French-German recovery plan faces tough Brussels test

Brussels – The road to clinch an EU recovery plan remains difficult, officials have warned, despite the surprise entente between Berlin and Paris to back a 500 billion euro rescue.

France and Germany are the most powerful of the 27 member bloc and together make up roughly half of the eurozone single currency economy.

Anything of significance agreed at the EU level requires their backing, and Germany’s surprise decision on May 18 to endorse a post-coronavirus plan depending on jointly issued debt was seen by many as historic.

But, behind the scenes, EU sources warned that the outcome remains unknown and that the 500 billion-euro ($546 billion) proposal could fail, given member state divisions.

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“In order to reach an agreement all 27 EU member states will be involved,” said Charles Michel, the head of the EU Council, whose unenviable job will be to host a summit to seal a deal.

In the landmark gambit, French President Emmanuel Macron and German Chancellor Angela Merkel proposed that the EU executive arm, the European Commission, borrow on the markets to raise the recovery funds.

Joint borrowing is a huge taboo in many EU capitals and officials warn it was not at all certain that Austria, the Netherlands, Sweden and a few others would sign on despite Germany’s decision to go along despite its long-held reservations.

“We still have to convince other member states, four in particular: Austria, Denmark, Sweden and the Netherlands,” French Finance Minister Bruno Le Maire said.

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“And we shouldn’t hide the fact it will be difficult.”

Danish Finance Minister Nicolai Wammen, who supports the so-called “frugal” line, was not won over.

“There is a well-known position from Denmark, and that has not been changed by the German-French proposal,” he said.

In Brussels, one European diplomat said tersely that “we take note” of the proposal.

The post-coronavirus recovery plan will officially be proposed on May 27 by the European Commission which will do its best to reflect the position of the capitals.

It will be part of the already painful negotiations towards a long-term EU budget, where the northern “frugals” oppose more indebted members to the east and the south.

“I don’t think the Franco-German proposal will ever be officially discussed,” a European source said.

“The commission still has to come up with a text that we hope won’t be discarded immediately, as is generally the case,” she said, referring to EU traditions of intense and long-drawn out budget haggling.

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– ‘Tough negotiation’ –

 

EU leaders will likely thrash out the deal in June, with the final plan then facing a vote in the European Parliament, where MEPs support high levels of spending.

“It’s a proposal. Nothing is done and everything is to play for among the EU member states,” said economist Anne-Laure Delatte, of the CEPII think-tank in Paris

The link to the EU budget complicates matters and any extra borrowing will require unanimity.

“You have to get greenlights from national parliaments and there The Hague and Vienna are going to be problems,” a senior EU source said.

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“And ratifications take time. A very tough negotiation is looming.”

In the back of many  minds is what happened with a previous French-German proposal that ended up thoroughly defanged by the EU decision process.

In 2018, Paris and Berlin displayed similar ambition towards reforming the eurozone, including the creation of a budget for the 19-nation single currency bloc.

But in the end, the plan was stripped of all ambition by a Netherlands-led group of member states.

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But an optimistic Janis Emmanouilidis of the European Policy Centre, believes the “story is different” now, given the incredibly high stakes of the coronavirus pandemic.

“The support for those reforms was not as strong in Germany,” he said.

The opposition from the Netherlands and others “played into the hands of those in Berlin who actually didn’t want to go too far.”

“I think what happened yesterday, the chances of getting a deal have increased immensely.”

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By Alex Pigman