By Oliver Schmidtke, Director of the Centre for Global Studies, University of Victoria

Towards a Pan-European solidarity in the COVID Pandemic? The European Union’s economic recovery package on the line

The leaders of the EU and its member states are currently meeting at a European Union summit in Brussels to agree on the details of a massive financial stimulus and recovery package as well as the new EU seven-year budget. A colossal amount of money is at stake: The overall seize of the stimulus package that the EU considers to make available is – with an estimated Euro 750 billion - massive and historically unprecedented in scale. The rescue package is a reaction to the most severe economic depression that Europe has witnessed since the Second World War. In particular those countries that have been enormously affected by the Corona Pandemic or that were economically struggling even before the COVID crisis hit, are dependent on a substantial economic and fiscal stimulus. According to the European Central Bank, the Euro-zone economy can expect an 8.7% decline in 2020 because of the global pandemic. Countries like Italy and Spain are forthright and at times adamant in their demand for – unconditional - support from the European Union.

While there seems to be an emerging consensus on the need of a robust EU stimulus package, the terms under which such a large-scale economic support should be launched are highly controversial. On the one side of the debate are the member states arguing that the financial aid should be made available to their struggling economies as grants not loans. On the other side are the ‘frugal four’ led by The Netherlands and Austria that make a case for a line of credit and the EU’s responsibility to attach conditions to these loans (demanding structural reforms regarding, e.g., the welfare, pension or tax system in countries like Greece, Italy and Spain). One of the critical and contentious questions at the Summit is whether and in what form member states should have veto power over the money made available by the EU for recovery purposes in particular countries.

In a nutshell, two key issues will be at the centre of the current negotiations: First, there is concern about the overall size of the stimulus package. The funds would need to be borrowed on the financial markets and paid back after 2027. This step would create an enormous financial burden on EU member states and the EU itself for years, if not decades to come. Second, the current crisis is also a critical test for what the European Union stands for looking into the future: Is the European Union willing to make an important step toward a genuine pan-European solidarity and even a European fiscal union in response to the deep economic hardship caused by the COVID pandemic? In this respect, the Summit is likely to set the tone for the post-Corona direction of the overall European integration project.

 The Summit is scheduled to last until Sunday. At the moment, the talks are – as Italy’s Prime Minster Conte put it – ‘deadlocked’.

 Dr. Schmidtke has a great deal of experience responding to TV, Radio and Print media inquiries. See Dr. Schmidtke's media expert profile.

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