LETTER FROM BERLIN

Merkel’s EU Legacy Summit

By Klaus C. Engelen

ngela Merkel is be- especially during the final phase of national elections, helping the right- ing praised around the the negotiations and implementation wing Alternative für Deutschland and world for her astute of the coming 2021–2027 budget and weakening the CDU/CSU. When her handling of the coro- the new Recovery Fund. SPD coalition partner and Finance navirus crisis. Voters The editors of Euractiv offer an Minister Olaf Scholz, next year’s Agive the German chancellor her high- interesting analysis: “If one had to SPD candidate for chancellor, greeted est approval rating in years. And her name a day on which Merkel took up the joint debt financing of the corona- center-right Christian Democrats are the fight for her legacy as a European virus recovery fund as “irreversible profiting from her popularity, reach- shaper, it would have been 18 May progress for Germany and the EU,” ing an approval rating of 40 percent, when she and French President Merkel immediately countered. She while her coalition partner, the Social Emmanuel Macron proposed that insisted that the EU summit decision Democrats, lingers at around 15 was an “exceptional agreement.” percent. This move by Merkel will Even highly respected CDU vet- Elected chancellor in November eran Wolfgang Schäuble, former fi- 2005, Merkel will step down after have a political cost. nance minister and current president next year’s national elections. She of the Bundestag, backed Merkel’s will end a three-decade political ca- the twenty-seven EU member states U-turn on joint debt at the EU level, reer, half of which will have been should, for the first time, take on debt softening the blow to her disappoint- served as head of government with together to tackle the crisis.” ed conservative party members. different coalitions. On that day, Euractiv argues, However, one thing is certain: In July 2020, Germany assumed Europe was confronted with two new Using joint EU debt to finance EU the presidency of the Council of the realities. First, the Franco-German projects has no legal basis in the European Union, which means that axis, once the engine of European Treaties of the European Union. until December 2020, Germany will integration, was back. Second, Those in Germany who challenged chair the meetings of the Council Germany went from being a savings the European Central Bank decisions and will be responsible for progress champion to a major donor. on EU legislation. Merkel will thus This move by Merkel will have a Klaus Engelen is a contributing play a key role on the Brussels stage, political cost in coming regional and editor for both Handelsblatt and TIE.

10 THE INTERNATIONAL ECONOMY SUMMER 2020 THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY 220 I Street, N.E., Suite 200 Washington, D.C. 20002 Letter from Berlin Phone: 202-861-0791 • Fax: 202-861-0790 www.international-economy.com [email protected]

on whether the Public Sector Purchase European Council President summit results. He is outraged that “90 Programme exceeded EU competences Charles Michel called the deal a percent of the funds go as transfers into will probably again lodge complaints in “Copernican moment.” member state budgets,” according to the German Constitutional Court. his complaint in an interview with the A DEAL, BUT AT HIGH COST German business daily Handelsblatt. NEW BASIS FOR When the results of the five-day-and- There he sounded the alarm that the EU NEW CORONA FINANCING night haggling were published, Brussels summit financial package is “invested Here is how Merkel provided the new ba- experts at Eurointelligence came out too much in the past and not enough in sis for the forthcoming critical Brussels with the heading, “A deal, but at what the future.” negotiations. In May, her former cabi- cost?” In their view, EU leaders finally In an extraordinary plenary session net minister Ursula von der Leyen, now agreed to a deal, but paid a heavy price. debating the deal, Weber warned, “We president of the European Commission, The deal sacrificed investment in cli- are not ready to swallow the MFF pill.” put forward a Commission proposal mate change transition and research and On July 23, the European for a €750 billion coronavirus recovery development, enlarged national rebates, Parliament voted by a large majority to fund. The Commission would raise new and abandoned any meaningful budget demand changes in the draft long-term revenues for its seven-year budget, and linkage to rule of law. EU budget. The resolution warned that then use that money to raise the €750 In the Eurointelligence analysis, MEPs would not approve the hard- billion in the financial markets. a big victory of member states is the fought text when they vote later this Merkel’s joint debt proposal domi- raised rebates for the “frugals” who year and called for negotiations to im- nated July’s special meeting of the prove the proposals. European Council to deal with a recov- With respect to potential changes ery package and the 2021–2027 budget. Major crisis has led to in the deal, Eurointelligence remains The exit of the United Kingdom as third- highly skeptical. “It would be quite an largest net contributor had to be com- major reforms, deeper act for the European Parliament to veto pensated for, and the planned €750 bil- integration, and more this budget, or even to force yet another lion recovery, called “Next Generation summit as predicted by the Socialists,” European Union,” had to be negotiated. competences for the noted Eurointelligence. They agree with It was one of the biggest challenges in European Commission and MEP Philippe Lamberts, who said, the history of the European Union. “The ‘frugals’ are not interested in mak- “Never waste a good crisis” seemed the European Parliament. ing the EU work better. It’s just about to be the common denominator of the the money.” unexpectedly huge budget and recovery insisted on the reduction of grants and In the end, one could argue that the package that EU leaders clinched at the were bought off with higher rebates. timely German-French plan helped to summit. “The Dutch rebate went up from €1.57 keep the twenty-seven–member union An expected two-day meeting billion to €1.92 billion. Austria’s rebate together and reduced the risk that oth- turned into a five-day diplomatic mara- doubles to €565 million.” er EU member states will follow the thon. Leaders of the twenty-seven EU Health groups reacted with dismay United Kingdom down the slippery exit member states reached agreement on to the European Council’s decision to slope. Veteran Carnegie Europe expert the Multiannual Financial Framework axe €7.7 billion for a standalone health Judy Dempsey noted what Europe’s for 2021–2027 and the specific recovery program (EU4Health). German MP expensive coronavirus summit missed: instrument to cope with the economic Franziska Brantner from the Greens “Neither values nor geopolitics played and social damage from the coronavi- tweeted: “In the middle of the coro- any role when EU leaders agreed to rus crisis, for a package totaling €1,824 navirus crisis, drastically reducing the spend their way out of the coronavi- billion. planned program to better coordinate rus crisis at a marathon summit. Once For the Irish Times, “it is still a and equip health systems is simply again, Europe as a strategic player has landmark agreement, against consider- absurd.” been postponed.” able odds, which will give Brussels the But as before, major crisis has led unprecedented power to borrow hun- NOT READY TO SWALLOW THE PILL to major reforms, deeper integration, dreds of billions on the markets and Manfred Weber, who leads the center- and more competences for the European hand it out as budgetary support for right bloc in the European Parliament, Commission and the European member states.” demanded major changes to the EU Parliament. u

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