The press like to refer to the relationship between the two leaders as "Merkron," reflecting the continued centrality of German-French leadership in the EU. A role that has now increased in relative importance with Brexit.
The "Merkron" proposal drew support from 23 of the EU's 27 members. Four countries, styled as the "Frugal Four," objected to the proposals on the grounds that it would be a direct EU support to member nations without an obligation to repay: Austria, Denmark, the Netherlands and Sweden. Austria's baby-faced Chancellor Sebastian Kurz has been prominent in making the case for the Frugal Four, also known as the Greedy Four. They made a counter-proposal whose central concept was that the assistance be made in the form of loans that would have to be repaid. This, of course, would affect the national credit rating and bond rates of countries like Spain and Italy, especially in the latter case increasing the likelihood of a new euro crisis.
The proposal has been evolving in the negotiations with the Greedy Four, with Ursula von der Leyen as head of the EU Commission proposing a variant. Lionel Laurent reports (An $826 Billion Battle Is Brewing in Europe Bloomberg Opinion 05/28/2020:
The European Union’s pandemic recovery plan has all the hallmarks of a historic leap in the dark for the 27-member bloc.Basti (Austrian Chancellor Kurz) is working this to promote his own anti-European credentials among the hard-right voters he works hard to cultivate. Basti has often aligned himself with the Visegrad group (Hungary, Poland, Czechia, Slovakia) on other anti-European positions like flat opposition to an revision of the Failed Dublin System of immigration and asylum processing. But his friends in the Visegard Group, including the EU's current start authoritarian, Hungarian Prime Mnister Viktor Orbán, want some of the money foreseen in the Merkron aid concept.
It aims to unleash as much as 750 billion euros ($826 billion) of fiscal stimulus, fueled by joint borrowing on financial markets - a big deal for member states that have always jealously guarded the power to tax and spend. The fact that the plan unveiled by Commission boss Ursula von der Leyen is so clearly aligned with the proposal from France’s Emmanuel Macron and Germany’s Angela Merkel is especially positive: Paris’s desire for continental assertiveness and foreign-policy grandeur hasn’t always matched Berlin’s focus on balanced budgets. ...
At the center of the battle are the so-called “frugal four” - the Netherlands, Sweden, Austria and Denmark - taking up a combative role similar to that of the British when they were members. As wealthy net contributors to the bloc’s budget, they’ve already been pushing back against what they see as unfair increases to the share they’re expected to chip in after Brexit; February negotiations on the next seven-year budget went nowhere after 28 hours of talks.
The Covid-19 crisis has redoubled efforts by the frugal four to push back against perceived profligacy, as the EU considers a bigger budget outlay than before, at 1.1 trillion euros (still only about 1% of gross national income), adds on pandemic stimulus tools and proposes aid in the form of grants rather than loans to be paid back — a package worth 2.4 trillion euros. The budget hard-liners may lack the diplomatic heft of Germany, but they can’t be ignored, as the plan needs unanimous support across national parliaments. [my emphasis]
And, of course, different players try to negotiate deals over all kinds of things, so that's a factor always present in EU politics. (Just like every other kind of politics!)
Matthew Karnitschnig reports (Sebastian Kurz cautious on Commission’s €750B recovery blueprint Politico EU 05/27/20):
Austrian Chancellor Sebastian Kurz said that he and the other leaders of the EU’s so-called frugal four group were encouraged by some aspects of the European Commission’s proposal for a coronavirus crisis recovery fund, but cautioned it represents just a “starting point” for negotiations.Such political melodramas need to be understood in the context of EU politics, which is too often superficially reported even by the European press.
“What we find positive - not just myself, but the Netherlands, Sweden and Denmark - is that there is a time limit and that the fund will be a one-time emergency measure and not the first step toward a debt union,” Kurz, who has emerged as the unofficial spokesman of the frugal faction, said in a telephone interview with POLITICO on Wednesday.
“Considering that there are many in Europe who want such a debt union, it’s important to us that this be clarified in writing once and for all,” he said, referring to concerns among the frugal group that the fund could morph into a permanent fixture, opening the door to mutualization of members' debt under the banner of the EU. [my emphasis]
The EU is a strange critter. Its formal justifications are that it has promoted peace and democracy in Europe. And that's true. It's done both. But the teeth of the EU legal structure is in the economic area, and that structure is very much in the mode of the neoliberal gospel that we see embedded in "trade" treaties that are actually corporate-deregulation treaties.´ So despite the reality of the peace and democracy rationales, which I think are generally taken very seriously, the EU has no common foreign policy (to speak of), no common EU military, and a unanimity rule on major policies that make it extremely difficult to enforce the democracy part.
But the trade laws based on the deregulation-privatization model are enforceable in the courts. And the corporate lobbies aren't at all inclined to give up the advantages the EU structure brings them. Business regulation is dominated by EU laws and rules, but the various forms of social insurance - "social state" polices as they are also called - are the responsibility of individual countries, which given the way the European Supreme Court (EuGH) interprets the laws, creates heavy pressure to lower social-insurance protections toward the lowest common denominator. But it's not just the courts. The EU Commission, which is the EU executive body, has for years pushed member states to privatize their national health insurance programs, though fortunately most EU governments weren't so politically suicidal that they actually did much of it.
There's a lot of justified talk about the "democratic deficit" in the EU. I'm guessing that not even half of the voters in EU countries could correctly describe how laws are made by the EU Commission, the European Council, the Council of the European Union (not the same as the European Council!), and the European Parliament. For corporate lobbyists, this is a *desirable* state of affairs. Neither Merkel nor Macron have any intention of rocking that boat. And here's where the unanimity principle comes into play. If Macron and Merkel think it somehow looks good politically to advocate a common EU borrowing-and-subsidy program that they may not actually want, as long as they know that even one country will veto it, they are free to posture without having to worry they'll actually have to carry through. That way they can be the Good Europeans whose enlightened proposal got blocked by some annoying small countries.
Generally, the richer countries would prefer to have the vetoing country be one of the former "Eastern Bloc" countries. But in this case, the lowly Eastern countries want the money, so it's the Greedy Four who are the sticks in the mud on this one. If Germany and France apply even a fraction of the pressure they applied to Greece, Italy, Ireland, Spain, and Portugal in the last euro crisis to enact austerity measures, the dissenters will come around. (Craig Crowther, 'Frugal Four' will come round to EU's €750bn COVID-19 recovery fund, says former Finland PM Stubb Euronews 05/28/2020) If Merkel and Macron don't apply that kind of pressure, we'll know they aren't serious. Since we're talking here about using public funds largely to bail out failing corporations and banks, it's possible that Merkel and Macron are serious on this one. Even staunch neoliberal austerians are true believers in "socialism for the rich."
Florian Gathmann et al, Auf den Kopf gestellt Spiegel Online 28.05.2020
Yanis Varoufakis is skeptical of the proposal, which he doesn't think will help with the problem the "periphery" EU countries like Italy face with pressure on their bond rates in a crisis. On the surface, the Merkron proposal is a move to make the EU more of a "transfer union". But the more critical problem is to make the eurozone (18 countries) a transfer union. That would mean things like have a eurozone-wide unemployment support program, for instance. Otherwise, the eurozone still faces the problem of the kind of tremendous pressure for internal devalution, i.e., lowering wages and living standards, that countries like Greece and Italy faced during the last eurocrisis. DiEM25 on Merkel Macron Announcement 19 MAY 2020:
There is an important geopolitical consideration in play with the "Merkron" proposal, as Wolfgang Münchau explains in China is pitting EU countries against each other Financial Times 06/24/2020:
China has shown remarkable skill in playing EU countries off against one another — for example in the race to develop 5G mobile networks. But this is just the beginning. China is well on the way to emerge as the most influential external power for the EU.And Münchau's Eurointelligence looks more closely at the smoke and mirrors involved (Why it is not €500bn 05/29/2020):
China’s Belt and Road Initiative, a project of long-term infrastructure investment spanning the Eurasian continent, lies at the heart of China’s global industrial strategy. EU governments understand this well. The Franco-German proposal for the €500bn coronavirus recovery fund includes a specific demand for an industrial policy to protect Europe against investments by third countries in strategic sectors. Yet such a strategy would pose problems for Italy, the likely main beneficiary of future Chinese investment in Europe. [my emphasis]
When we read through the official document for yesterday's briefing, we were perplexed that the numbers did not add up - at least not in an obvious way. Further study of the proposal has revealed to us the reason why. The European Commission's claim that €500bn of the €750bn package comes in the form of grants is misleading. A more correct assessment is €400bn, which includes the €310bn grant element in the recovery plan and various bits and bobs, including an increase in structural funds. But it also includes components which the EU classifies as grants but whose ultimate incarnation is a loan. This is the Commission's old Juncker-fund reflex. It starts off by taking some real money and then leveraging it into a large loan. Whether this works or not is beside the point. Economically, this is not a fiscal impulse because it relates to claims that must be ultimately repaid. [my emphasis]Europintelligence also argues that this is a clumsy attempt to backdoor a transfer-union function that really pertains to the specific needs of the eurozone:
... will the package survive the onslaught of the frugal four? The EU will need the consent of each of them to move ahead. They each will extract a price. On a per-capita basis, the frugal four are among the five largest net contributors to the EU budget. Leif Pagrotzky, a former Swedish economics minister, made the argument in Dagens Nyheter that Sweden should not veto the recovery fund, but argue that it is a eurozone-only instrument and Sweden should not take part in it. We agree with that argument. There is a lot of muddled thinking in Brussels about the nature of the monetary union, which is one of the reasons why the eurozone is stuck in a perma-crisis. The recovery fund is an economic necessity that arises as a direct result of countries having locked themselves into a permanent monetary union. It is not another regional aid programme.
The Dutch and the Austrians will have different objectives. We don't think they will want to veto the package, but the net economic gain for the EU as a whole is likely to be reduced through rebates for these countries. For example, if non-eurozone countries were allowed to opt out from the recovery fund, the refinancing burden on the remaining countries would increase, which in turn would reduce the extent of the fiscal transfer that is built into the package. [my emphasis]
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