Post-corona, a new “Marshall Plan” for Europe
Photo Kenzo Triboullard for Getty Images/Politico
The extent of the slowdown in economic activity caused by the COVID-19 pandemic is still under consideration. The Economist Intelligence Unit predicts that the global economy will “shrink” by 2.5%; Fitch Ratings estimates that damage in the Euro area will be even higher – up to 7%. Europe has not faced such a challenge since World War II, agreed the EU leaders, Merkel, Macron, and others. Hence the analogy with the Marshall Plan. From 1948 to 1951, the “European Recovery Program” pumped US $13 billion (US $142 billion today) into war-torn European countries. Equally important was its political dimension, anchoring future NATO members with the West.
At the root of the call for a new Marshall Plan is the old idea that Eurozone members should “mutualize” their public debt. This would guarantee stability in conditions of economic recovery once the pandemic is over. The idea itself is not new: it first appears in discussions that followed the sovereign debt crisis in Greece, Spain, and Italy. The north-south dividing line established then is still valid today: Germany, the Netherlands, and Austria, as well as Finland, are against such a measure because they believe if it was adopted, member states would no longer carry out structural reforms or keep their budgets “under control”.
For years Berlin has categorically refused to be held responsible for someone else’s debts. Spain, Italy, Portugal, and France remain in favor. Writing an op-ed for the Guardian, Spanish Prime Minister Pedro Sanchez warned on 5 April that “Europe’s future is at stake”; that Europe must now build a “war economy” and “support borrowing that many countries, including Spain, are taking on.” The same words were repeated by Giuseppe Conte, Prime Minister of Italy.
The first measure, the effects of which will be quickly felt, would be to borrow from the European Stability Mechanism (ESM), whose role is to enable rapid stabilization in the event of a crisis (composed of 2% of each member’s GDP). Meanwhile, European Commissioners for the Internal Market (Thierry Breton) and Economy (Paolo Gentiloni), in a statement to the Frankfurter Allgemeine Zeitung, called for the creation of a “European taxpayer fund” from which long-term bonds would then be issued to finance economic recovery. This is how we got to the idea of “corona bonds”.
That Germany’s opposition might be softening seemed clear after the letter sent, also on 5 April by Heiko Maas, Foreign Minister, and Olaf Scholz, German Finance Minister. In a letter, very consciously addressed to some of the leading daily newspapers in France (Les Echos), Italy (La Stampa), Spain (El Pais), Portugal (Publico) and Greece (Ta Nea), two leading SPD representatives in the German government said how “funds must not be accompanied by unnecessary conditions”; that there are no obstacles for Italy to withdraw 39 Bn EUR immediately and Spain 28 from the ESM, and that “neither a troika nor inspectors nor a reform program for each country drawn up by the Commission” is needed. (On Twitter, Maas even called the additional terms “torture”.)
There’s no time for that. Two ministers go on discussing a pan-European guarantee fund, to secure existing loans, which is to be developed jointly by ESM and the European Investment Bank. In particular, the implementation of SURE (Support Mitigating Unemployment Risks in Emergency) program – in the form of a guaranteed minimum wage – will be managed by the European Commission.
Next the EU made its first concrete step. It allowed member states to exceed the budget deficit allowed. In this way, 2,8 trillion (thousands of billion) euros, the largest ever recorded “aid package” will be accumulated. Finally, a pan-European “assistance package” was agreed on Thursday, 9 April: 240 billion from the ESM; 100 billion “heavy” SURE, and finally, the “reconstruction fund” – a medium-sized solution advocated by France – with a term of 5 to 10 years. The “corona bonds” were put on hold until members determine whether they can access the necessary funds on a regular basis, in the financial markets. Considering the placement of bank loans in Italy (88 billion from German banks, as much as 320 billion from French; 73 from Spanish and so on), it is clear that bonds, once agreed, will not only concern the economy but also the banks (according to Florian Koessler).
Like the original, this “new” Marshall Plan will have a political dimension: keeping the “European project” alive and well. In an editorial written for the Commission website, its President Ursula von der Leyen says solidarity is “contagious” (interesting choice of words) and “at the heart” of the European Union. However, if the countries of southern Europe, one hardest hit by the virus, are going to be treated the way Greece was in 2013-15, we will have a new, even deeper crisis of confidence. All this at a time when, with the new European Parliament and Commission, and first defeats of the populists, Union optimistically embarks on a European Green Deal, a new budget, and finally, two-year process that the Conference on Future of Europe was meant to be. No luxury of time anymore for the elites in Brussels, Berlin and elsewhere.
In the meantime, the Western Balkans are facing a pandemic with a combination of some of the most restrictive measures in Europe and promises of state aid to economy. After initial overconfident and dismissive statements (“the funniest virus in history”), in a matter of days, politicians and institutions scrambled for medical equipment, relying in part on the help of the major actors. We witnessed unpleasant debates over “who gave (contributed) more”. Then we, rightfully, debated whether and to what extent our rights were encroached with increasingly harsh measures. There is also a lingering impression that some of the features of COVID-19 have surprised even health experts, although (partial) information was coming from Asia for weeks. Most pervasive, however, remains the fear that fragile and neglected health systems will fail.
At the initiative of the Minister of Foreign Affairs of North Macedonia, Nikola Dimitrov, the “Western Balkans Six” on 9 April jointly addressed European Commissioners Hogan (Trade), Varhely (Neighborhood and Enlargement) and High Representative Borell to exempt the Western Balkans from the EU regulation stating that while a pandemic lasts, certain medical products cannot be exported. This highly unfortunate decision was criticized last month with President of Serbia (deliberately?) going as far as saying that “European solidarity does not exist” while praising China. According to Adnan Čerimagić of the European Stability Initiative, it is in the interest of the EU and the Six to increase the production of protective equipment – visors, glasses, masks, gloves, suits. The Union has already given access to the standards of their production; the logical – and humane – next step is to lift restrictions on their exports. As long as they last, the WB Six should not be blindly blamed for seeking help elsewhere.
Finally, as European Western Balkans reported, the Commission announced on 14 April that it had started consultations with member states on a draft regulation to adjust the export authorization scheme. The proposal envisages the exemption of the Western Balkans for all products, apart from the masks (still very much needed across the EU). With planes full of equipment, funded in part by the EU coming in; de-contamination containers positioned in front of Belgrade’s hospitals; and a laboratory set up in Niš, we can finally put to rest the talks of who contributed, and who did not – that is, in case we forget all the support provided to Serbia’s healthcare system over a span of 20 years.
Goes without saying that whatever is planned in terms of recovery, public in Western Balkans would like to see same levels of commitment by the EU. Other donors could step in – some of the immediate effects (i.e. migrant workers who had to return, thus affecting remittances) concern greater unemployment and slowdown of economic activity throughout, something that falls more within financial institutions’ portfolio. Governments seem to be strong enough to alleviate some of the effects. Transition back to normalcy will be observed closely by civil society organizations – concerned that encroachment of civil rights and liberties might continue under different circumstances.
The article was first published in Novi magazin no. 468 on 16 April 2020 and updated on 20 April for European Western Balkans.