Europe’s Recovery Gamble
If the European Union's new recovery program succeeds, it may ultimately pave the way for the establishment of a fiscal union. But if the EU funds fail to deliver on the plan's stated goals, or if political interests prevail over economic necessity, federal aspirations will be dashed for a generation.
PARIS – To help their pandemic-hit economies recover, European Union leaders agreed in July to borrow €750 billion ($876 billion) to finance €390 billion in grants and €360 billion in loans to the bloc’s member states. The program, called Next Generation EU, was rightly hailed as a major breakthrough: never before had the EU borrowed to finance expenditures, let alone transfers to member states.
But the program and its Recovery and Resilience Facility, which will disburse most of the funds, amount to a high-risk gamble. If the plan succeeds, it will surely pave the way to further initiatives, and perhaps ultimately to a fiscal union alongside the monetary union established two decades ago. But if the program fails to deliver on stated goals, if political interests prevail over economic necessity, federal aspirations will be dashed for a generation.
The first question regards the size of the program. Although €390 billion in grants may look like a large sum of money, it actually amounts to less than 3% of EU GDP, to be spent over several years.