Comment: The EU must borrow to fund its own recovery
The EU needs to fund a €1 trillion recovery programme, or risk a rising wave of discontent across member states
The single biggest impediment to the European Union doing more in response to Covid-19 is not a lack of will on its part, but a lack of will on the part of member states to fund EU-wide programmes.
Naturally, every member of the union wants to keep as much of its tax income as possible while still maximising the support it receives at an EU level. But the union needs an economic jump-start, and over the past number of weeks, my colleagues and I in the Renew Europe group in the European Parliament have been seeking different ways to fund that jump-start.
Fundamentally, we need European borrowing for European spending. At the moment, the sole function of the EU is to seek to reduce the rates at which member states borrow from the market. I think it’s time to change things around, as the current way of working just doesn’t deliver what citizens need now.
The EU must start actively borrowing from the markets itself to fund the €1 trillion reconstruction and recovery programme which families and SMEs will need to help them get through the current economic crisis.
This isn’t the first time Europe has needed a major programme of investment. Following World War II, the US government provided the equivalent of $128 billion in today’s money to rebuild war-torn Europe in the shape of the Marshall Plan. Many now believe that without this support, the EU we live in today might never have been established, as the removal of trade barriers was a key component of the plan.
This time, however, it is up to Europe to fund its own recovery and reconstruction. Citizens are asking, quite rightly, what the union is going to do to help them, their businesses and their regions. Those of us in leadership positions at a European level cannot keep blaming national governments for not funding our ideas; we must fund them ourselves.
Using the European Commission’s existing legal right to borrow from the markets, it should issue consolidated annuities to finance the €1 trillion reconstruction programme. As the commission already has a AAA rating with most agencies, we could conservatively expect to see interest rates of between 1.5 and 2.6 per cent.
Crucially, member state governments would not be required to fund interest repayments, as that would come from the Union’s own budget.
Where would the €1 trillion go, and what would it be spent on? There are five elements to this:
- Showing solidarity with counties most affected by the pandemic: Supporting countries and regions ravaged by the pandemic;
- Investing in European infrastructure: modernising our transport, energy and infrastructure networks, thus relieving pressure on member states’ own capital budgets;
- Decarbonising Europe’s economy: moving Europe to a climate-neutral future and delivering a just transition to ensure that no one is left behind;
- Preparing for the future: ramping up investment in research and development to ensure we have the people with the right skills and ideas to grow our economy and prepare for future crises;
- Building up European industries and SMEs: ensuring that Europe remains competitive at a global level and protecting jobs
Crucially, all of the above should be funded by grants - not loans - to member states. National governments are under enough pressure with their public finances. The EU needs to invest in its member states and its citizens, and not look for the money back with added interest
The multi-annual EU budget is currently being negotiated but it is in a deadlock, with many member states unwilling to provide additional funding to the union to pay for the important programmes planned in the areas of climate action, research and development, regional development and - crucially for Ireland - maintaining the common agricultural and fisheries policies.
If we implement a recovery plan such as the one I am proposing, there would be no need for our union’s 27 member states to increase their contributions, and I would argue that the impact on our economies would be much greater also.
There will be hard decisions to be taken. Ensuring that the union has the resources necessary to fund the repayments owing on a €1 trillion loan will be difficult. There are proposals for an EU-wide digital tax, and when the OECD makes its report on this issue in 2021, Ireland will have to face up to it.
Perhaps the revenue raised through the EU emissions trading scheme could be pooled by the commission as a whole to help secure the funding for the recovery and reconstruction plan. It has been estimated that this alone could generate €12 billion towards the repayment of interest on loans.
Additionally, the commission has tabled proposals for a tax on non-recycled plastics that would in turn raise a further €9 billion.
If we want the EU to have the tools to jump-start our economies, and if certain member states continue to use their veto to block an alternative rescue plan using eurobonds, then we need to look at alternatives. My proposals are not without challenges, but doing nothing, and simply maintaining the status quo, is no longer acceptable.
Obviously, the long-term strategic objective must be to get more of our member states singing off the same hymn sheet on more issues. That is what will truly make the union work, and deliver for its citizens.
But until that comes to pass, we need measures that address the challenges facing our citizens now. The commission, supported by the parliament acting as representatives of the people, must take the lead or risk this great project failing.
The parliament will debate the economic effects of this pandemic and what recorvery plan should be put in place next week. The Renew Europe group is ready and willing to ensure that this debate leads to something concrete yet radical to protect our citizens’ futures.
Our union is currently facing the biggest challenge in its history. The 2008-2010 recession will be nothing in comparison to the economic depression all 450 million EU citizens are now facing into.
We have already seen growing anger and resentment in Italy and in Spain about the EU’s response to the Covid-19 crisis. This Euroscepticism will only grow, and will be used by those who have always opposed the union to damage our shared solidarity, if we fail to respond to the gravity of this economic crisis with the same level of determination, resolve and ultimately money.
Billy Kelleher is a Fianna Fail MEP for the Ireland South constituency