By Arab News
By Cornelia Meyer*
German Chancellor Angela Merkel this week made her first trip abroad since the outbreak of the coronavirus disease (COVID-19), as she visited Brussels to address the European Parliament and kick off Germany’s EU presidency, which lasts for the next six months.
Merkel departed from her business-as-usual approach vis-a-vis the EU, which had lacked vision ever since she last chaired it in 2007. Wednesday’s speech was nothing short of visionary. In it, she delineated the five core principles of Germany’s EU presidency: Civil rights for every citizen, cohesion of the union, the environment, digitalization, and Europe’s position in the world.
The first task of her presidency will be to pass the EU’s multiannual financial framework for 2021 to 2027, which is the bloc’s budget. This budget will include a €500 billion ($566 billion) COVID-19 rescue package. In her speech, Merkel stated that extraordinary times necessitate extraordinary measures and she fully endorsed the bailout, which she and French President Emmanuel Macron had jointly proposed in May.
Merkel has come a long way to now endorse the European Commission raising debt to be redistributed to the countries most affected by the pandemic, especially as much of it is in the form of grants. Germany has always been one of the more frugal EU countries, opposed to a mutualization of debt between the economically stronger north and the heavily indebted south.
In April, Macron sounded the alarm bells in a Financial Times interview, stating that, if the EU did not support the worst-hit countries, it could potentially face a breakup. He pleaded for solidarity. He listed historical examples: The Treaty of Versailles after the First World War, where mean-spiritedness and a lack of compassion led to more strife, and the post-Second World War Marshall Plan, where generosity and magnanimity led to peace and prosperity in Europe for decades.
At the time of his interview, Macron was in lockstep with Italy and Spain, which demanded so-called “coronabonds,” much to the chagrin of the frugal countries in the north, which opposed any mutualization of debt.
Both sides have a point. Before the coronavirus pandemic hit, France and Italy had debt-to-gross domestic product ratios of 98.4 and 138. 8 percent, respectively; while the numbers looked much better for Germany and the Netherlands, which stood at 59.8 percent and 48.6 percent, respectively (EU guidelines impose a 60 percent ceiling). When looking at recent OECD forecasts, the economies of France, Italy and Spain are expected to shrink by more than 14 percent, compared to less than 10 percent in the Netherlands and Germany.
By May, Macron had been able to get Merkel on to his side. He abandoned the idea of coronabonds and Merkel agreed to usher in a sizable rescue package through the EU budget in the form of debt. France needed to disassociate itself from Italy’s position, while Germany needed to break ranks with the frugal four (the Netherlands, Austria, Denmark and Sweden).
It will not be easy to pass the budget. Merkel acknowledged so much when she said it would require compromise on all sides. Other than the frugal four, the Visegrad states (the Czech Republic, Slovakia, Hungary and Poland) resent having to finance the worst-hit countries in the south because they have not been so severely impacted by the virus. We will probably not see a compromise by next week’s EU summit, but Merkel is hopeful of getting there before the summer recess — not an easy task, given that many of the negotiations will need to take place via videoconference. According to one senior German diplomat, that slows efficiency by about 80 percent.
Aside from the budget, it was noteworthy that Merkel addressed the issue of civil liberties. This was a hidden jibe in the direction of Hungary and Poland, which have been accused of using the pandemic to crack down on freedoms. It also demarcated her red lines. After all, the EU is not just about the economy — it is, first and foremost, based on shared values.
Digitalization and the environment are also important. European Commission President Ursula von der Leyen had launched her “Green Deal” shortly before the pandemic broke. Europe must also step up to the plate in terms of digital technology and connectivity if it wants to remain competitive in the 21st century.
Cohesion and Europe’s place in the world are incredibly important. Merkel’s speech showed that Germany and France are again marching in lockstep. Solidarity is crucial, as Macron pointed out in his FT interview. Italian Prime Minister Giuseppe Conte doubled down that he saw the future of the union as being endangered if he did not get support for his own public investment program.
In 2017, Merkel had left Macron out in the cold after he announced his vision of Europe in front of I.M. Pei’s pyramid at the Louvre as he assumed office. He had spoken then of solidarity and of the need for Europe to assume its rightful place among the family of nations. What Merkel said about those two agenda points this week was not too far away from Macron’s vision.
Merkel is right when she says that extraordinary times call for extraordinary measures. They also call for solidarity and foresight over the direction of travel, both of which she delineated in her speech. Moreover, the EU has no chance of reaching any major agreements when France and Germany walk in opposite directions. Them heading in the same direction does not necessarily guarantee agreement, but it makes it much more likely. This holds true all the more since the UK chose to leave the EU.
- Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources