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The eurozone’s gross domestic product (GDP) contracted by 0.6 percent in the first three months of the year, compared with the previous quarter.

The figure was dragged lower by its biggest economy, Germany, falling by 1.7 percent over the same period. Spain and Italy also posted negative figures, but France’s economy beat expectations by growing 0.4 percent over the first quarter – France’s current lockdown measures only began in April.

Germany’s lockdown restrictions have hurt the economy more than expected. /Reuters/Fabian Bimmer

A recession is generally defined as two quarters of negative economic growth. This now applies to the eurozone because its economy also shrank by 0.7 percent in the last quarter of 2020.

The wider European Union, which includes countries that do not use the bloc’s single currency, also contracted but performed slightly better.

For months, economists have warned the gloomy figures were “totally certain” due to problems with the European Union’s vaccination campaign and the measures needed to be taken to tackle the third wave of coronavirus infections sweeping across Europe.

Last year, the pandemic plunged the eurozone into its worst recession since its records began in 1995.

The eurozone’s GDP recovered some ground last summer as lockdown restrictions were eased, but the respite proved to be temporary. The eurozone has now returned to recession for a second time, known as a “double-dip.”

That said, the worst could be over.

Some economists think the eurozone is now on the path to recovery, especially as the European Union begins to distribute its recovery fund worth more than $800 billion.

Italy’s Prime Minister Mario Draghi has unveiled how he plans to spend EU recovery funds. /Reuters/Alberto Pizzoli

Other countries appear to be further along in their economic recovery from the pandemic. This week, the U.S. reported economic growth of 1.6 percent compared with the previous quarter.

China grew by 0.6 percent over the same period, but it posted a record jump of 18.3 percent when compared with the same period one year earlier.

Source(s): Reuters

Source: https://newseu.cgtn.com/news/2021-04-30/Eurozone-enters-double-dip-recession-ZT1rwvbr44/index.html

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A customer passes the closed toy department of a supermarket in Bordeaux on November 4. Supermarkets in the country have banned the sale of ‘non-essential products’. AFP

Eurozone retail sales dropped 2 percent on the month in September, a bigger-than-expected decline as purchases across all categories plummeted even before the latest lockdowns started, according to Eurostat.

While retail sales in the 19 countries sharing the euro were still 2.2 percent up on last September, they were still below economists’ expectations and followed a 4.2-per-cent month-on-month rise in August.

“September’s data show that eurozone retail sales were coming off the boil even before many non-essential retailers were forced to shut up shop,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

“Online spending will probably pick up again, but by nowhere enough to prevent total household consumption from falling again in Q4.”

Visitors uses smartphones while queuing outside a Covid-19 test center in Paris, France. Bloomberg

A pedestrian wearing a protective face mask walks past a cannon in Moscow. Russia confirmed 19,404 new Covid-19 cases on November 5. AFP

Barber Luigi Pinzo, 80, gestures to a client two days before closing his salon after 60 years because of a lack clients and fear of the coronavirus disease in Rome, Italy. Reuters

A customer walks past the closed toy department of a supermarket in Bordeaux, France. AFP

A dog runs in an empty street near the Sacre-Coeur basilic in Paris, France. AFP

Medical workers treat a patient with Covid-19 in the intensive care unit at the eHnv hospital in Yverdon-les-Bains, Switzerland. EPA

A health worker collects a nose swab sample for a test at a drive-in coronavirus testing facility in Yverdon-les-Bains, Switzerland. EPA

People exercise during a protest against Covid-19 restrictions in Riga, Latvia. EPA

Non-essential retailers have been forced to close their stores in several countries, including France, Germany, and parts of Italy. Under Italy’s new rules, unveiled on Wednesday, shops must close if they are in a so-called “red zone,” which currently applies in four of the country’s twenty regions, which together account for nearly a third of the country’s gross domestic product.

Eurostat’s latest retail data offer a mixed picture for the third quarter of the year, when coronavirus restrictions eased in most EU countries, with a surge in spending in August sandwiched between weakness in July and September.

Belgium and France saw the largest declines in September, with contractions of 7.4 percent and 4.5 percent respectively, as both countries experienced a sharp rise in the number of Covid-19 cases over the course of the month.

Eurostat – EU_Eurostat@EU_Eurostat

Euro area #RetailTrade -2.0% in September over August, +2.2% over September 2019 ec.europa.eu/eurostat/en/web/products-press-releases/-/4-05112020-AP

The main downwards pressure on retail sales across the bloc came from clothing and footwear, which fell 7.6 percent in September.

However, a 5.5-per-cent decline in mail orders and internet sales volumes showed that it was not only restrictions on leaving the home that were encouraging consumers to make fewer purchases.

Non-food products as a whole suffered a 2.6-per-cent drop in September, while sales of food, drinks, and tobacco dropped 1.4 percent over the same period.

“The generosity of schemes across the euro area to pay the wages of workers who cannot do their jobs during the pandemic mean that the labour market has thus far been largely shielded from the recession, and household incomes have been somewhat protected,” said Josie Dent, managing economist at the Centre for Economics and Business Research.

“Yet, as more virus infections sweep the continent, consumers are likely to hold back on spending in order to build up savings amid difficult economic circumstances. This can explain the drop in retail sales in September, even in the internet sales category, which is unaffected by the rising social distancing restrictions.”

Europe’s economy is facing a sluggish recovery next year that leaves it open to rising company failures and long-term unemployment, the European Commission said on Thursday. It expects the euro-area economy to grow 4.2 percent in 2021, less than previously anticipated.

“Europe’s rebound has been interrupted due to the resurgence in Covid-19 cases,” Paolo Gentiloni, EU commissioner for the economy, said in a statement. “In the current context of very high uncertainty, national economic and fiscal policies must remain supportive.”

With people told to stay at home across the eurozone, and the closure of retail stores in some parts of the bloc, a further hit on retail sales is now expected.

“Online spending will probably pick up again, but by nowhere enough to prevent total household consumption from falling again in Q4,” said Mr. Allen-Reynolds.

“As lockdowns cause more workers to go on to short-time work schemes and others lose their jobs, incomes will fall and precautionary savings will increase, so wider consumer spending is likely to decline too. We have penciled in a 3 percent quarter-on-quarter fall in GDP in Q4.”

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The European economy has fallen into its worst recession on record as strict quarantine measures earlier in the year to stop the spread of the coronavirus brought economic activity to an abrupt halt.

According to figures released on Friday by Eurostat, the European Union’s statistics agency, gross domestic product dropped by 11.9 percent in the second quarter for the 27 member countries of the European Union, and by 12.1 percent in the 19 countries that use the euro as currency.

Earlier this month, EU experts predicted the bloc’s economy would shrink by a total of 8.3 percent this year, followed by 5.8 percent growth in 2021.

Compared to the same time last year, EU economies shrank by 14.4 percent, and 15 percent among those who use the euro. That’s the steepest contraction since the bloc started keeping statistics in 1995.

The economic blow particularly affected the countries hardest-hit by the virus, including Italy, Spain, and France, whose economies shrunk by 17.3, 22.1, and 19 percent, respectively, compared to the same time last year.

The new statistics come a week after the EU reached a $2 trillion deal on a coronavirus recovery package.

Europe has seen a dip in coronavirus cases in recent months as they inch toward reopening businesses and industries, such as tourism.

Source: https://thehill.com/policy/international/509943-european-economy-falls-into-worst-recession-on-record

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NEW YORK (IDN) – Samuel Beckett’s “Waiting for Godot” is a play featuring two characters waiting for a character, Godot, who never arrives. As such, it is a useful metaphor for the goings-on of the European Union (EU). Observers of the EU’s evolution in the capital of Brussels have witnessed a Godot-like experience of the promised arrival of the long-awaited resolution of the group’s dysfunction and economic malaise that never happens.

The pattern is virtually always the same: the countries meet, they squabble, and then they emerge with a “landmark” or “historic” compromise that deals the lowest common denominator in terms of economic impact.

True to form, the EU Joint Declaration characterized the newly created €750 billion recovery fund as an “ambitious and comprehensive package combining the classical [budget] with an extraordinary recovery effort destined to tackle the effects of an unprecedented crisis in the best interest of the EU.”

That is typical Brussels-driven hyperbole. There are some important new policy developments that give a small glimmer of hope to those hoping to nudge the EU toward full-on debt mutualization: that is to say, to jointly issue a common debt instrument of a pan-European institution (as opposed to national sovereign bonds) to fight the outbreak and its effects.

The pooling of liabilities of the European Union nations and linking them to the EU’s currency issuer, the European Central Bank, are an important series of precedents, and there’s also the positive benefit of providing more fiscal support to the severely indebted countries of southern Europe (although, as usual, not enough).

On the other hand, that is precisely why the wealthier northern countries resist it: they fear that such mutualization would derogate from their own pristine credit ratings, while simultaneously allowing the so-called profligate “Club Med” countries to free-ride and avoid making reforms to their own systems.

Caught in the middle of this conflict is France, a nation that, along with Germany, is the fulcrum on which the entire European project turns. It is a country with a history of global aspiration, but its economy contains many of the weaknesses of the southern periphery countries. The government of Emmanuel Macron was one of the leading actors behind the latest initiative. But at the end of a marathon negotiating session, there was virtually nothing on the table for France itself in terms of direct aid or broad concessions toward enhanced debt mutualization. This is highly problematic, as France too has extremely high debt levels and is one of the biggest economic casualties of COVID-19.

France’s current political strategy is reminiscent of its thinking during the negotiations that led to the common currency. At that time, French President François Mitterrand calculated that the creation of the euro would provide the means whereby France could mitigate the economic power of Germany. That proved to be a fatal miscalculation.

Similarly, President Macron is seeking to use today’s recovery fund as a means of nudging the EU closer to the goal of debt mutualization. The history of the European Union suggests that such Gallic aspirations are likely to be frustrated again. France may indeed be one of Europe’s “founding fathers,” but it is a hungry parent that has fallen on hard times.

National pride (and perhaps fears that the markets will eventually cotton on to its vulnerabilities if the government draws too much attention to them) has precluded it from acknowledging its needs, but if those weaknesses remain unaddressed, anti-euro populism could well surge in France (as it has in Italy). At that point, the European Union will truly have an existential crisis on its hands.

In theory, debt mutualization is the glue that could bind together a bunch of federated states, as Alexander Hamilton did for the United States. But in practice, such proposals in the past have been the source of ongoing tension and dysfunction, especially within the eurozone. The attempts to bridge the gap have provoked yet more division and possible future splits among the various EU member states, exacerbated by the backdrop of a catastrophic pandemic, which means that incrementalism won’t deliver the goods.

On to the details: the fund will disperse €390 billion in grants (with the remainder in the form of loans), spread among the member countries, with a net fiscal impact of roughly 0.6 percent of GNI. This is paltry in the context of a continent in which double-digit contractions of GDP are forecast by the IMF in some of Europe’s largest economies (e.g., in Italy, France, Spain, and the United Kingdom). Even countries thought to have handled the coronavirus well, such as Germany, are forecast to contract by almost 8 percent this year.

The funds will be borrowed directly by the European Commission (EC), who (per the Financial Times) will “establish a yield curve of debt issuance, with all liabilities to be repaid by the end of 2058.” As the bonds remain a liability of the EC, they consequently won’t be added to the national balance sheets of the distressed countries that will be the main recipients. These borrowings from the capital markets will be supplemented by existing national contributions to the overall EU budget.

The latter provision created another stress point that was relieved by the usual expedient of providing additional budget rebates—basically cashback on their annual EU contributions—to the so-called “frugal five” (Finland, Austria, the Netherlands, Denmark, and Sweden) in order to enable those countries’ leaders to sell the package to the respective national parliaments (where it still must be ratified). Effectively, the wealthiest countries are being bribed with offsets to secure agreement.

In terms of the mechanics of how the money from the recovery fund is spent, the proposed usage is subject to objection by any national state for three months. This is more akin to a time-limited pause, as opposed to an outright veto. The objections can ultimately be overridden by the European Commission, the EU’s executive arm that is responsible for drawing up proposals for new European legislation and implementing the decisions of the European Parliament.

That override feature has led to some of the rhetorical excesses used to characterize the agreement. In reality, however, the power to override opens the door to debt mutualization by a sliver, if at all. Furthermore, the history of the EU shows that objections can turn into larger gridlock and opposition, especially as the EC largely shares the austerian and neoliberal biases of the northern European bloc. And the “reforms” that the EC will likely demand as a quid pro quo for receiving the emergency funding likely means more cutbacks in government social spending that will be highly deflationary (the EC has already demanded such changes from Italy in the past).

Hence, the program is not a bellwether for the end of austerity economics, as some have suggested. In addition to these usual north versus south splits, another level of conflict between western and eastern Europe could be added to this volatile mix, if the Dutch or the Nordic countries make aid to Hungary and Poland conditional on ongoing respect to the rule of law (as has been reported here).

Ambrose Evans-Pritchard, the Daily Telegraph’s international business editor, describes the recovery fund “as a one-off episode that does not lead to fiscal union or change the EU’s constitutional structure. Everything reverts to the status quo ante, which is why it is tolerated by hardliners in the German Council of Economic Experts.” Despite more emollient noises by Chancellor Angela Merkel (who will be leaving office next year), the German government on the whole remains implacably opposed to EU debt mutualization. Other countries that share Berlin’s opposition also include the Netherlands, Finland, Austria, Denmark and Sweden.

Evans-Pritchard’s characterization of the agreement may be a bit extreme: The French in particular hope that the EC’s ability to override national vetoes will ultimately provide a pathway to full debt mutualization. After all, it was the Macron government that originally pushed the idea of a common European fund, even though Paris accepted time limitations on the proposed instruments, in order to head off anticipated German and Dutch opposition to the overall concept. But in a subsequent analysis of the agreement, Evans-Pritchard also highlighted the summit communique’s characterization of the recovery fund as “a temporary facility to cope with a one-off event and should not be taken as a precedent.”

So tension remains, even as debt mutualization looks marginally more possible today than it was before the agreement was secured. So while Evans-Pritchard may be right to call the package “political nitroglycerine on a long fuse,” the fact is that this program establishes a new set of behaviours and precedents for EU allocation of funds. It’s messy and potentially explosive, as all such European compromises tend to be, but such messy ambiguity almost certainly means we will witness similar conflicts in the future.

The problem is that time is running out as the continent faces economic problems of a magnitude not experienced since the end of World War II. While the exigency of the pandemic is slowly pushing the EU member states toward going further than they have gone before, the very unpredictability created by the coronavirus makes it difficult to determine what kinds of spending will provide optimal outcomes.

There will likely be a good amount of failure that will provide a bounty of evidence for the frugal five austerians, who remain profoundly suspicious of anything that remotely approximates activist fiscal policy. Likewise for the euro-skeptics if the marginal amounts allocated under this program fail to alleviate economic stress.

Extraordinary circumstances demand extraordinary measures and, short of war, it is hard to envisage a more damaging backdrop than a pandemic, which has single-handedly forced the shutdown of the global economy and continues to act as a brake on recovery, as each new outbreak creates the possibility of renewed shutdowns.

That kind of an environment not only makes consumers more hesitant to spend money (given renewed uncertainty about collective employment, to say nothing of the risk of jobs being lost forever—and perhaps with good reason, considering the likely fall-off in air travel, restaurants, and other forms of leisure activities). Likewise, businesses are increasingly reluctant to invest in that kind of an environment.

All of which also complicates the task of government fiscal policy. The latter is supposed to fill in the spending gaps left open by the withdrawal of the private sector. But how can this be achieved effectively if the promotion of economic demand conflicts with the resolution of a public health emergency (that entails scaled-down activity to eradicate the presence of the coronavirus)? The task of focusing on reconstruction also becomes more problematic, as nobody can adduce fully the shape of the future post-pandemic economy, thereby complicating the task of determining how to allocate structural funding to assist in the economic transition.

Most commentary pertaining to the damage inflicted by the coronavirus has focused on Italy and Spain. And, indeed, both countries now feature governing coalitions whose attachment to the euro is lukewarm at best. Italy, in particular, has always been viewed as the greatest existential threat to the single currency union.

But while Italy’s government managed to secure a reasonable chunk of the recovery fund’s grant money (around 23 percent of the total), there is not a lot left over for France. It is, however, worth noting that France’s debt to GDP is rapidly approaching Italianate levels, and the French economy is forecast by the IMF to shrink by 12.5 percent this year.

Despite these ominous developments, the Macron administration’s longer-term goals still point to an embrace of neoliberal orthodoxy in a manner that could further contract demand and therefore elevate the country’s public debt to GDP ratio. Although the French government has deferred its planned “flagship pension reforms” for a year in order to deal with the pandemic, it insists that it still plans to follow through with them (pushing back the retirement age for many workers, as well as “reduc[ing] insurance payouts for high earners and requir[ing] people to work for longer before claiming benefits,” according to the Financial Times). The last time the government attempted changes like these, the “yellow vests” protests brought the country to a standstill.

I have long felt that France, as much as Italy, could ultimately prove the weak link that would potentially blow up the European Monetary Union, given the structural divergences in their respective economies vis-à-vis Germany. Had economics alone determined the creation of a new supranational currency, a more viable currency zone would likely have been restricted to a quasi-Deutsche Mark bloc comprising Germany, the Benelux countries, and a few of the Nordic nations. These countries shared a high degree of pre-existing economic/social/cultural convergence even before the creation of the euro.

But the creation of the euro was clearly not done on economic considerations alone. Years ago, I posited the idea that German industrialists backed the idea of a “big and broad” euro in the early 1990s so as to lock in Germany’s ongoing industrial dominance, despite the objections of the Bundesbank. They were supported by then-Chancellor Helmut Kohl, who was a Europeanist to the core.

France wanted to join because it (naively) assumed that it could control Germany politically by taking a key role in the common currency, a miscalculation as grave as relying on the Maginot Line for national defence. Italy wanted to join because it was a founding member, and the neoliberals who dominated economic policy-making in Rome calculated that this would represent a good way to re-circuit the fundamentals of its economic behaviours and thereby override its long-standing political dysfunction.

These problematic calculations on all sides contributed to what remains a largely dysfunctional monetary union. For a time, it provided the illusion of prosperity and “ever closer” political union. COVID-19 has blown apart that illusion as easily as the wind knocking over a house of cards. The French have been pushing hard for debt mutualization precisely because the country now faces risks comparable to those of Italy, even though the markets have until now given Paris the benefit of the doubt (which is why French bond yield spreads relative to German bonds remain comparatively low).

In the context of the pandemic, incrementalism might work for Germany and its northern European counterparts, but it is unlikely to work for France. The violent protests in 2018 of the “yellow vests” (which mirror decades of earlier incidents of civil unrest) and the corresponding rise of populist parties in France point to the unlikelihood that the French government could sustain the kind of economic punishment that has been inflicted on countries like Italy, Greece, and Spain, even though many of France’s problems mirror those of the other “Club Med” nations.

The Paris-Berlin axis has long been the motor behind the entire European project. Much as France’s Henry IV once (apocryphally) declared that “Paris is worth a mass,” when the Huguenot king converted to Catholicism in order to ensure maximum political legitimacy for his rule, Germany and the frugal five, therefore, have to determine whether or not debt mutualization (or some other form of European integration) is a price worth paying in order to prevent total fragmentation.

Simply waiting for a mythical Godot, as Beckett highlighted, will get us nowhere. [IDN-InDepthNews – 02 August 2020].

Collage sources: EU Website

IDN is the Flagship Agency of the Non-profit International Press Syndicate.

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As Germany takes over the rotating presidency of the European Union (EU) this month, all eyes are on Berlin and expectations could hardly be higher. For some, the union’s largest member state is expected to do nothing short of “saving” the European project over the next six months—from the economic devastation of the COVID-19 pandemic, an increasingly menacing geopolitical environment, and from Europe’s homemade failures, fragmentation, and institutional fragility born of the last decade. With multiple challenges coming to a head, this appears to be a moment of truth for the future trajectory of the EU, Germany’s leadership within it, and the legacy of German Chancellor Angela Merkel.

However, even a cursory look at the agenda for the German presidency—much of it imposed by crisis, chance, and circumstance rather than made of Berlin’s own choosing—seems overwhelming for Germany’s reluctant conception of leadership and suggests lowering one’s expectations to avoid disappointment.

First on the docket are not one but two crucial, time-sensitive negotiations over who pays how much and who gets what, always among the EU’s most divisive questions. If the economic fallout of the COVID-19 pandemic and the centrifugal forces it could bring with it for the union are to be contained, the ‘crisis presidency’ will have to overcome deep divisions between the so-called “frugal four” (Austria, Denmark, Sweden, and the Netherlands) and hard-hit southern member states led by Italy over the modalities for a €750 billion EU recovery fund. Disagreements over the plan bleed into negotiations for the EU’s next seven-year budget deal, the Multiannual Financial Framework (MFF), into which the recovery fund is to be embedded. That similarly acrimonious fight over money and priorities is significantly behind schedule given the 2021 start of the next budget cycle and will require significant brokering skills and political capital to resolve. Berlin will have to make significant progress on both by the August summer break, given a tight legislative timeline and the economic crisis.

As if the German presidency needed an even harder end boss after these two advanced levels (to use video game parlance), Boris Johnson and the critical phase of post-Brexit negotiations await after the summer. Reports suggest next to no progress in talks to date which face a hard deadline of December 31, 2020 and no realistic hope of anyone in London contemplating an extension anytime soon. Germany will have to help keep the twenty-seven EU member states united through the bargaining with, and likely brinkmanship of, a Johnson government which has shown little concern for a no-deal scenario.

In addition to this immediate crisis management, Berlin is expected to drive forward strategic EU initiatives meant to make Europe a more capable and competitive global actor. This includes integrating flagship efforts on digitalization and the EU green deal into recovery efforts; enhancing the union’s pandemic and public health toolbox; breaking through a five-year impasse on EU migration reform; and helping Europe reassert itself vis-à-vis China and others in a global environment of great power competition, made only more challenging by post-COVID uncertainty and the vacuum left by the absence of its traditional US ally.

Wind at Berlin’s back

High expectations of Germany stem from a variety of factors, even if they ignore the limits of the rotating presidency’s role under the Lisbon Treaty. Stereotypes of German efficiency apart, the EU’s largest economy accounting for nearly a fifth of its gross domestic product (GDP) and its largest population is taking over a leadership role at a critical juncture for the bloc. Germany’s governance and public health performance under the pressures of the pandemic stand out as close to a success story in Europe as COVID-19 may allow. Somewhat forgotten are Berlin’s initial decisions of export bans and border closures which drew heavy criticism from European partners. But above all perhaps are the prospects of Chancellor Angela Merkel’s crisis management at the helm of Germany’s presidency—a rare second EU presidency for a leader in an enlarged EU since her first turn in 2007—and the country’s apparent about-face on matters of EU financial solidarity.

Perhaps more than at any time since the 2015 migration crisis, Merkel exudes calm competence and control in her fifteenth year as German chancellor. Gone seem to be any hints of a lame-duck chancellorship since her 2018 decision to step down as leader of her center-right Christian Democrat Union (CDU) and the announcement that she would not run again in the 2021 federal election—a commitment she has been probed about more frequently in recent months but one she keeps insisting on.

Her own handling of the crisis and an open leadership contest for her succession that has faded into the background amid the pandemic have seen her personal approval rating reach an impressive 71 percent and given the CDU’s dismal pre-crisis polling a ten-plus percentage boost to around 38 percent. Nearly two-thirds of Germans approve of the grand coalition’s work, an uneasy alliance between Merkel’s CDU, her Bavarian sister party, and the struggling Social Democrats that looked ever-more fragile even just a few months ago. So, amid a convergence of crises for the EU, Europe’s longest-serving leader of the bloc’s largest economy assumes the helm, buoyed by domestic support, strong leadership in the pandemic, and legacy-building expectations abroad.

Much more stunning than the reversal of Merkel’s political fortunes amid an unprecedented crisis is the U-turn Germany appears to have made on fiscal policy. As late as early March 2020, in the face of the encroaching COVID-19 pandemic, any talk of stimulus spending and Eurobonds met with the familiar “Nein” from fiscal hawks in Berlin. A few weeks later, however, the COVID-19 pandemic seemed to have achieved what successive French presidents, coalitions of EU member states, and economic Nobel Prize laureates from Paul Krugman to Joseph Stiglitz could only dream of—get Germany and its fiscal conservatives to drop a near-religious opposition to debt and deficits and adopt the largest rescue package in its postwar history. Within a few weeks, the country best known from Athens to Rome for its finger-wagging ordo-liberalism seemed to have turned Keynesian. With opposition support and overwhelming public approval, the German government adopted a €750 billion ($848 billion) rescue package and supplemental budget that combined significant new debt, measures to fight COVID-19 with broader economic stabilization, and stimulus spending, one of the largest plans in Europe if not globally at around 27 percent of GDP. By June, a second package of €130 billion ($147 billion) worth of tax cuts and payments followed.

Similarly surprising to many observers was the joint proposal by Merkel and French President Emmanuel Macron for the aforementioned €500 billion ($565 billion) EU rescue fund that included joint debt issuance by the EU. This turnaround from Berlin’s opposition to Eurobonds as late as March of this year caught many by surprise, leading some to speak of a “Hamiltonian moment” for the EU. Given long-standing German abhorrence of debt mutualization in the union, the country seems well-placed in its broker role as the EU presidency to convince skeptics like the frugal four—among a coalition of member states that have often ended up on Germany’s side in these debates in the past—that special times required special measures. Merkel’s apparent reversal on such a fundamental issue in the home stretch of her chancellorship have also made her the subject of a somewhat American debate about a concern for her political legacy that is usually said to drive second-term US presidents.

Why Germany may come up short

But apart from the sheer number and complexity of challenges facing Germany in this role and the limited political capital at the disposal of even the most influential EU presidencies, a different type of legacy may undercut Merkel’s best—and possibly too little too late—intentions. Domestic challenges of her own making could be the biggest obstacle in meeting expectations abroad for transformative leadership in the EU at a time when German decisionmakers are realizing that they could have a historical role in fighting to “maintain EU integration as such.” The “one-sided narrative of Germany being Europe’s paymaster,” one that Merkel and much of the country’s mainstream political and media elites have fueled all too willingly for more than a decade since the beginning of the euro crisis, could come back to haunt Germany’s ability to step up at a critical moment for Europe.

Part of that narrative is a distinct failure to prompt a more fundamental, long overdue debate with the German public about the country’s role and leadership in the EU and globally. That debate cannot just be about what is “financially undesirable” about the European project but has to focus on what is “politically necessary” for a country that depends on a viable, cohesive EU for its economic competitiveness and global influence more than most powers of its size, as a Munich Security Conference briefing puts it succinctly.

Another dimension of that narrative and its accompanying failures is the party-political environment that both have paved the way for. A little more than a year before a federal election, the nationalist Alternative for Germany (AfD) that was founded as a euroskeptic party and has lost the most ground as a result of Merkel and the CDU’s resurgence during the pandemic will look for opportunities to attack the Christian Democrats on the right should the chancellor step too far out of the bounds of Germany’s fiscal orthodoxy during the EU presidency. Fiscal hawks in Merkel’s own CDU who have shown few signs of conversion to her new approach will also be watching carefully how her decisions may impact their party’s electability in the fall of 2021 as Merkel’s persuasive powers as an outgoing chancellor are limited.

There are still some signs of hope that Germany can muster the will to do what is necessary for the EU and eurozone to recover from the crisis and use its presidency to help set the union on a path of sustainability. There seems to be a recognition of this critical juncture for Europe. Germany’s public, and its younger generation in particular, appears to grasp the moment of truth more than some of the country’s political elites do. In a recent reputable poll, nearly 70 percent of Germans support the EU rescue plan, almost 60 percent think mutualized debt instruments are “acceptable” in the current circumstances, and 54 percent believe the EU should deepen its cooperation.

If Germany achieves a breakthrough on even one of the big-ticket items of its presidency, it is despite the chancellor and its political elites’ legacy of European policy over the last decade. Those betting wisely would do best to lower expectations for a Germany that has yet to have a moment of truth with itself about its role in Europe and the world.

Jörn Fleck is associate director at the Atlantic Council’s Future Europe Initiative.

Source: https://www.atlanticcouncil.org/blogs/new-atlanticist/berlin-takes-over-the-eu-presidency-lower-your-expectations/

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A radical transformation.  –Photographer: Vanden Wijngaert/Bloomberg

The European Union has a habit of disappointing when trying to design a joint response to an economic crisis. However, Ursula von der Leyen’s speech at the European Parliament on Wednesday about a pandemic recovery fund could well be one for the history books.

The Commission president outlined a 750 billion-euro ($825 billion) rescue program to help the bloc cope with the fallout from Covid-19. EU governments still have to agree to the plan, and some northern member states — especially the Netherlands and Austria — are likely opponents. But if the final deal looks even close to Von der Leyen’s proposal, it will mark a radical transformation of Europe.

The Commission plans to borrow the hefty sum on the financial markets and then distribute it to member states between 2021 and 2024, with those who’ve suffered the most economically getting the bigger share. The fund is the sum of many parts. Some 560 billion euros will pay for a “Recovery and Resilience Facility” that will go directly to governments. There will also be a 31 billion-euro scheme to support solvent companies that need temporary state aid, and 9.4 billion euros to prepare for future health crises.

Italy and Spain will be the biggest beneficiaries, while Germany will receive relatively little. The EU will pay back investors via its own budget over a long period — as much as four decades.

The fund breaks a number of EU taboos. First, it raises significantly the amount the Commission can borrow on the financial markets. These are not “euro bonds” in the classic sense of the word since individual member states will still have to pay their individual contributions to the EU budget, to be calculated by the relative size of their gross domestic product. The vehicle is also expected to be a “one-off” for the pandemic. However, it will be a very useful blueprint if the eurozone ever chooses to move closer to a much-needed fiscal union.

The second big change is that two-thirds of the money would be given away as grants. This is the most controversial part of the plan, and it risks being watered down in the forthcoming negotiations between member states. There will be strings attached too since governments will have to present reform programs to receive support. The extra spending will need to comply with EU-wide priorities such as technology investments and tackling climate change. But the generous provision of grants is a step change from the European Stability Mechanism, the euro area’s rescue fund, which only offers loans.

The final taboo to be possibly broken is on EU-wide taxation. The Commission has an eye on setting up new revenue streams, which could help to pay back investors, including environmental taxes and levies on multinational companies. This is the vaguest part of the plan, but potentially one of the most profound. It would create the seed of an EU Treasury, which could disburse its money where it sees fit.

Von der Leyen will have a tough time selling all of this to the so-called “frugal four,” which includes Sweden and Denmark as well as Austria and the Netherlands. They prefer loans because they fear some of this money will be misspent.

Countries in Eastern Europe have traditionally benefited from the bulk of the EU’s cohesion fund, but they’ve have had a relatively good pandemic so they won’t receive much of this new support. It will be interesting to see which way they lean. The proposal needs unanimous support, which will be hard to secure.

At least the Commission president can rely on France and Germany, the EU’s biggest beasts, who struck the breakthrough deal that paved the way for Von der Leyen’s proposal. Spain, Italy and other southern countries are obviously in favor since they’d get most of the money. For once, the political stars may be aligned. If so, 2020 might be remembered in Europe as more than just the year of the pandemic.

To contact the author of this story:
Ferdinando Giugliano at fgiugliano@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

Source: https://www.bloomberg.com/opinion/articles/2020-05-27/eu-pandemic-recovery-fund-puts-europe-on-brink-of-historic-change

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The decision to impose restrictions on public life in the face of the coronavirus outbreak was one of the hardest choices of her chancellorship, German Chancellor Angela Merkel told German lawmakers on Thursday.

“This pandemic is an imposition to democracy,” Merkel said.

Last week Germany extended until May 3 most of the restrictions it had imposed to slow the spread of COVID-19, though some shops have reopened and older school children will be allowed to return to class.

The measures have thus far contributed to Germany being able to avoid overwhelming its health care system with coronavirus patients.

Still at the beginning of the pandemic

But the chancellor cautioned not to be too hasty in a return to normal life.

“We’re not living in the final phase of the pandemic, but still at the beginning,” she said. “We will be living with this virus for a long time.”

Merkel called for lawmakers and the people of Germany to have patience and discipline now in order to avoid a potential catastrophe were the economy to reopen too soon. Disciple now would result in a quicker return to normal economic activity, she said.

Germany to open its wallet to EU

Speaking about the need for European unity, the chancellor said that Germany must be prepared to contribute “significantly” to the EU budget in order to shore up the bloc against the fallout from the coronavirus outbreak, German Chancellor Angela Merkel said on Thursday.

Speaking before lawmakers at the Bundestag in Berlin, Merkel said that, in the spirit of solidarity and as Europe’s largest economy, Germany should be prepared to pay more into the EU budget.

“Europe isn’t Europe when it doesn’t think of itself as Europe,” she said.

Read more: Coronavirus: European solidarity comes at a price

No to coronabonds

Merkel’s speech contained some good and some bad news for Germany’s European partners, according to DW Europe editor Georg Matthes.

“Merkel mentioned additional contributions to the EU budget, but it is completely unclear whether this would be grants or whether this would be loans,” he said. “Also the amount of money on the table is completely unclear. It leads us back to an age-old row over mutualized debt, which will be very difficult to find a conclusion at this video conference.”

The chancellor also spoke out against the idea of EU members taking on collective debt in response to coronavirus, so-called “coronabonds,” an instrument members of the bloc have debated for weeks.

Countries like France and Spain, that have been severely impacted by the virus, are in support of the strategy, while Germany and the Netherlands are against.

“The point now is, to help quickly and to have instruments in hand quickly, which can alleviate the effects of the crisis,” Merkel said.

She also called on the European Commission, the governing body of the EU, to conduct a study on how the pandemic has affected the bloc and to identify appropriate response measures.

In her speech, Merkel also praised the work of the World Health Organization (WHO), saying, “For the German government, I emphasize the WHO is an indispensable partner and we support them in their mandate.” The comment alludes to a recent decision by US President Donald Trump to halt funding to the organization at the forefront of the effort to contain the coronavirus.

kp/sms (AFP, dpa)

Source: https://www.garnertedarmstrong.org/wp-admin/post-new.php

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