Greek Business File, June-July-August 2020, No 126

COMMENT by Nick Papandreou


What’s new in the Franco-German €500 billion bailout scheme announced just a few weeks ago? For one thing, it is specifically targeted to the countries whose economies were most aff ected by the lockdown, such as Spain, Italy and Greece, three members of the greatly abused and sorely unloved PIGS. Most importantly, unlike any other bailout scheme, the Franco-German proposal calls for the 500 billion to be distributed as a direct subsidy and not as a loan. The proposal would allow the European Commission to borrow cash on financial markets, then distribute money as grants. This way, the countries receiving the financial injections will not be burdened by further debt.

Although France and Germany have often been at odds over how to resolve the financial crisis, they have shown surprising and admirable agreement on this. Macron gains well-needed brownie points within his own country, by showing that France is still a leader. Merkel shows she has the courage to take on the so-called Frugal Four, the unbudging northern states that are unable to see beyond their own narrow interests. Austria, Denmark, the Netherlands, and Sweden are pushing for a “loans for loans” approach for the bloc’s coronavirus recovery fund. They want the support to come in the form of new debt – at a time when all countries are already saddled with excess debt from the, yet unresolved, fi nancial crisis.

The debt undertaken by the European Commission will be paid back based on each EU country’s contribution to the EU budget. As Bloomberg comments, “repayments would come from the EU budget, where Germany contributes the lion’s share. The proposal marked a dramatic shift for Germany, which initially opposed any form of mutualized borrowing. ”Thus, Germany exhibits largesse during an unprecedent global crisis.

Why, after so much resistance, did Merkel finally agree to such a bailout? As Merkel and Macron say in their joint statement, “the current crisis cannot be compared to any crisis in the history of the European Union. As our societies and economies slowly fi nd their way out of the severe restrictions of recent times, we continue to face extraordinary uncertainties. Our goal, however, is clear: Europe will face this crisis together and we will emerge from it stronger.”

Unlike the timid and greatly delayed loans to the highly indebted countries of the Med in 2011–2015, Chancellor Merkel apparently sees that the pandemicinduced economic crisis threatens the further existence of the European Union itself, as many countries may find that the Union would be acting irresponsibly if it wished to burden them with more debt. And of course the short-sighted proposals of the Frugal Four not only threaten the cohesion of the Union but also deny the fact that unless the big boys step up to bat, the very system of capitalism they so ardently defend may just collapse in front of their frugal and austere eyes.

In my opinion, the 500 billion support mechanism, which still remains to be agreed upon by the EU member states, is way tοo small to make an impact on the countries whose economies have shrunken by ten to fifteen percent. This sentiment is refl ected in the recent vote by the European Parliament, calling for a “recovery and transformation fund” of €2 trillion. This gets closer to what is really needed to kickstart our drowning economies.

The European Parliament calls for investments to follow the priorities outlined by the Green Deal and the digital agenda. The parliament calls on yet another leg in the funding target: the creation of a new stand-alone European health program. This is in keeping with the Franco-German proposal as well. The recovery plan supported by Paris and Berlin argues for a European “strategic sovereignty in the health sector”. This is to be achieved by financing European research and development for vaccines and treatment methods, and in medicine and medical devices. Too bad these proposals were not on the European Agenda before the crisis, when it all could have been fl eshed out without the intense pressure of the moment, the sort of pressure which leads to rash decisions and wasted resources.

The crisis has brought out in great relief the cracks in the global system. Many have opined that the crisis is an opportunity to correct the flaws, such as unsustainable income inequalities, weak health systems, too great a reliance on cars and airplanes that cause uncontrolled carbon dioxide pollution, and support, for example, to maintain our new pandemic-induced habits of bicycling and teleconferencing to reduce the need for travel. Strangely enough, although low oil prices may boost oil use in the short run, the crisis has shown oil producing countries a nasty picture of their future. Even the oil companies got a strong taste of what is in store for them. But we are where we are, in the middle of a pan-economic pandemonium caused by the pandemic. Only the big players like China, the USA and the EU have the financial muscle to step in and bolster the sagging global economy. And maybe, just maybe, they will manage to save the good side of the capitalist system as we know it.