European Union leaders attend a special EU summit in Brussels, July 21.
Photo: Xinhua/Zuma PressOn Tuesday European Union leaders agreed to a recovery plan funded by the bloc’s first major issuance of common debt, and some are calling it a historic moment for the Continent’s political and fiscal integration. This is a significant development, but don’t hold your breath for a United States of Europe.
The EU announced €1.8 trillion in spending to address the pandemic-induced economic contraction, with more than €1 trillion going to the bloc’s seven-year budget. The European Commission also will borrow on capital markets for a €750 billion recovery package. Some €390 billion of that will come as grants, with the rest in loans. Economic basket cases like Italy and Spain stand to be the biggest recipients.
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Some Europeans are calling this their “Hamilton moment,” an allusion to when the first U.S. Treasury Secretary had the federal government assume the Revolutionary War debts of individual states. But Europe’s announcement is less ambitious. And the EU still lacks a unifying sense of purpose—not to mention democratic legitimacy—for a deeper political and fiscal union. The European Parliament and national legislatures still must approve the package, which could prove a tough sell in countries wary of subsidizing others’ bad decisions. The intense, and sometimes ugly, negotiations in Brussels also hint at tough battles to come.
The “frugal states”—the Netherlands, Sweden, Denmark and Austria—demanded smaller grants and more accountability. They won a reduction in the money for grants to €390 billion from €500 billion. While Dutch Prime Minister Mark Rutte insisted on a national veto over recovery spending, countries only will be able to delay transfers temporarily if they believe others aren’t meeting reform promises.
Mr. Rutte was portrayed as a villain, but we can’t blame him for being skeptical about Southern Europe. The frugal nations signed on after securing discounts on EU budget contributions and Brussels abandoned some long-term spending for projects like migration and security. The Dutch PM insists the package is a one-time program in response to an unprecedented crisis. But don’t be surprised if this becomes another avenue for repeated bailouts.
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