Macron, Merkel deliver $859bn breakthrough

After days of bad-tempered talks, the European Union’s 27 members have agreed a 750 billion-euro ($859 billion) Covid-19 recovery fund that looks like a historic step toward more joint stimulus across the bloc — even if it’s not yet a “Hamilton moment.”
While the unusually united Franco-German duo of Emmanuel Macron and Angela Merkel couldn’t avoid watering down their original proposal, the deal is still worth cheering.
Getting it over the line wasn’t just about responding to a virus that has claimed the lives of more than 100,000 Europeans and tipped the bloc into its worst recession in decades. It also meant settling scores between northern and southern Europe, with the “frugal” Dutch and Austrians reluctant to hand out cash to the heavily indebted Italians and Spanish. There was also a need to bridge the political gap between the west of the EU and the east, where democratic backsliding by the likes of Hungary’s Viktor Orban has increased the pressure on Brussels to be more discerning about where it sends money.
Several radical new steps have been proposed. First, rather than individual countries raising the funds, the EU as a whole will use its collective financial muscle to borrow 750 billion euros on capital markets to rebuild its virus-scarred economies. Second, almost 400 billion euros of that money will be handed out as grants, and the rest as low-interest loans, making it cheap and easy to spend. Third, the European Commission — the EU’s executive arm — will study a range of possible new taxes, including technology and financial transaction levies, to help pay for the fund.
This isn’t quite a United States of Europe brought together by the modern equivalent of a Hamilton bond, but the power to tax and spend is important. The fund is being presented as a temporary one-off, but this is still a big moment for supporters of deeper European integration. The deal also upends the traditional approach of a bloc that for years — under the economic influence of Germany — has preached fiscal rectitude and austerity as the response to economic crises. Past EU joint-funding efforts for struggling member states have been plagued by the top-down imposition of punitive terms and conditions, as analysis by the Institut Jacques Delors think tank shows. The treatment of Greece during its debt bailout program is the most depressing example.
This pandemic recovery fund, by contrast, is intended to help needy countries without making their already strained finances worse. That’s a healthy development, even if it took a public health crisis to achieve it. It’s also fair: Covid-19 is not the fault of any nation.
There’s still a risk that this breakthrough in European solidarity might be weakened by overly strict conditions on how the money is awarded and used, which the frugal nations have called for.

—Bloomberg