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These are the EU’s ’best of times, and worst of times’

Giles Merritt welcomes the EU’s crucial achievement of new financial powers, but says Europe’s taxpayers will expect a greatly enhanced level of political leadership and accountability

By: EBR - Posted: Tuesday, September 1, 2020

"The EU is going to be a major force on international bond markets".
"The EU is going to be a major force on international bond markets".

by Giles Merritt*

‘It was the best of times, it was the worst of times’, the famous opening of Charles Dickens’ “Tale of Two Cities” about the French Revolution perfectly describes the European Union today. The EU is riding high after having sunk low, yet must confront a grim and uncertain future.

When holidaying Europeans were enjoying their release from lockdowns while contemplating the likely impact of coronavirus, the EU’s national leaders achieved a remarkable deal. Eurocrats have hailed it as ‘historic’, and this time it’s no exaggeration. The summit has set the erratic process of European integration on a new path.

Their agreement towards the end of July after an unprecedented five-day negotiation is complex, laden with EU jargon, and far more significant than is generally realised. Media reporting chiefly presented it as a hard-fought compromise between those EU states urging a generous €750 billion aid package for those countries most ravaged by Covid-19 and the obdurate ‘frugal five’ that opposed it.

The EU is going to be a major force on international bond markets

In reality, it was much more. Together, the various promised EU funds will add up to a massive €2.36 trillion – an unheard of sum to be placed in the EU’s hands. Even more important is the breakthrough on the EU’s power to raise money itself, both through issuing bonds and by way of new taxes.

The EU is going to be a major force on international bond markets, thus reinforcing the position of the euro as a reserve currency. Also, a long-closed door has been opened to EU-level taxation. Raising taxes has always been the jealously guarded preserve of member states, yet now a new EU tax on single-use plastic is likely to be followed by others on financial and digital services and on activities relating to climate change.

The summit teetered repeatedly on the brink of collapse, and officials who took part in the marathon negotiations have described them as ‘touch and go’. But the phrase is also apt when applied to the EU’s chances of restoring its fortunes. Vitally important though the new financial arrangements are, the EU has lost ground that may prove unrecoverable.

Europe’s internal disarray has been growing and its geopolitical footprint shrinking. North-South and East-West tensions within the EU are reflected, and exacerbated, by disagreements on foreign policy issues – Syria, Libya, Turkey, Russia, Ukraine and now Belarus, to name but a few. The dream is fading fast of a Europe that speaks with one voice, and has the military clout to ensure it’s listened to.

If the Paris-Berlin axis is to be off-balance, the baton passes to Brussels

Through little fault of its own, the strong transatlantic bonds along with progressive international trade policies and environmental leadership have all been weakened. It is nevertheless up to the EU to repair the damage done to these key areas. And hanging over all this is the coronavirus – a health crisis that is far from over and the ensuing worldwide economic depression that threatens devastating political and security consequences.

The EU nations’ €2 trillion-plus collective response to Covid-19 has arguably been a huge step forward, and holds out the promise of European integration getting back on track and able to address the EU’s growing list of adversities.

That will demand, however, a stronger stance from the EU’s institutions. July’s successful summit was Angela Merkel’s swansong before she steps down as Germany’s chancellor next year, and France’s president Emmanuel Macron may be increasingly preoccupied by his looming re-election campaign. If the Paris-Berlin axis is to be off-balance, the baton passes to Brussels.

Approaching a year in office, Ursula von der Leyen has proved more adroit than was generally expected. But not more commanding as a figure on the European landscape. It’s fair to say her image is sympathetic, even charming, but somewhat enigmatic. Politics is theatre, so it is time that she, and therefore the Commission as a whole, took centre stage. Brussels must lay out in succinct layman’s terms a European strategy commensurate with its newfound financial muscle.

*Founder and Chairman, Friends of Europe

**first published in: www.friendsofeurope.org

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