon these regions, if we give up on a part of Europe, it is all of Europe that will fall.”
At the Thursday meeting, the leaders gave their blessing to a set of measures put together by their finance ministers earlier this month and said they should be deployed June 1.
The measures include a European Commission program that could loan up to 100 billion euros, or about $108 billion, for unemployment benefits in member states; about €200 billion in investments in small and medium-size enterprises through the European Investment Bank; and €240 billion in loans from the European Stability Mechanism for countries to fund their health care systems.
Beyond that, the leaders also asked the European Commission, the European Union’s executive branch, to prepare a proposal on how to partly repurpose the bloc’s regular seven-year budget to create a recovery fund.
The commission’s suggestions are to come later this month, or in early May, and will form the basis for the next round of debate.
“You are in a world of bad options, but the path of least resistance is probably using the budget framework,” said Mujtaba Rahman, the head of the Europe practice at the Eurasia Group consultancy.
Finding that path of least resistance at times of crisis has been the European Union playbook. But the approach under the current circumstances is generating concern that any economic recovery, just like in the aftermath of the global financial crisis a decade ago, will deepen the dysfunction built into the bloc’s architecture, where decisions need to have the backing of 27 countries with deeply divergent economies, politics and local priorities.
The battle lines are familiar: north versus south, richer nations versus poorer ones. What is also becoming clearer over the course of negotiations is that the fight is not just about the size and details of the bloc’s response to the virus, but also about the timing.
Leaders from Northern Europe are thinking about the economic fallout from the pandemic in two distinct phases — crisis and recovery — while in Southern Europe, which has been hit harder, the two phases bleed into each other.
“The Germans, Dutch and Finns are of the view that enough has been done for the crisis phase,” Mr. Rahman said. “The recovery phase will be about how to reboot economies over the medium term, and, for that reason, they see Thursday’s discussion in a slightly less urgent light.”
The difference in perspective isn’t just the result of culture, or of historical approaches to spending and debt. It is also the outcome of the simple fact that, while the coronavirus hit all European countries, some in the European Union are suffering a lot more than others.
“You see a strong north-south divide in that, and, as reality is different on what you see every day, your perception is different on how urgent things are,” said Guntram B. Wolff, director at Bruegel, a Brussels-based economics think tank.
For now, it seems that Northern Europe is setting both the pace and the rules.
Having nipped in the bud the most ambitious proposal to fund the bloc’s recovery efforts — issuing joint debt in the form of so-called corona bonds — leaders from Northern Europe are now trimming back Southern Europe’s hopes for grants rather than loans.
“There is a variety of opinions on grants and loans,” said Ursula von der Leyen, the president of the European Commission, whose staff will need to draft the proposal, after the meeting. “There will certainly be a sound balance; it’s a matter of negotiations with the member states so we find a good mixture.”
A proposal floated by hard-hit Spain, and backed by Italy and other weaker economies, calls for the recovery fund to have an endowment of €1.5 trillion, or $1.62 trillion, to spend over two to three years, beginning in January 2021.
They want the cash in the form of grants, not loans that need to be repaid. While Spain supports the idea of raising this money through the European Union budget mechanism, it believes that the only way to get the necessary capital is by allowing the European Commission to issue perpetual bonds — financial instruments associated with wartime efforts that have a never-ending repayment horizon and thus ultralow installments.
Ms. von der Leyen said this, too, was a matter for future debate.
“Arguments were exchanged tonight, but in a very constructive manner: the same goes for the maturity of potential loans — it all has to be now negotiated in detail.”
The process of proposal, debate, fine-turning and agreement could drag on for months, officials warned, and some national Parliaments may need to approve the final compromise.
Restrictions on travel and meetings could also delay the fund’s launch, as several leaders have said they won’t sign off on something this significant over a teleconference, and it was as yet unclear when they would be able to hold an in-person meeting again.
Still, the reality of rapid economic decline could force European Union leaders to speed things up.
“I think it will take several European leaders’ meetings to come to a fully-functioning recovery fund, but, as the economic situation deteriorates, a sense of urgency will pick up in all parts of the European Union,” Mr. Wolff from Bruegel said.
Aurelien Breeden contributed reporting from Paris and Monika Pronczuk from Brussels
Source : Nytimes