Recent EU Budget Deal Is Welcome but the Deal May Well Fall Short of What Is Required in the Light of the Pandemic.

GPI opinion is that the deal is to be welcomed but the process of negotiation shows up inherent weaknesses in EU governance.

The approval of the European Commission borrowing facility and the total 1.1 billion Euro 7-year budget indicated a willingness to compromise on the part of all Member States find the necessary funding to tackle the long-lasting, economic recessionary impacts of Covid19. The retention in the proposal of 390 billion euro of grants to assist countries, especially those severely hit by the Corona virus pandemic, was a significant victory.

It is to be hoped that the 30-year bonds, when issued, will be taken up by investors, and, to ensure an active and resilient market, by the ECB in secondary bond markets

Whether the agreement, and its hopefully rapid implementation, represents using the term historic will only be confirmed if it leads to future progress towards a genuine independent fiscal authority and independent fiscal policy working hand in hand with monetary policy.

In this respect there are some less than positive elements in the overall deal. In any EU agreement of this kind the ‘devil is in the detail’. Solidarity in reaching the agreement does not imply, unfortunately, a shared vision of the future of the EU. This was laid bare in the haggling for particularistic interest during the protracted 5-day negotiation.

Certainly, the substantial increases in the budgetary rebates to some countries should be regarded as a retrograde step. The UK having left it might have been expected that rebates would begin to be phased out. However, as Angela Merkel said the move was painful but necessary.

A further weakening of solidarity is inherent in the ability of individual countries to be able to scrutinise the grant packages for other countries. The grants cannot be vetoed, but could be delayed.

A further concern is that the meeting of good governance criteria for grant allocation, which was of concern in the case of some countries, has been weakened.

Reductions in R&D expenditures in the budget are a negative step and hopefully some mechanisms can be found to supplement the allocations. It looks as if climate change expenditures may be protected, though the detail is not clear.

However, notwithstanding these potential fault lines, and its emergency nature, it is to be hoped that the deal will prove to be the start of the long journey to EU fiscal autonomy that the GPI endorses.

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.

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