Paying for coronavirus crisis has become new crisis in EU

Ahh rats! The fleas they carried in their fur were the cause of the spread of the Black Death plague across Asia and Europe in the 14th century, killing some 50 million. And since then rats are considered vermin – popularised in folklore in The Pied Piper of Hamelin and published in English in 1605.

It’s the tale of a German town overrun by rats until they are led away by a mystical musician. As the tale tells it, when the local citizenry refused to pay that Pied Piper he destroyed the town’s future by leading the children away as they danced to his merry tune. Yes, a medieval tale, but still one with a moral that holds true now in our current era of pandemic: He who pays the piper calls the tune.

With German Chancellor Angela Merkel and French President Emmanuel Macron early last week proposing a €500 billion (Dh2.01 trillion) plan to take the EU out of this pandemic, you would be forgiven for believing the citizenry of today’s pan-European Hamelin might live happily ever after this pandemic.

Oh, if only that were so: Enter the frugal four and their wicked plans to undermine a fairy tale ending. Austria, Sweden, Denmark and the Netherlands stand in the way of today’s modern- day Macron- Merkel Marshal plan for European recovery.

Macron-Merkel plan

The cornerstone of the Macron-Merkel plan allows for that €500 billion to be issued to hard-hit EU nation states. The money would be raised by the European Commission borrowing on capital markets and would be used to support EU spending through grants rather than loans to national governments. Loans have to be repaid. Grants don’t.

While to cost of borrowing that €500 billion is relatively cheap now on international markets, the frugal four believe that the money should be doled out in loans – and will need to be paid back.

The €500 billion is in addition to another €540 billion previously agreed by EU finance ministers in the second week of April, with that initial tranche of assistance going to support member states, companies and workers as the coronavirus crisis took hold and Europe’s economy suddenly came to a screeching halt.

The new €500 billion plan would be to get the economy of the EU – combined the market of some 500 million people is the third-largest economy in the world – back up and running and more robust for future challenges.

Throughout, the Netherlands has been at the forefront in opposing easy terms and cheap loans, either as supported predominantly by the eurozone’s bailout fund – the European Stability Mechanism – in April, or now under the Macron-Merkel plan

As things stand now, the European Commission – the cabinet-like structure that oversees the day-to-day operations and budget of the EU – is leaning towards the Paris- Berlin plan, but Commission President Ursula von der Leyen is still putting the final touches to its proposal that will hopefully be able to bridge the gap between the two EU heavyweights and the frugal four.

Opposing big spending

As far as the governments in The Hague, Vienna, Copenhagen and Stockholm are concerned, grants are anathema, they generally oppose big spending and are dead set any plan that might leave EU member states mutually responsible for member states’ debt.

According to Eurostat, the average debt level across the EU stood at 84.2 per cent at the end of the third-quarter of 2019, or at 86.1 per cent for the 19 states that use the euro as a common currency.

By contrast, Italy’s debt to GDP ratio stands at 137.3 per cent compared to a far more manageable 59.4 per cent for the Netherlands. Spain, with a debt-to-GDP ratio of 97.9 per cent and hard hit by coronavirus is standing with fellow sufferer Italy, cheer-leading the way for the Berlin and Paris plan.

The frugal four set out their principles in a policy document, warning that any financing had to be based on loans, potential debt couldn’t be mutualised and funding was a temporary “one-off” step for two years and with an explicit sunset clause.

In essence, they believe that if there is going to be a prolonged and sharp contraction post pandemic, individual states should be responsible for their borrowing and spending – not the EU as a whole.

As with most European crises, this latest apparent impasse for the bloc will likely be resolved over hours of negotiation in backrooms of Brussels before the EU leaders will engage in marathon talks at a summit, then striking a convoluted compromise that few will like but all can live with.

Yes, the final plan will be much in line with the plans laid out between Merkel and Macron, with the EU Commission tweaking it enough so all can claim a victory of sorts.

After all, those who pay the piper do get to call the tune. And they will live happily ever after…