The post-corona recovery threatens Europe’s cohesion, but Spain’s attempt to bridge the north-south divide is likely to fall short.

For those who attend the European Council on a regular basis, there was meant to be at least one silver lining to the coronabonds row taking place between member states at the moment: not having to sit through another argument about the European Union budget for a while. European Commission president, Ursula von der Leyen, had tentatively suggested that flexibility in the level of national contributions to the EU budget could be used to give member states space to raise money. But no one was seriously going to suggest reopening the detail of the toxic file of the next Multiannual Financial Framework (MFF) while things were so tense around the council table. That is, until Spain did exactly that.

In a non-paper on a European recovery strategy, published by El País on Monday, the Spanish government called for the establishment of a new fund for grants for member states based on the impact the pandemic has had on them. The fund would be financed by perpetual EU debt, and would sit within the umbrella of the MFF. It goes further, however, reopening the vexed question of the size of the next EU budget, arguing for the original European Commission proposal of 1.114 percent of GNI as a starting point.

It was an audacious move, straight out of the Dwight D Eisenhower playbook: when you run into a problem you cannot solve, make it bigger. Unfortunately for Spain, and all the exhausted diplomats signing into their videoconferencing facilities today for the council meeting – with the prospect of the heat of the row having gone up a notch – it is unlikely to work on this occasion. The Spanish non-paper rightly notes that covid-19 has created an unprecedented shock to European economies. But it has entrenched the battle lines between EU member states, drawn in response to the last financial crisis in 2008, on whether debt levels to support economic recovery should be shared at a European level, or whether national governments have to shoulder the burden alone.

The post-coronavirus map shows member states with the deepest health crisis correlate with those that argued for greater flexibility in EU spending rules after the financial crisis

The post-coronavirus map of the EU shows that the member states with the deepest health crisis, requiring the most severe levels of lockdown of their economies, correlate very closely with those that argued for greater flexibility in EU spending rules to make space for recovery after the financial crisis. In his interview with the Financial Times on 14 April, France’s president, Emmanuel Macron, speculated that it will only be once the dust has settled on the crisis that we will be able to explore whether the two crises were causally linked: “If Spain and Italy made cutbacks on education and health, who actually demanded that from them?”  

This same ‘southern’ grouping, with the addition of the central and eastern European states, are exactly the coalition that has become known as the ‘friends of cohesion’ in the context of the discussions about the EU budget. They have argued strongly for a larger budget that allows for spending within EU states to tackle regional inequalities, and the transitional challenges of delivering the Green Deal.

So, given where it comes from, and what it argues, the call in the Spanish proposal for an increased EU budget, including maintaining allocations for cohesion policy and the common agricultural policy, is unlikely to shift the needle in the discussion on the MFF. This element of the proposal is likely to be read by those member states that have called for austerity, have resisted eurobonds, and are now resisting coronabonds, as simply the latest rehearsal of the same argument. Had covid-19 hit the Netherlands, Germany, or Sweden hardest, or even first, it might have moved the battle lines somewhat. And the discussion might have at least started differently, had the same proposal come from a less clearly aligned source – for example Austria, which has strongly resisted coronabonds and debt mutualisation, but in the context of the MFF has sometimes tried to play a bridging role; or Ireland, which used to align itself with the disciplinarians under the stability and growth pact, but has supported the southern states on the call for coronabonds.

We will never know what might have been. But, as things stand, this week’s council meeting is likely to be inconclusive, and even if it starts to chart a way forward on the need for solidarity between EU states to see through the recovery,  few are likely to welcome the re-entry of the MFF into its discussions.

One beneficiary, though, might be the incoming German presidency of the EU. Billed a ‘Corona Presidency’ with a clear ambition to take the EU beyond this current crisis, Berlin’s stewardship of the European project from July to December this year will nevertheless be expected to find a way forward on the MFF impasse and allow expenditure of the EU budget to begin from the start of next year. Perhaps it will, as a minimum find, in the council discussions this week a few pointers on pitfalls to avoid.

Read more on: Coronavirus, European Power, EU instruments, Multilateral institutions, European Strategy

The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.