At 5:30 a.m. local time on July 21, the 27 member states of the European Union reached a landmark economic recovery deal in Brussels, marshaled by the leadership of France and Germany.
Even though it took three days over the EU’s original deadline, it took only five days total for the European Council to reach an agreement on €750 billion ($870 billion) of pandemic relief funds. Meanwhile, the U.S. Congress is still undecided on extending its monthly unemployment checks of $600 for its out-of-work citizens. In the current crisis, the U.S. can learn lessons from the European deal—which happens to be rooted in some iconically American economic ideas harnessed by past U.S. leaders.
While no member state got exactly what it wanted, says Susi Dennison, senior policy fellow at the European Council on Foreign Relations, “I think that everybody came out of this feeling that they had shaped it sufficiently—that there does seem to be this sense of collective ownership of the deal.”
The coronavirus crisis and economic recession that followed hit countries like Spain and Italy (and France) particularly hard, leading to an ongoing battle over economic relief between these Mediterranean states and the so-called “frugal” northern states—Germany, Holland, Austria, Denmark, Sweden, and Finland—which were generally less affected (though Sweden, with its dubious herd immunity strategy, is an exception). The economically more robust states have so far had the edge.
But, with the leadership of Germany and France as diplomatic go-betweens, the council agreed on the €750 billion sum, to be borrowed collectively in the financial markets over the next six years, in order to raise cash for €390 billion in direct grants, and €360 billion in loans, which will be divvied up according to the needs of individual countries. It’s the first time that the EU has ever agreed to borrow such large amounts of money as a collective unit.
That’s not to say it was an easy feat: the council was reportedly bitter at times, and the frugal states bagged some wins. The weaker states had to concede on the loans, which they didn’t want, based on haunting memories of being saddled with debt after 2009 debt crisis bailout. Members will also be able to hit “emergency brakes” on the monetary transfers if they don’t approve of what the recipient nations will be spending the money on; and the richer states will get significant budget rebates in the future, because, they argued, they’re putting in a bigger sum than they’ll be reaping.
Still, the ultimate alliance serves as a true federal achievement for the EU Like U.S. states, the European countries were originally competing with each other for PPE, before uniting to procure it jointly and tackle other challenges of the crisis together. That leads to Dennison’s advice for a gridlocked, disharmonious U.S. government: “At some stage, you’ve got to want to find the deal.”
What’s ironic is that, in collectively borrowing, the EU is essentially shifting, at least temporarily, to a fiscal system like that of the U.S. federal government. That’s led commentators to call this deal Europe’s “Hamiltonian moment,” referring to Alexander Hamilton’s federalization of all the states’ debts in 1790. Unlike the U.S. government, the EU doesn’t currently impose federal taxes on members’ citizens, so it will have to find a different way to pay off debts as the bonds mature and repayment calls in 2058.
But today, Europe is making more recovery progress than the U.S. As well as the pandemic fund, the European council also signed off on a €1.1 trillion ($1.3 trillion) long-term economic package for the next seven years. In doing that, Europe is integrating a long-term economic strategy into its recovery plans, says Barry Eichengreen, a professor of economics at the University of California, Berkeley: it’s acknowledging the vast changes that are to come in the world of work, now accelerated by the crisis. Largely, that fund focuses on investment in green growth and the digital economy.
Congress’ priorities, including the CARES Act, have so far remained in the short-term. “Have you heard one word out of the Trump administration, or even the Congress, about longer-term thinking and the structure of the post-pandemic economy?” Eichengreen asks. Meanwhile, in Europe, leaders are already confronting the impending shifts away from travel and tourism, for instance, and placing investments into industries like healthcare and homecare. They’re acting on the needs for community colleges and apprenticeship schemes, for workers learning new digital skills and tools.
For Eichengreen, that’s reminiscent of another pivotal American moment: Roosevelt’s New Deal, which foresaw a changing economy, and set up programs such as Social Security to quell the instability caused by the Great Depression. “Now, we have to spend a bunch of money,” he says. “Why not spend part of it on the stuff we’re going to need in a post-pandemic economy?”
The 27 countries of the EU have divergent political and economic values, but they ultimately shook on a tolerable deal. Why can’t the U.S. reach such a compromise? For one: “Angela Merkel is not Donald Trump,” Eichengreen says. “It helps to have leadership.” Merkel, less enthused in April to compromise with the Mediterranean states, realized this time that an agreement was crucial for EU unity.
In that sense, this has been an existential moment for the EU, Eichengreen adds; the issues caused across the continent by the pandemic are exactly ones the union was set up to solve. Once again, that’s a reminder of the supposed role of the federal government in the U.S., too. “If the EU was incapable of meeting this crisis, everybody was going to start to ask: what’s the EU for?”