This week we are digging more into the recovery fund, the tool that will help the most affected Member States cope with the economic consequences of COVID-19. We’ve organized a video talk between Raymond Torres, Funcas Europe Director, and Clara Volintiru, Associate Professor in the Department of International Business and Economics at the Bucharest University of Economic Studies.
As summer holidays are or, better said, should be around the corner, we have asked Nick Malkoutzis, Editor of economic and political analysis of Macropolis, about the prospects of seeing again cross border European tourism.
We’re also featuring the second episode of Europe after coronavirus podcast promoted by OpenEUDebate and including at the end, as usual, our top readings of the week.
Video talk The key aspects the recovery fund should include
As we wait for the Commission proposal, size, timing and nature are the 3 most important elements that the recovery fund should consider, explains Raymond Torres.
“Some are talking about 1 trillion euros, others double that amount. This represents between 7% and 14% of EU GDP. Something of that magnitude (around 10% of GDP) is more or less what the US is doing already”, says Torres.
However, timing is of the essence. “The recovery fund is supposed to be associated with the EU budget. So it will only be activated in the next year. This would be too late because action is needed urgently in order to prevent a significant decline of the European economy and put it on a recovery path before the end of the present year. So, anything we could do to advance timing would be crucial.”
“The nature of the intervention is also key. Is it a series of loans to countries or is it actual cash which is provided to countries that are already highly indebted?”, says Funcas Europe Director.
“The idea of rules is also very important”, says Clara Volintiru. “How will the funds actually get to the Member States and further down how they get to the beneficiaries… It needs to be accessible to all type of beneficiaries as many of the persons who will need it are not very well versed in the Brussels technocratic language.”
Grants, not loans, is the key question at play
“Some countries are heavily indebted and the policies they are adopting now will further increase debt. If they take some extra loans, there is concern about the risk premium going up, t aggravating the costs of financing”, says Torres. “This would significantly reduce any positive effects coming from the recovery fund.
“Other Member States such as The Netherlands criticize the idea of grants as a pure transfer to countries that were not careful enough managing their budgets”, explains Torres. “This is one of those stumbling blocks in the negotiations at the moment.”
“For countries in central and eastern Europe such as Romania, Bulgaria, Croatia, who want to make full use of the recovery fund, an increasing public debt will severely affect their chances to adopt the euro currency in the future. So there are considerations to be had beyond the immediate needs of fighting this crisis”, says Clara Volintiru. “The discussion of loans versus grants needs to consider how this will be placed in the multi speed Europe in the future.”
Are sky-high levels of debt going to be paid?
As public debt is reaching extraordinary high levels of debt – Italy could reach 150% of its GDP in 2021 and Spain will exceed 100% soon – there are more and more questions on whether debt can be paid back and how.
There are a few possibilities, according to Torres. “I doubt any new taxes will be enough to reduce debt. Another option is cutting spending, but austerity would be counterproductive now. A third option would be to drop part of the debt, which is easy to say and difficult to do when countries still run deficits and need to engage in new borrowing. Finally, there is an interesting option: consolidate the purchases of public debt that the ECB is doing, turning it into a permanent feature of the ECB’s policy. In any case, let´s keep in mind that no debt is sustainable without economic growth. So growth should be the top priority now”, says Torres.
Overall, the current situation is a “great opportunity to push forward the European project because any form of concrete action in the sense of risk mutualisation or burden sharing would actually be a step forward in the actual construction of the European Union from the economic point of view”, concludes Volintiru.
Europe/COVID-19 The challenge of these days is existential for many tourism businesses
Tourism is one of the most severely hit victims of COVID-19. It represents 10% of the EU’s GDP and employs around 22,6 million people (11,2% of the EU’s labour force).
“The Greek government is hopeful that at least part of the tourism season can be rescued this summer. Given that it accounts for 10-30% of the Greek economy, it’s clear why Athens has been at the forefront of pushing for a common EU approach over the coming months”, says Nick Malkoutzis.
However, it seems unlikely that there will be much travel this summer, explains Malkoutzis. “Firstly, we don’t have convincing answers yet to many of the public health questions. Also, the economic uncertainty will prompt many Europeans to be cautious with their money. Finally, we are already seeing some European politicians advise their citizens that holidays this year might, at best, involve travelling only within their own countries”.
Some countries have started bilateral talks with neighbours to ensure open borders this summer season. This is the case of Croatia and Slovenia. Austria’s Tourism Minister has claimed they will be open for German tourists this summer. This dynamic may end up discriminating many EU citizens depending on where they live. The Commission is promising coordination to prevent this.
“Given that each country is going through a different COVID-19 experience, sometimes based on quite different scientific advice, it seems nearly impossible to find a common position. Greece, like others, may be desperate for tourism revenue, but it cannot risk undoing the good work done so far in suppressing the disease”, says Malkoutzis.
You can now listen to the second podcast of the Europe after coronavirus series of 10 conversations promoted by OpenEUDebate and produced by Agenda Pública. This time, I talked to Marta Domínguez, Research Assistant at Bruegel, Michele Chang, Professor of European Political and Governance Studies at College of Europe, and George Pagoulatos, Vice President at Hellenic Foundation for European & Foreign Policy.
Commission explores EU-wide crowdfunding project to finance recovery The European Commission is in contact with various platforms involved in crowdfunding and proposed to lead a joint EU-wide crowdfunding campaign to help some of the most affected groups by the coronavirus pandemic, writes Jorge Valero.
