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Europe: bouncing back stronger and more resilient

Claus Sorensen, Senior Advisor Interel and former Director-General in the European Commission for DG Communication and DG Humanitarian Aid &Civil Protection and member of the WHO Advisory Group on response to health emergencies and outbreaks.

The virus has turned into an economic depression. This time it’s not just Greece. The whole of Europe has been hit. The prediction of an economic loss of 7.7% has morphed into an 11% drop in GDP. We are staring into the abyss. The answer is certainly not austerity, national protectionism, growing inequalities between and within member states or authoritarian governments becoming the norm. But what should Europe do?

EU leaders are currently thrashing out the size and shape of the recovery package. It is reassuring to have the calm determination of Angela Merkel at the helm, working with a French President who, even if some compatriots don’t like it, actually understands economics. As Germany and France propose a massive national and European fiscal stimulus package, upending all manner of taboos, who in Europe would want to jump ship?

Fiscal bazookas

The cure starts with “fiscal bazookas”, tilted towards stimulating those countries with narrow fiscal space, boosting demand on the internal market while allowing state aid rules to be flexible enough to kick start the economy, hopefully while maintaining a level playing field. The “bazooka” is to invest in European resilience and sovereignty, bolstered by an aggressive trade policy, preferably multilateral , but where that fails, bilateral. On top of that, it’s a no-brainer: the stimulus becomes the instrument for a green and digital revolution.

This is what is on offer. I remain an optimist but also a realist. The path ahead will not be easy. But backtracking is simply not an option.

Frugal four should focus on better management of funds

The first sign of hope was that the Franco/German initiative influenced an ambitious Commission recovery plan. Historians can debate whether it was Europe’s Hamilton moment. But common borrowing and transfers that point beyond the EU budget for 2021 to 2027 smell of a revolution. A new page has been turned.

The “frugal four” would do well to follow Germany’s conversion. Obstructing transfers to the hard-hit south does no good to growth in Europe. They should rather concentrate on how the money is managed and where it’s spent. The thrifty countries’ wealth is rooted in a thriving internal market, including in the South. They have a golden opportunity to insist on improved performance, the benchmarking and monitoring of structural reform and enforcement of fiscal common sense. The tool to achieve this is a beefed up Economic Semester. The lessons learned from the 2008 financial crisis are sinking in: The economics of interdependence are simple − we either sink or swim together.

The increased flexibility in the position of the Danish government gives me hope. The new Finnish Finance Minister expressed gratitude to France and Germany for their initiative and are now offering a more sophisticated analysis.

Resilience the new buzz word

The €2.39 trillion recovery plan, all European sources combined, is unprecedented. Add to that the national stimulus schemes and the course is set for an irreversible green and digital transformation, with resilience the new buzz word. Globalisation pushed much of Europe’s production out to the East. The wake-up call was that essential medicines were no longer available. A whole range of strategic supply chains may have to come back to Europe. A big question will be if self-sufficiency is to be understood as being European or national. It will soon become clear that national markets are too small and that the only way to regain sovereignty on strategic raw materials and supply chains is the European route… this requires European assertiveness.

Tougher trade defence instruments and investment screening to avoid Chinese buy-ups of European companies could be at odds with Europe’s commitment to multilateralism. The answer is that carrying a big stick does not necessarily mean using it, providing however that our trading partners play by the same rules. A delicate balance must be struck. On top of that, new trade deals must be sustainability-tested and Paris-compliant so that the new green and digital agenda is not undercut. This will add an extra layer of complexity. Already the deal with Mercosur is experiencing a rough ride through national and European parliaments. More crunch points are to come.

Foresight and crisis management

Resilience is about understanding risk, responding and bouncing back. The crisis will demand an honest appraisal of what Europe could have done better. Why did we let Italy down and allow the virus to spread? What instruments did Europe lack that the US and China, with very different forms of governance, were able to deploy? Like it or not, we need a centre of command not a negotiating committee. The EU will need to address how to improve crisis management.

Upstream, all policies should be screened for risk. Where are we vulnerable? Financial meltdowns, attacks on critical infrastructure, a new wave of climate migrants, bio and digital terrorism, anti-microbial resistance, attacks on democracy and fake news, pressure on the borders? It’s a long and rather scary list. But again, the crisis has reminded us that the world is no kindergarten.

Indeed the ‘foresight’ mentioned in Commissioner Sefcovic’s mandate would be better geared towards identifying black swans. And Commissioner Lenarcic should suggest to President von der Leyen how the EU should prepare and manage future disasters. It’s about much more than stockpiles and a bit of transport here and there…

Tidying up the Treaty

Is the Treaty up to scratch? Well, it can be interpreted creatively, and is in many respects sufficient. However, even if there is no stomach for wholesale changes, a reality check on the Treaty is approaching.

The Conference on the Future of Europe should get underway in the autumn during the German presidency, and will need to focus on more important matters than the Spitzenkandidat system. Undoubtedly the Eurozone and building up the EU’s competence in areas like health will be a priority. Attention will also have to be given to addressing crisis management and the need for a stronger social dimension to handle the profound changes triggered by the digitalisation of labour and the gig-economy. Taxation of GAFA is also bound to land on the table, as will the new own resource taxes on plastic, carbon and emissions, as envisaged in the EU budget after 2027. A move away from unanimity in areas like taxation and foreign affairs would clearly make sense.

Two-speed Europe?

This might re-ignite the idea of a two-speed Europe. Efficient decision making cannot work with vetoes. This simple truth sits uncomfortably in those countries, like my own, where leaders have failed to explain how vetoes make joined-up policy making impossible and in fact weaken sovereignty, as real decisions are blocked.

Incidentally we may also need a dual structure for a different reason. It could provide a half-way house where the UK, Turkey and the Ukraine can sit – and why not a home for lukewarm opt-out Europeans like my compatriots the Danes, who have difficulties stomaching efficient decision making when it comes to taxation, health and foreign policy? Or for those countries, such as Malta, Hungary and Poland, where governments are questioning European values?

We need results

The younger generation will be harsh in its verdict if the promise of a green, digital future is diluted. Failure will also play into the hands of the populists, subdued at the moment, but waiting for their moment to say “I told you so”. The public has so far stuck by their leaders. However some leaders could be in trouble, as the post mortems on their crisis management emerge. For the time being citizens accept that the balance between health and economic impacts came out in favour of saving lives. But they need a clear vision for the future: jobs, teleworking, the green agenda and more importantly assurances that Europe is in control. They also need to know that massive surveillance using personal data respects their rights, and does not play into the hands of renegades like Cambridge Analytica or authoritarian regimes such as Hungary and Poland. It is about who we are…

All this is at stake in the coming weeks.

Europe has survived many a crisis and, in the words of Mark Twain, reports of its death are greatly exaggerated. Most EU leaders know they must deliver. Enlightened self-interest will eventually dawn on those more reluctant to budge. The amount of money and the prospect of an economic upside means that there is something there for everyone, North, South, East and West. So while some leaders may wish to go home claiming they have won a major victory and defended national interests, the real success story will be the EU’s coordinating role and the way member states eventually acted together. The visionary Franco/ German initiative has confirmed that Ultima Ratio has prevailed. In times of true danger the legion bands together.