cc. In Current Concerns No. 16 of 8 August 2020 we briefly reported on the decisions taken by the EU summit on 21 July. Zoltán Kiszelly is an advisor to the Hungarian Government. He has provided us with the following interesting commentary on the Summit.
In Brussels, every Member State has won. Some more, some less. The big ones have won the most. Germany can keep its economic backyard, the EU, and thus remains in the same weight category as China and the USA. The French got the Transfer Union as the anteroom of the “joint finance minister”. The Italians have received more helicopter money, while the thrifty four have secured bigger discounts. The nine states outside the euro zone have to send less money to the South and what is most important for us Hungarians is that we have gained time in which our country is becoming stronger.
In Europe, the power games of the time before the First World War become repetitive. The stakes are still high. Germany wants to keep the EU together. To do so it must bind the two large member states which have remained after the leave of the British. The French will decide in 2022, the Italians in 2023 at the latest, not only on the composition of their government, but also directly on the future of the euro and the EU.
Indeed, Brexit has opened up an alternative that we don’t yet know where it will lead, but at least it is an alternative. The French have already “done well” with the Anglo-Saxons twice, while Napoleon III’s deal with Bismarck cost the French emperor not only the crown, but also Alsace and Lorraine.
Italians always start wars with Germany and end them with the victors. Don’t underestimate the power of history!
Berlin would not have been able to keep these two large Member States in line with its current thrifty policy. Chancellor Merkel has therefore assigned the role of “bad cop” to Dutch Prime Minister Rutte. Together with Macron, she was thus able to slip into the intermediary role and at the same time consolidate the recently divergent German-French axis.
This mediation was more in demand than ever. The structural reforms, long overdue and necessary, which the northern states are demanding in return for their money, would sweep away the euro-optimistic governments of the south. Macron’s popularity is already extremely bad, while the poll ratings for the right-wing Italian parties are at 50%, and in seven out of 20 regions, elections take place in autumn.
The southern part of the euro zone will be kept afloat this year by bond purchases by the ECB and the Target 2 mechanism. From January 2021, this can be undertaken by the now adopted plan for a Next Generation EU and the new EU budget. The agreement was so urgent because of this schedule. Therefore, Chancellor Merkel was prepared to make almost any concession.
While most are looking forward to the helicopter money, it is taken note of it with confidence in Berlin and Paris that the transfer union has still taken place.
Now the poorer states can be supported by the richer ones along the lines of interstate fiscal adjustment and other mechanisms. In another reading, only a one-year trade surplus of the northern states has been redistributed.
To repay the common debts, the European Parliament (EP) would like to introduce new common revenues and taxes, which could soon be coordinated by a “European finance minister”. Just as the EP swallowed the farewell to the lead candidate model last year, it will, as expected, accept the cut of a political budgetary power. As compensation, one could increase the money for Erasmus or climate protection a little.
As long as the de facto Eurobonds of the euro zone+ remain a truly one-off borrowing, there are more arguments for than against them. The money will be distributed by Brussels. It has to be used for digitisation, climate-neutral energy generation, competitiveness and for investments. And this is a good thing.
It is the merit of the Visegrad states and Viktor Orbán, the longest-serving head of government beside Angela Merkel and Mark Rutte that no arbitrarily interpretable ideological conditions have been run into economic specifications. This could be one of the reasons, why mainstream Hungary and its prime minister are among the big winners of this EU summit. •
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