Economist, working life professor Vesa Vihriälä considers the decision of EU countries to take on joint debt to be a "significant step". In his view, the gate has been opened so that joint borrowing can continue to be used in the future.
- For the first time, the principle of non-co-debt of the EU is being violated in practice. This debt even finances operating expenditure and, in particular, income transfers in the Member States. In that sense, this is a significant step, he says.
EU leaders agreed at a marathon meeting early last Tuesday on a € 750 billion recovery fund for the corona pandemic. At the same time, negotiations on a budget of more than € 1,070 billion for 2021-2027 were concluded.
Exceptional in both solutions was their reliance in part on common debt. Politicians across Europe have emphasized that the funding arrangement is a one-off.
Antti Ronkainen, a researcher in political economy from the University of Helsinki, shares the same lines as Vihriälä. According to him, the decision to create a crisis instrument with debt and finance the EU budget with debt will allow the Union to take deeper into fiscal union. The researcher does not expect this to happen automatically, but points out that the Union will sooner or later be plagued by new economic crises.
- Once these decisions have been made, it is easier to repeat them, Ronkainen says.
Ronkainen estimates that the biggest result of the negotiations was a change in the financing of the EU budget itself. In the past, the budget has only been funded by membership fees. It is now being financed with just under EUR 80 billion in debt.
- It will involve brexes when the big net contributor UK leaves. Borrowing was able to avoid a situation in which Member States' contributions rose sharply and there was no need to cut, for example, agricultural subsidies or cohesion funds.
Vihriälä: Pressure for federal development
Vihriälä and Ronkainen need a wide-ranging political debate after the solution. Vihriälä regrets the emergence of a big debate about the nature of the EU and what fiscal competence should be transferred above the member states.
- This is, in fact, a one-off fiscal policy at EU level. If it is to continue in the future, it would be natural to strive for a federal decision-making structure that systematically and consistently controls the use of that money. This is one way, and there is pressure for this, Vihriälä says.
- The second way, of course, is that since this has been undeniably exceptional, one would want to concretize that exceptionalness. I don't know what that way would be. It’s tricky because this principle has now been violated once, he continues.
According to Ronkainen, the debate on the rules of economic governance in the EU and the European Economic and Monetary Union (EMU) should now begin at the latest. According to him, the recent solution shows that the EU is agile to reinterpret its own rules in crises.
In the context of the 2008 financial crisis, the euro area was rescued by a rescue package, although it was previously considered contrary to the Union's founding rules. The regulation of the Stability and Growth Pact on the GDP-to-debt ratio has been frozen in the past in the context of the interest rate crisis, as has the regulation of state aid. The use of debt money for the budget has also been considered impossible in the past.
- I would like the debate to start, but it requires politicians to raise the issue.
Ronkainen: Finland's share is financially successful
Despite the criticism, Vesa Vihriälä says that the EU needs a joint effort, such as the stimulus package, to overcome the corona crisis. According to him, the package now agreed serves the purpose of fiscal stimulus quite well within its framework.
Antti Ronkainen estimates that the negotiations on Finland's own share had been financially successful. According to him, Finland's financial situation remained roughly the same: the level of agricultural subsidies remained, and payments did not increase radically in relation to receivables.
Instead, in his opinion, the criteria for the support received by Finnish exports are lame. Both Prime Minister Sanna Marin (SD) and Finance Minister Matti Vanhanen (Central) have emphasized that the financing agreement will provide support to the export industry in Finland's main market area.
- In principle, a large part of the package goes to Southern Europe, which are not Finland's largest export countries. In that sense, it supports Germany more, but it indirectly supports Finland, because Germany is an important trading partner for Finland, Ronkainen replies.
According to Ronkainen, however, it was illogical for Finland to demand a reduction in the financing package if it also applied for support for exports from the financing solution.
The troll of the euro crisis haunted the stimulus package in the background
According to Vihriälä, it is difficult to assess whether Finland should have revived its own economy directly or through the EU. According to its own estimates, Finland will receive EUR 11.1 billion from the seven-year budget and pay EUR 16.7 billion. Finland estimates that it will receive EUR 3.2 billion from the stimulus package in 2021–2023 and pay EUR 6.6 billion in 2021–2058.
Vihriälä says that spending the same money at home could have been more efficient at home than through a joint stimulus package, but the assessment of the matter is not unambiguous.
- After all, here is the option that without this type of package, we would see a very difficult crisis situation in Europe and drift into some kind of euro crisis or worse, and its consequences for the Finnish economy could be even worse.
Both interviewees also point out that the amount of future investment decreased from the original proposal. In addition, Ronkainen points out that their number also decreased in the budget compared to the previous proposal.
- The achievement of Nuukki and Finland in the negotiations was that when subsidies were cut from the budget, the amount of future-oriented subsidies decreased from 190 billion to 80 billion, he states.
The comparison to the payoffs of the skimpy quartet is lame
The outcome of the negotiations draws attention to the fact that the so-called skimpy quartet of Sweden, Denmark, the Netherlands and Austria received billions of euros in refunds. Finland received a national envelope of EUR 500 million, which cancels the planned cuts in agricultural subsidies and a separate subsidy for northern and eastern Finland.
According to Ronkainen, however, the opposition cannot criticize the government for the fact that Finland, like the skimpy quartet, did not seek large refunds.
- The opposition itself has been accepting Finland's goals for the negotiations earlier. It has been Finland's long line in the past that Finland does not apply for payment credits but for national envelopes, he says.
If Finland wants to change its line, it should be agreed well in advance of the next financing negotiations, Ronkainen points out. However, a direct comparison between the payment credits received by Nuukki and the financial envelope received by Finland is difficult, he said.
- It must be taken into account that puppies are larger net contributors than Finland, and their net payments increased with the difference of Great Britain. Payment credits kind of compensate for that. However, Finland is a medium-sized net contributor, and Finland's net payments grew less than nuisances.
Vihriälä also points out that Finland has never been a big net contributor. He estimates that it would have been difficult for Finland to argue in favor of returns at a recent meeting, as they have not existed before.