No space to sit in Brussels, Belgium
Carl-Johan Karlsson

We've heard repeatedly the past two months that the coming economic crisis only compares to the rubble after World War II. It would then follow that leaders would look to the Marshall Plan as a model for economic revitalization. That is indeed the reference for European Commission chief Ursula Gertrud von der Leyen, who added in a recent speech that the European Union budget "will be the mothership of our recovery."

Marshall Plan or Mothership, pick your metaphor. But it should be noted that the leading proponents of a joint stimulus plan include Italy, Spain and France, the European countries most affected by the crisis and also the ones with some of the biggest piles of debt (Italy has a debt-to-GDP ratio of around 130%, while Spain's and France's debt are near 100% of GDP.) Northern European nations such as the Netherlands, Germany and Austria remain reluctant to the EU issuing joint debt. Their preference instead for making use of existing financial relief facilities is seen by Italy, Spain and France as a path that will lead to stringent austerity programs dictated by Brussels.

The 19 Eurozone members have so far failed to resolve the deadlock — with no agreement reached during the initial negotiations early this month which will resume on April 23.

Invoking the Marshall Plan has served as powerful symbolism, but the conflict between northern and southern states of Europe is a symptom of a very different situation. Most obviously, what is being discussed is not an enormous U.S.-financed program to rebuild the European market, as was launched after the War by then American Secretary of State George Marshall. Instead, the vast plan for post-coronavirus recovery would require EU-members to pool resources to fund themselves through a budget that has always been a considerably smaller part (about 1%) of the bloc's Gross National Income than the $13 billion of U.S. aid sent to Europe between 1948 and 1951 (roughly $142 billion today). It's also happening as nationalism is rising steadily across Europe, rather than in the wake of the total defeat of the worst kind of nationalism in Nazi Germany.

While the original Marshall Plan forced European integration by barring communists from recipient governments, national leaders today are likely weary of fueling right-wing populism by allocating funds to other countries at a time of national need. Hélène Laporte, Member of the European Parliament from French right-wing party Front National labeled an increased French contribution to the EU budget as "madness."

So far, the EU has made available 37 billion euro as part of a package to cushion the bloc's economies from the impact of coronavirus, while also granting flexibility on budget deficits and state aid. The European Central Bank has also committed to purchase at least 750 billion euro of government and corporate bonds this year. However, with a predicted drop in Eurozone GDP of up to 7%, a viable relief package would have to be in the trillion-euro category.

But beyond the scale of the investment, leading Milan economic daily Il Sole 24 Ore notes that there's also the question of "political responsibility." In an article entitled "The Mythology of the Marshall Plan, Mauro Campus concludes: "To really be honest, nobody in the EU today has the intention to lead the dramatic and much needed transition that's about to open. So let's stop the mindless evocation of historical fetishes."

So while pasting a Marshall Plan onto our current crisis isn't possible, some imminent and forceful action from the EU is clearly needed. If half-measures become the way, it's easy to imagine a scenario where relatively strong economies manage a proper recovery and weaker states see major parts of their private sector go bankrupt. Most certainly, this would fuel nationalism and pose an existential risk to the European single market. That would send the Mothership in a very different direction.

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European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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