Next Generation EU: the vision from Berlin

We’ve interviewed Thomas Westphal, Director General for European Policy at Germany’s Federal Ministry of Finance, one of the key names behind the momentous change that is emerging in EU policymaking these days.

Carlos Carnicero.- There are, of course, some obstacles in the way and these obstacles are mainly some member states that they don’t like so much the Commission proposal. I’m thinking about the so-called frugal member states, Denmark, Sweden, Netherlands and Austria. So how would you convince these four member states of the need to see a recovery fund along the lines of the one that the commission has just presented?

Thomas Westphal. – Such a crisis has never been experienced before. We have all sent our economies into a lockdown situation. Now we need to make sure that we develop together a recovery plan that allows Europe, every member state and every region to become stronger than we were before. We need to prepare for the future. Everybody says this is the decisive moment. The commission has now put on the table an answer for such a decision. Of course, there are complex negotiations ahead of us. Nevertheless, the aim is that we reach an agreement soon. 

C.C.- One of the obstacles that is on the way is that these member states that I’ve mentioned, they don’t like the idea of grants and they very much favor the idea of loans. And as you presented the proposal with France that was considering grants and I assume that you understand the need for grants rather than loans. Why do you think it’s so important that these recovery fund has a component of grants rather than loans?

T.W.- Principally, the EU budget hands out grants. The recovery instrument proposed by the Commission follows this approach. It will temporarily channel additional funding through EU programmes to finance investments and reforms to create a robust and sustainable growth process of a modernized European economy. The recovery instrument will top up new and existing EU programmes. So, it is not about giving budget aid to member states or regions as some critics say. It is about moving Europe forward as a whole. 

C.C. – Some analysts are alerting of the risk of dilution of the single market because the funds of this recovery plan will be available only in mid 2021. And in the meantime, we are seeing funds given to big companies, particularly northern Members States. So this can create some distortions in the single market. Do you share that concern?

T.W. – I see the argument. We need to take rapid decisions and make sure that the funding will be available and disbursed timely. We are currently looking into what we can do with the current EU budget this year. It is well understood that our industries, companies and citizens as consumer or tourist are so much integrated in the single market that it does not make sense to act along national lines. 

C.C. – What kind of conditions do you envision for granting those funds?

T.W. – We have to prepare for a digitalized economy. We need to take into account the greening of the economy to fight climate warming. So, this money needs to be made available for programs which cover these purposes, because this is the only way forward to make sure that the European economy comes out of this pandemic stronger than before.

C.C.- So you didn’t mention any kind of conditionality linked to national reforms to certain reforms in the labour market? To be ensured that you comply with the now suspended stability and growth Pact. Do you envision those kinds of conditionality for receiving funds?

T.W. – I think we should use our existing coordination mechanisms like the European Semester where we agree on country specific recommendations every year. The money should be available for the reinforcement and transition of our economy: projects that help against climate change, projects to modernize our industries and to prepare for artificial intelligence. There should also be the possibility for support of national reform programs. 

C.C. – More General. We’re seeing for instance, I saw the secretary of state of European affairs from France saying that this was, he said, a revolution in terms of seeing for the first time common debt at the EU level. Do you share that view that this is a big moment for the EU in terms of changing and doing such a revolutionary step? 

T.SW. – The Corona pandemic is a historic challenge, so the answer we are discussing needs to be historic. The response has to be targeted, timely and temporary. The core of the German-Franco initiative is that we are willing to allow debt financing of the EU budget temporarily for this specific policy answer to the crisis. The funds raised by the Commission on the markets can be disbursed as grants through EU programmes and will be paid back through the EU budget. For Germany, it is also important that this instrument has a solid legal basis ensuring democratic participation of national parliaments through the EU own resources decision. 

C.C. – Why do insist on the fact that this is temporary mechanism? Because some are saying that we are seeing for the first time an EU fiscal policy in action. And that would be something that would be valuable for the EU in the long term. And you are insisting so much on the fact that this is a one off because we have an exceptional situation. And so you don’t envision this or a similar mechanism staying in the EU after that?

T.W. – I think a real fiscal policy for the European Union still needs to be developed. This would include European taxes to be raised by the EU level and decided by the European Parliament as well as certain fiscal policy decisions taken on the EU level. Germany is open to a discussion on a deeper economic and fiscal integration in the EU. However, you cannot pick one element of a deeper EU integration level without discussing the others.

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