New York- last week the European Commission announced a plan to assist European countries to cope with the shock of a pandemic сovid-19, the scale of which is comparable with the great depression. Based on the recent Franco-German proposal, the Commission called for the establishment of a Fund for the restoration of economy in the amount of 750 billion euros (of which 500 billion are expected to be distributed in grants, and $ 250 billion in loans).
Under this plan, which was named “the New generation of the EU”, the money will be distributed through programs of the European Union with the aim to achieve the Commission’s goals, including its green and digital economic agenda. The Commission will raise funds in the market, issuing long-term bonds; these efforts will be supported by the proposed raising of new taxes, such as taxes on greenhouse gas emissions, digital services and other branches of supranational Commerce.
Although we are among the very few commentators forecast that the EU will offer more extensive plan than was expected by most market participants and experts, we would advise the European authorities to maintain realism about what can be achieved at the moment. To celebrate the long-awaited “hamiltonensis moment of” risk-sharing between countries on debt in the EU (the so-called mutualization) prematurely.
Today, the European Union remains incomplete transfer Union, in which resources (human, physical and financial) are moving from the periphery to the center, that is, in the UK or Germany. Somewhat ironic that Britain, one of these poles of attraction, decided to withdraw from the EU, ostensibly in order to end the influx of migrants to the economy of the country. After Breccia, which officially occurred on January 31, the EU literally started the disintegration.
Optimists believe that without the UK, finally, there will be a more United European Union. However, this forecast seems overly optimistic. The fact that Britain was not so much a barrier to integration, how to justify to other dissenting EU countries that tried to avoid closer ties. For example, Britain blocked a “European scheme of Deposit insurance”, which is necessary to complete the process of creating a banking Union in the Euro area — that honor belongs to Germany.
With the rise of populist parties in Europe has long been clear that the next major crisis will turn into an existential threat for the EU. Today, the EU is obliged to demonstrate that he is ready to accept this challenge and complete the integration process. Otherwise it may face “dzheffersonovskoi point”, returning it to some form of Confederation with a limited shared sovereignty.
Once on the edge of the abyss, France and Germany developed a plan to mitigate the horrific economic consequences of the pandemic. But even though their proposal has its merits, Alexander Hamilton would still be unhappy — and rightly so. Start with the fact that the proposed bond issue is carried out with “total and private guarantee” and therefore would not constitute a genuine mutualisation debt. A proposal by financier George Soros to issue perpetual bonds of the EU, the so-called “console”, would help to mitigate the problem but would not solve it. In any case, if the money is not going to appear this summer, then maybe it will be too late to help the heavily affected countries, such as Italy, Greece and Spain, plus which threatens a dead tourist season.
More importantly, the distrust between the European “Quartet lean” (Austria, Denmark, the Netherlands and Sweden) and the supposedly “profligate” southern countries (including Italy, Spain and Greece) remains so deep that, frankly, it’s hard to imagine making any long-term solution. The recent ruling of the German constitutional court has become a powerful signal to the European institutions about what they should expect in the future. Although over time the decision will be reversed by the European court and ignored by the European Central Bank, ECB, however, came across political limits for their actions.
Germany would have to either offer a partial EU budget support at the expense of their own taxpayers money, or allow the EU institutions to provide adequate mutual support (starting with a Eurozone budget) throughout the monetary Union. If the proposed Fund economic recovery of the EU to revive the idea of a Eurozone budget (especially the so far not agreed stabilization function), then this in itself will be a major achievement.
After signing a joint plan with France, Germany, I think, realizes that she can’t just say “Nein” and monetary support, and budget (i.e., the emerging fiscal and transfer Union). Both need the Euro to survive. But even if this support appears to remain unresolved critical issues, and not least the question of the sustainability of the rapidly growing national debt of Italy. This country will have to make incredible efforts to restore economic growth and competitiveness in the conditions, when its comparative advantage in the tourism sector was seriously undermined.
In General, any common European approach to the crisis сovid-19 is a step in the right direction (and it is certainly better than doing nothing). However, there is little reason to expect that the EU will break with its long tradition of randomly cope with the current problems. If European leaders will be able to prevent the immediate collapse of the EU and the Eurozone, then they at least manage to avoid the enormous economic, social and political costs that will bring further rapid disintegration. Meanwhile, the actions defined by the old inertia, will leave Europe unprepared for life in the world after сovid-19, which cost other large continental countries — the US, China and India — will take the most important geostrategic and economic decisions.
Nouriel Roubini is Professor of Economics in the school of business, stern new York University and chair of macro-Association Roubini. He was a senior economist for international Affairs in the Council of economic advisers the White house during the Clinton administration. Worked at the International Monetary Fund, Federal Reserve system of the United States and the world Bank. His website: NourielRoubini.com
Brunello Rosa — Director General and head of the research Department of the Rosa & Roubini Associates, is a visiting Professor Bocconi University.