European Recovery Plan: Still More Debt

Bravo! Hurrah! Victory! 750 billion euros for the recovery of Europe! After several days of negotiations, the twenty-seven leaders of the European Union have finally reached an agreement on a €750 billion recovery plan, comprising €390 billion in grants and €360 billion in loans. Emmanuel Macron tweeted, "We will all together build a green and prosperous Europe". It is total ecstasy!

The "bad guys" lost, the four countries that dared to oppose the plan, described as "frugal" (limiting spending, what an idea!), finally gave up. The Netherlands, Austria, Denmark, Sweden (the last two not being part of the euro zone), were not powerful enough to take on Macron and Merkel.

The event is historic because for the first time a common European debt will be created: it is not the European Union as such that will borrow (the legislation does not give it the right to do so), it will be the 27 member countries that will borrow and reimburse this money (the €390 billion in grants, the €360 billion in loans that must, normally, be reimbursed by the borrowing countries).

The distribution formula is not yet precisely known, but Italy is expected to receive €80 billion in grants, Spain 60 and France 40 (i.e. about half of the €390 billion in grants, with Eastern European countries also receiving a large share). To these sums must be added loans (the €360 billion euro envelope). These countries, together with the EU 27, will guarantee and have to repay these €750 billion. So what is the point of the transaction? The money will be paid out quickly (in 2021, 2022 and 2023) while repayments can be spread out until... 2058. New money will be paid out immediately, especially for the electoral deadlines (2022 in France, 2023 at the latest in Italy and Spain). After that, whatever happens next.

Cash right away to win elections and refunds when they retire; the politicians couldn't have asked for more! For France, reimbursement will cost more than it has earned (17%, its share of EU funding, i.e. 66 of the €390 billion in grants, while it receives €40 billion...). That said, this reimbursement could also be covered, at least in part, by new taxes to be created at the European level (carbon tax, taxes on plastic, on GAFA), which will raise the cost of living for Europeans...

Furthermore, it should be noted that the "frugals", as well as Germany, have obtained a reduction in their contribution to the European budget over the period of 2021-2027 for significant amounts (€3.7 billion per year for Germany, 1.9 for the Netherlands, 1 for Sweden, 0.6 for Austria, 0.4 for Denmark, i.e. a total of €7.6 billion) which will be financed by the other countries, including France (up to 17%, its share of EU funding, i.e. €1.3 billion per year).

This plan was, in fact, perfectly useless since the governments can borrow all the money they want, with the European Central Bank acting as a guarantee (by buying back a large part of these bonds) in order to avoid a rise in interest rates (it would have cost even less, €66 billion to reimburse if there are no new European taxes + the increase in the contribution to the European budget). The objective was political: to create a European debt in order to force virtuous countries to finance those who are lax, and to strengthen the power of the European bureaucracy. Objectives achieved! Communicators will tell you: "Never let a good crisis go to waste", in this case the coronavirus.

The logic of debt has prevailed: after national debt, European debt, the money is definitely flowing. All this for a "recovery" and "growth" that will not happen. France itself demonstrated this by incurring debt without interruption from 1975 onwards, in order to see its GDP grow less and less quickly. What this additional indebtedness is really going to bring is a strengthening of mistrust of the euro, and when confidence in the single currency fades, then no debt will do anything about it.