European recovery fund: "This crisis calls for the fastest possible reaction"

Text by: Altin Lazaj

The heads of EU member states will discuss Friday, June 19, during a European Council by videoconference, the stimulus fund of 750 billion euros. The latter is intended to revive the European economy after the crisis caused by the coronavirus. It will be funded by loans from the European Commission on behalf of the EU. An agreement on this method of financing is unlikely at the summit because so-called "frugal" countries maintain their refusal. We will probably have to wait for the European Council in July. Interview with Jérôme Creel, economist at the French Observatory of Economic Conditions (OFCE).

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RFI: Why is it urgent to find an agreement before this summer?

Jérôme Creel : It is urgent to find an agreement because the economic recession in Europe is unprecedented and deep. This crisis calls for the quickest possible response. The governments of the different Member States have reacted nationally, but a certain number of countries do not have sufficient budgetary room for maneuver to face this crisis, to invest in health, to invest in a low carbon economy, to invest in digitalisation. So all the long-term challenges we have involve investing quickly, which is why this stimulus fund must be decided as soon as possible.

Why is it so difficult to reach an agreement?

The Franco-German proposal and that of the Commission proposes that the Member States collectively go into debt to finance spending in order to get out of the economic crisis caused by the Covid-19. The stake is therefore very important. It is not simply a question of the EU Member States agreeing on expenditure but also of agreeing on the methods of financing this expenditure. The so-called frugal countries, the Netherlands, Austria, Sweden and Denmark remain on their position. These countries do not want to share the debt burden with countries like Italy or Spain. They are very worried about the lack of budgetary discipline in different Member States. The risks that these frugal countries see in a mutualized debt is that we let certain southern countries continue to go into debt without worrying about repaying the debts contracted. This is why it will take time to find an agreement, debt pooling is a somewhat new decision.

Can Germany play an important role in decision-making ?

Yes, because Germany is the largest country in the euro zone in terms of wealth produced per year and population. It is therefore a natural leader of the EU. There is a very important element to remember; Germany has changed sides. Before, it was reluctant to pool debts with other member states to create this stimulus fund. Germany did not wish to issue common public debts for which it would share the responsibilities with all the member countries compromised there with the countries of southern Europe. Germany therefore changed and moved closer to the French position.

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