The good-natured analogy is from the team of economists from the ING bank: the European Commission's proposal for the Post-Covid Recovery Fund is like a bottle of wine from the most expensive ones found on the supermarket shelf. “We know that it would be a great pleasure, that it would be something sensational, to be able to buy it in order to taste it. But we also know that, many times, that expensive bottle was only placed there to make the slightly cheaper bottles seem, in comparison, to have a more reasonable price ”.
European Commission President Ursula von der Leyen warned this Wednesday that this crisis is much more serious than the crisis of the past decade, the so-called "sovereign debt crisis". So he urged European leaders not to drag their feet, to be even quicker to bail out economies than they were to bail out banks in the last crisis. However, despite the challenge of the President of the European Commission, the negotiation that now follows is not easy. And analysts believe there will be no agreement before the end of the year. And an agreement that will not go so far when this proposal goes – probably, in the end, Europe will end up buying a more moderate bottle of wine.
Analysts believe that later this year (although not in July, as Von der Leyen asked) there will be agreement on a recovery plan that could include much of the main lines with which it sews. But negotiations are not easy. A Dutch politician, who declined to be named, told CNBC that "the positions are far apart and this is an issue that needs unanimity – so the negotiations will be long". And he shot: "it is difficult to imagine that this proposal corresponds to the final contours that the agreement will have".
One thing is certain: if the plan that comes to fruition is not too watery due to the intransigence of the “four frugal countries”, this “ambitious project will start a new cycle of the European project”, comments Carlos Almeida, investment director at Banco Best, to the Observer. But there is a problem: “this is a plan that is based on multiannual frameworks for community financing over several years – what is lacking here is the idea of an emergency, of making sure that funds reach the real economy… now, because they are needed now ”.
University professor and specialist in European Affairs Miguel Poiares Maduro is far from believing in a brief solution. On the contrary. “This instrument is unlikely to be operational before the end of the year” – he says to the Observer – so “until then the Member States depend on themselves and on the ECB's policy, which allows them to go to the market at very low interest rates to finance themselves and the expected strengthening of the European stability mechanism ”.
European Fund "will hardly be operational before the end of the year", warns Poiares Maduro
The reason for this bleak prediction is clear. “The great difficulty here is the need for unanimity. What is more, in this case, to the extent that debt issuance is dependent on the adoption of a new decision on how to finance and the volume of financing of the European budget, the so-called ceiling on own resources, it is one of the few decisions in Which demand not only unanimity in the Council, but ratification by all national parliaments ”.
In other words, in addition to the divisions that are already difficult to resolve in the European Council with the 27 heads of state and government, the problems will be even more difficult to overcome because "there are national governments that do not have a stable majority in their parliament".
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“Therefore, we can see this whole process blocked in a national parliament in which there is a blocking majority. This is the very big risk that we have here. For example, in a parliament as fragmented as the Dutch, the Dutch government will even use this as a pretext to obtain concessions from other states ”, considers Miguel Poiares Maduro.
What kind of concessions? Poiares Maduro says that some are already there – and quite clearly – in the Commission's proposal. "Not only is there a conditionality to the European semester, but also, in one of the mechanisms – the Recovery and Resilience Tool, which mobilizes 560 billion – access to transfers is conditional on the fulfillment of reforms". Something that the proposed Franco-German plan foresaw.
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“I don't believe it is something like fiscal consolidation, but it could be reforms in the labor market, rents in certain economic sectors, reinforcement of regulatory entities”, believes Miguel Poiares Maduro. In other words, more than enough to add more uncertainty about approval in national parliaments.
The leaders who will meet (probably by video call) at the European Council of 18-19 June will do a first analysis of the proposal, comparing it with the Merkel / Macron proposal and also with the “counter-proposal” presented by some days later by the “four frugais”: the Netherlands, Austria, Sweden and Denmark – a counter-proposal that was stated head-on against the issuance of joint debt and against a significant reinforcement of the Community budget.
But that is exactly where the plan presented this Wednesday by Ursula von der Leyen in the European Parliament is based – although not with the ambition that the countries of the South would expect. The solution presented – with a request for a loan from the Commission, on behalf of the whole EU – allows Ursula von der Leyen to argue that the proposal does not lead member states to a mutualisation of debt. There is a shared effort, but the debt is the responsibility of each one. The member states "have very clear control over the parts that belong to them", underlined the president of the community executive, in a press conference, referring not only to the moment when the EU borrows (national guarantees) but also loan payments over the next few decades.
This concerns 750 billion euros, which adds to the Community budget of 1.1 billion euros for the next seven years. In other words, in total, 1.85 billion euros are at stake – thanks to the reinforcement announced this Wednesday. The plan involves, in part, the issue of debt on the markets by the European Union, a debt that will later be repaid in ultra-long terms, until 2058.
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In the case of the Community budget, countries with the highest contributions will end up paying a larger share of the bill, which means that proportionally they will contribute more than what they will receive. According to calculations advanced by the Bloomberg agency, in net terms, Portugal will eventually receive eight billion euros more, between increased contribution and increased benefit. Other countries may receive more, in net terms: Spain 33 billion, Poland 21 billion, Greece 16 billion and Italy 15 billion.