European Responses to Multiple Crises

Conversation

The way the Covid-19 pandemic has been dealt with has raised many questions for the future of the European project. How have the EU institutions and Member States managed the crisis so far? What challenges will coincide with the German EU Council Presidency in terms of crisis management and the future of the EU?

European Responses

The head of our Brussels office, Eva van de Rakt, talked to Green MEPs Ska Keller and Sven Giegold, the Director of the German Council on Foreign Relations, Daniela Schwarzer, and Michael Peters, financial markets expert for Finance Watch Germany, on the effects of the Covid-19 pandemic, the role of the European institutions and the challenges for the German Presidency of the Council of the European Union.

Eva van de Rakt: The way the Covid-19 pandemic has been dealt with has raised many questions for the future of the European project. How would you assess the way the EU institutions and Member States have managed the crisis so far? What do you think this has shown?

Ska Keller: Especially in the beginning, there was no European coordination, which is understandable to an extent, as public health measures are a matter of national competence. Unfortunately, we ended up with a mishmash of different national measures, borders being closed with no coordination. Within the EU, export bans were placed on medical materials, including from Germany to Italy, which was ridiculous given that these items were desperately needed in Italy. The European Commission tried to coordinate things a little, but without much success. This has improved a little in the meantime. Still, although there has been more talk of European coordination, for instance in the tourism sector, the Member States are continuing to do as they please. In the current phase, that of recovery, the European Union will naturally return to the foreground. I was concerned that it would not be possible to offer a strong European response, but I have to say that the Commission’s proposed recovery plan is a very important step in the right direction, even though it is obviously not green politics in its purest form. 

Daniela Schwarzer: The national reactions when dealing with the first phase of the public health crisis clearly showed that if European integration is not complete, it does not hold water. Politically, I found it alarming that there was absolutely no political framing in the first weeks of the crisis. A number of cities and regions were really struggling, which received far too little recognition at European level. A further lesson learned is how quickly the single market folds. And if everybody focuses solely on securing protection for their own countries, it appears that other political objectives are forgotten. When export controls on the EU external borders were introduced, there was no thought for the Western Balkans and the states of the Eastern Partnership. This shows the inconsistency of politics, which I by no means impute to ill will, but to a certain thoughtlessness in crisis management. But there is an enormous amount to be learnt from this, so that in similar situations in the future, the challenges are viewed more holistically.  

Michael Peters: The EU institutions were unfortunately fairly quiet for a long time – apart from the European Central Bank (ECB), which actually averted a worse outcome through its proactivity, which has so far avoided a financial crisis. This was very important, but is a problem in itself, because the Central Bank props up a financial system that was already unstable and is in need of in-depth reform.   

Sven Giegold: On the one hand, the crisis showed us that people expect comprehensive answers from Europe. Basically, they have expectations of the EU in the same way they do of a nation state, although we do not yet have a European Republic. As Ska said, there are no competences in the field of healthcare at European level. In Germany, we are now in favour of distributing refugees by quota – but there was no distribution of the sick by quota. As we did not want to take the risk of a worst-case scenario exceeding our capacities, only very few patients were admitted to hospitals with intensive care beds available, and even then, it was very late in the day. That did, admittedly, belatedly save Germany’s reputation, but we could have done things much better, in other words with shared competence – not only in the field of health, but also in the framework of a functioning single market. And last but not least, also through financial solidarity. As Michael said, the only institution that really managed to make a decision without major delays was the ECB, which had to prevent the break-up of the euro once again. 

How does the coronavirus crisis differ from other crises, from a political and economic point of view? What consequences should we expect?

Sven Giegold: One major difference is that we are so strongly in the grip of a virus. We still do not know what the course of this crisis will be, how bad it will be, and what it will mean financially. The uncertainty is far greater than with the climate crisis, for instance – that is a major difference. 

Daniela Schwarzer: I would also like to raise the issue of uncertainty and unpredictability. Obviously, there have been other pandemics before, but we have never experienced one that has spread so far across the planet and will unquestionably cause even more enormous upheavals in our neighbourhood. In the second half of 2020, the crisis will continue during a phase of political, social and socio-economic fragility within the EU. At the same time, we are seeing how the crisis is exacerbating global trends: the polarisation between the USA and China, the power grab by authoritarian regimes and the decoupling of the global economies. Additionally, the crisis coincides with many fundamental transformation tasks to be faced, concerning digitalisation as well as the future of employment, forms of participation and employment models. The great danger is that this crisis will weaken our ability to deal with this situation politically and push forward the transformation.
 
Michael Peters: From an economic point of view, this is the worst simultaneous supply and demand shock we have ever seen. In terms of predicting what happens next, we cannot assume a classic recovery scenario in a U or V shape. I think that we should expect waves that will hit different regions at different times, depending on outbreaks and spreads of the virus. Some Member States are less affected than others. And there are enormous differences between sectors: tourism has taken a particularly hard hit, but fully digital business models less so. Against this backdrop, a reflection is needed as to how transformation can be implemented in the long term, precisely because the circumstances will constantly change. 

Ska Keller: As we have mainly talked about the negative aspects, I would like to raise a few positive ones: this crisis has caused us to reflect on existential matters far more than any other crisis. It has led to an intensive reflection and also accelerated transformation processes. There are new possibilities for participation. Many more people can take part in webinars than would have been the case if they all had to be physically in the same place. Also worthy of mention is the value we place on work done within a society, particularly in the fields of education and caring. This new way of measuring value has a positive side. However, whether we go on to make something positive of it in the future remains to be seen. 

As an immediate response to the crisis, the EU has put together a package of immediate aid measures with an envelope of more than half a billion euros to support workers, businesses and economies. From 1 June, the EU Member States have access to 240 billion euros under the credit lines of the European Stability Mechanism, 200 billion in bailout loans from the European Investment Bank and 100 billion under the EU unemployment insurance scheme, SURE. At the end of May, the European Commission also tabled a proposal for a European recovery plan, aiming to put the European Green Deal at front and centre. The proposal includes the new recovery instrument Ska has already referred to, the “Next Generation EU”, with an envelope of 750 billion euros, and the redesigned EU budget, the Multiannual Financial Framework (MFF), with a volume of 1.100 billion euros from 2021 to 2027. What is your opinion of these measures and proposals? 

Daniela Schwarzer: First of all, it is very positive that these measures have been set in train so quickly. I feel that this is one of the major lessons learnt from the state indebtedness and banking crisis of the 2010s: the longer you wait, the more it costs to rescue it. The political mechanisms were triggered more quickly, despite the initial spats within the Eurogroup and the European Council. The support approach of three pillars – states, businesses and, finally, citizens – is a positive aspect. As for the recovery fund, I consider the large volume set out in the Commission’s proposal very important. A few years ago, it would have been absolutely unthinkable to go into negotiations with that kind of figure. I also support the fact that the Franco-German proposal and the Commission proposal both include loans and grants. Germany has changed its stance. As regards the funding side, I believe that we could be seeing the start of a much more far-reaching discussion. It is right to urge the Commission to borrow on the markets and thus bring its triple-A rating to bear, which will keep the financing costs down. At some point, however, the question of the length of the repayment term will need to be tackled. Where the money comes from is, in my opinion, also a question best answered through European instruments, specifically taxes. On the revenue side, the transformation agenda can be very easily combined with the need for financing: by means of a CO2 border tax, a plastic tax and a digital tax. This would really take Europe forwards, also because the question of democratic legitimacy is raising its head again and one could also consider the role of the European Parliament. I have also observed that people underestimate how urgently money will be needed, as early as the autumn. But if the crisis grows worse, it will be harder than ever to reach political agreement. 

Sven Giegold: My view of the first package is very different. I consider that the economic value of this package is much, much lower. The calculations clearly show that although liquidity has been provided symbolically, there is no solidarity. For instance, if Italy makes full use of all three instruments, the impact would be 0.08% of gross domestic product. The whole thing is little more than a public relations exercise. Dialectically, however, it was the objective weakness of this first package that made Merkel and Macron’s strong reaction to it possible and necessary. After all, everybody knows that you cannot help the unemployed, people living in poverty or a broken health care system with 0.08% of GDP and this was a moment of truth. On top of this, the ECB ruling of the German Constitutional Court also had a retrospective dialectic effect – although I think it is questionable in terms of European law. Because if monetary policy is blocked by Germany, Germany cannot also block fiscal policy – as a result taboos were broken. I have spent 20 years getting angry about taboos at various events in questions of liability union, debt union, EU tax and transfer union. The Merkel-Macron proposal at least weakened all these taboos, now there are only rearguard actions. It is acted as if the taboos had not been broken at all. However, the CSU will certainly no longer be able to run an EU election campaign on a “no EU tax” pledge. The argument in favour of maintaining the taboo of debt union will be that this is an exception. And as for the third major taboo of a transfer union, here we have really overcome an ideological blockade and won a victory for common sense. I believe that it will be a challenge for the Greens to bring these victories of discourse home as well. 

Michael Peters: It is vital that the joint EU borrowing will succeed. A very important part of this will be structuring the debt repayment over a long enough term to avoid restricting the financial wiggle room of the Member States. In my opinion, the real merit of the Commission’s proposal is that it suggests greater integration. Through joint borrowing, the EU is also acquiring safe assets comparable to US government bonds, from which it would profit greatly. I have another point to make: in the framework of the Green Deal, there are discussions on sustainability and digitalisation. Here we should make open source software mandatory for public funding, as it allows public money to be put to a particularly efficient and sustainable use. One of the EU’s strengths is that it sets standards and attaches rules to the distribution of resources, such as not allowing companies that receive public support to pay dividends or bonuses to managers.  

Ska Keller: The Commission’s recovery plan is really a great step forwards. Obviously, though, it is not without problems. I would like to refer to the rule of law question, in other words whether Viktor Orbán will also have access to the pot. Such a conditionality is a very important question to us Greens. We are calling for a requirement for the resources to be spent on the Green transformation. But the Frugal Four are talking about requiring the money to be spent in accordance with the infamous austerity rules. We still have a major battle ahead of us there. I think the proposal is excellent progress and not to be underestimated. I only hope that ultimately, we will really end up with major progress and not end up with a complete failure – what’s the expression? Start out a tiger, end up a fireside rug. I think it is far too early to know how well it will turn out. For one thing, there will be disagreements over the volume. For another, there will be clashes over the instruments, in other words whether and to what extent the resources should be distributed in the forms of loans and grants. A further stumbling block will be what the money can be spent on and what conditions are attached to it. Who gets the money and for what? What will the rules be? What own resources will it be paid back from? All these questions are fraught with conflict and it will therefore lead to a wide range of extremely interesting political configurations. 

Daniela Schwarzer: The figures Sven gave are obviously very impressive. I think that in the first phase, it was politically impossible to do anything more, which does not excuse the fact that the volume is ultimately far too low. On the subject of conditionality, I would like to say that in the second half of 2020 there will be a virtually unique political opportunity to take a tough negotiation stance with regard to the Multiannual Financial Framework and recovery fund, particularly on the rule of law and democracy. And we must not forget that economic competition and a rivalry between systems are raging all around us. We must also bear in mind that we will no doubt come out of the crisis weaker if we do not take a great step forwards. What I mean is that we need to link the internal transformation agenda to an external political agenda, in the field of climate protection, but also in digital matters.

Sven Giegold: Exactly, if you have major money to spend, you need to solve major problems with it. Something needs to happen on climate protection, biodiversity and the rule of law and this money must not just end up being spent on jobs for men again. It really needs to be spent on tackling big problems. However, we are not the only players in the game; there are other parties trying to bring their conditionality into the debate. One major danger I foresee is trying to make the paper tiger of the European Semester into an actual little lion. I am in favour of coordinating economic policy in the framework of the European Semester, but this must be on a parliamentary basis rather than a committee of expertocrats. I would like the European Parliament to have proper co-decision on the Semester and for the national parliaments to join the discussions. 

Michael has already talked about the mandate of the ECB, Sven mentioned the ruling of the German Constitutional Court. I would like to return to this issue and ask your views on the role and measures of the ECB.

Michael Peters: I am not a major fan of the fact that the majority of the crisis fighting had to be done by the ECB – but it was necessary to prevent the financial sector from collapsing. The ECB secured the entire financial sector – just as it did during the euro crisis of 2012. However, the problem is that this does not lead to a financial system with long-term stability, because it prevents any transformation in this field. The ruling of the German Constitutional Court is based on an assumption that it is possible to separate monetary and fiscal policy. It states that what the ECB does has gone beyond monetary policy and the ECB has therefore exceeded its mandate. How I would put it is that the ECB’s mandate is no longer fit for purpose – a long-term approach to the issue is needed. Another point I would make is that future climate risks were not taken into account at all in the corporate bonds bought up by the ECB during the coronavirus crisis. If the European Commission is committed to climate protection, the ECB must be likewise. What worries me most is a further exacerbation of the financial crisis. If you keep saying, the ECB and its money-printing machine will solve everything, it will lead to another situation in the financial sector in which risks, i.e. losses, are socialised and profits privatised. That is why we need a public debate on the mandate of the ECB. 

Daniela Schwarzer: The pattern of the last decade is that we have a federal institution, the European Central Bank, that is willing and able to act in crisis situations and protects the European public good, i.e. the euro and financial stability. Its responsibilities have increased exponentially in recent years. The ruling of the German Constitutional Court made it clear that the model of monetary policy that comes about if the Member States are not willing or able to take action on budgetary policy measures is reaching its limits and this raises questions about the functionality of the Eurozone. You also have to consider from a macro-economic perspective how a good interplay between European monetary policy and European budgetary policy is possible. It is not news that we need an in-depth debate in this context and a lot of the groundwork has already been done, not just by scientists and think tanks, but also in the Five Presidents’ Report. The shortcomings have been identified but no major political steps have been taken, because it is obviously much easier to let the monetary policy do its thing and avoid asking questions about contractual law and having to think about how to achieve a democratically legitimate political deepening of the Eurozone. 

Sven Giegold: My view is that the argument of the German Constitutional Court is economically outdated, as it assumes a division of monetary and economic policy. However, the court also hit a nerve, which is that the ECB did not do its job voluntarily. Time and time again it acted out of sheer necessity as the last person standing, to ensure the stabilisation for which nobody is willing to pay the democratic price it would have cost: in certain countries, this price would have been reforms and in others, the willingness to show solidarity. There is no Central Bank anywhere in the world that has as much power as the ECB. For that reason, I am a big fan of legal checks and balances and reject the argument that this would limit the independence of the Central Bank. Obviously, though, these checks and balances would have to be carried out sensibly – part of this is that the national supreme courts would not be able to pass judgement on the ECB, as that is the job of the European Court of Justice. As the European Parliament we should also be asking how effective our own checks and balances actually were. Unlike the Bundesbank, the ECB is accountable to the Parliament. Reading the ruling, there are many arguments that I have never heard in dialogues on monetary policy and we need to approach that self-critically as well. This is why I have made the case for discussing reforms on controls within the Committee on Economic and Monetary Affairs. 

You have all stressed the fact that this crisis has thrown up many uncertainties. On 1 July, Germany assumes the Presidency of the Council of the EU for six months. What opportunities and challenges will coincide with the German Council Presidency in terms of crisis management and the future of the EU? What could and should the German government’s objectives be? 

Ska Keller: The opportunities for the German Presidency of the Council are enormous, but so are the risks. Council Presidencies always set strongly-worded priorities and end up having to do what is on the agenda. It is no different for the German Presidency. Now, all is about recovery, recovery, recovery. Obviously, Germany will have a huge role and a very important one, but this would also be the case if Germany were not holding the Presidency of the Council. What I hope will come from the Presidency is that Germany will not skulk in the corner with the naysayers but act as an intermediary, an honest broker, that it really tries to strike a balance and find compromises. The German government has not been at all good in that in recent years, it has acted as a brake. This is why it is a real opportunity that it will be Germany of all countries taking the Presidency at such an important time. I hope that this will be a plus point in terms of recovery.

Daniela Schwarzer: The “honest broker” aspect is very important, but at the same time Germany needs to show that it is prepared for conflict. It would be absolutely the wrong attitude to come across too friendly and thus too defensive on certain matters, particularly the rule of law, democracy and climate issues. Now is the time the set the course for the next few years. This concerns spending policy, but also a return to certain basic principles in our action, as well as our model for the future. It will come down to taking a clear and strong stance in all matters involving the basic values of the European Union. While it holds the Presidency, Germany can make a major contribution to this. Obviously, it cannot do so alone, success ultimately requires all 27 Member States on board. 

Michael Peters: I hope that Germany is honest in communicating the benefits it actually derives from the EU. As a member of the Eurozone, we export an enormous amount within the Eurozone. This fact gets far too little airtime in public discourse in Germany. The advantages can also be used as a counterpoint in discussions with the so-called Frugal Four. The debate has been so shallow and so acrimonious in many countries and more should be said about the economic benefits of the European Union, particularly in Germany.  

Sven Giegold: I predict the following danger for Germany’s European policy: the somewhat narrow-minded, national conservative wing of the CDU/CSU has had an enormous amount to swallow. My fear with the Green Deal is that once it really comes down to discussing things like the severity of the rules, the consequence of upping the targets, everybody will suddenly decide that it’s no longer reasonable. The two major jobs of the Council Presidency will be the Multiannual Financial Framework and the Green Deal and I worry that the relevant parts of the Green Deal will be sacrificed. This can already be seen in Germany’s position on the Common Agriculture Policy, which is frankly an embarrassment. But to end on a positive note, what I am really pleased about is that there are now two things linked to the MFF and the Council Presidency that could not have been foreseen. Firstly, the fact that the matters of joint taxes, the end of tax dumping and joint borrowing have been put on the agenda. They also appear in the Merkel-Macron proposal. I hear from the Commission that Germany is really piling on the pressure in this context. That is not something that could have been predicted and Olaf Scholz is playing a positive role in this. Secondly, the Conference on the Future of Europe will be organised seriously and with specific targets in mind, which is very important for Europe. Europe’s capacity for action, internally and externally, is so important and changes in the institutional framework are absolutely vital. 

Ska, Daniela, Michael and Sven, thank you very much for the discussion.

The conversation took place on 3 June 2020.