40 Europe The EconomistJuly 25th 2020
2 Delors Centre in Berlin fears the brake
could entrench mistrust inside the euif
beneficiary governments believe others
are objecting in bad faith.
The deal falls short of the “Hamiltonian
moment” some had hoped for, referring to
the USnational government’s assumption
of state debts in 1790. No one has proposed
mutualising eu countries’ legacy debts;
even the new common debt will not enjoy
joint-and-several guarantees. And the
question of how to repay it is left for later.
Governments have long been unwilling to
hand tax-raising powers to Brussels. Yet
from 2028 money must be found to repay
the new debt: if not from “own resources”
(eurevenues, in the jargon) generated by
new taxes, then from larger national con-
tributions to the mff. A levy on plastic will
take force in January, and the commission
will later propose eu-wide taxes on digital
firms and climate-unfriendly imports.
There are two areas of concern. The first
is the price demanded by the frugals. To
preserve the recovery grants, cuts fell on
so-called “future-oriented” areas like re-
search, health care and climate adjust-
ment. These, critics grumble, are precisely
the themes the frugals always said should
take priority over farming and regional
subsidies, which remain intact. And the
frugals won big increases to the rebates
they get on their eubudget payments (Aus-
tria’s more than doubled). Such small-
country triumphs do not fatally undercut
the deal, but they cost money and will be
bitterly contested at the next mffround.
A second set of worries centred on howto prevent handouts to countries that un-
dermine the rule of law. Wayward govern-
ments like Hungary and Poland are big
winners from the mff, and some had
hoped that attaching rule-of-law condi-
tions to disbursements might help bring
them to heel. In the end the leaders agreed
on studiously ambiguous language,
shaped by Angela Merkel’s team. It prom-
ises “a regime of conditionality to protect
the budget” but postpones the decision on
how to obtain it. “Lots of people will wantthis made more precise,” says Katarina Bar-
ley, a German social-democratic mep.
Many of Ms Barley’s colleagues in the
European Parliament, which must sign off
on the deal, also criticised the deal’s cuts to
favoured programmes and their own exclu-
sion from oversight of spending. Yet al-
though the parliament may extract tweaks
to the deal, on past form it is unlikely to
squash it. A budget must be in place from
the start of next year. meps will not want to
spark a crisis by blocking it. 7Mixed impact
EuropeanUnionSources: European Commission; Eurostat *ForecastPolandDenmarkSwedenRomaniaMaltaLuxembourgFinlandGermanyNetherlandsHungary
SloveniaLatviaBulgariaAustriaLithuaniaCyprusEstoniaCzech Rep.IrelandBelgiumSlovakiaGreece
Portugal
FranceCroatiaSpainItaly-12 -8 -4 0GDP*, 2020
% decrease on a
year earlier
1000 200Gross government
debt, 2019
% of GDP“I
’m not frustrated, I’mimpatient,”
declared an evidently frustrated
Emmanuel Macron in Germany earlier
this year. The French president had put
European integration at the heart of his
election campaign in 2017. Yet even as
covid-19 struck, European leaders were
still unable to agree on much. France and
Germany, two founding members that
have guided the European Union for over
six decades, were condemned, it seemed,
to settle for incremental fixes. One com-
mentator wrote of “the end of the Franco-
German love-in”. In The Economistlast
November, Mr Macron said Europe was
“on the edge of a precipice”.
In the early hours of July 21st, how-
ever, after four long days and nights, the
27 euleaders agreed to a deal that, for
once, deserved the term Mr Macron gave
it: “historic”. The agreement was official-
ly shepherded by Charles Michel, presi-
dent of the European Council, backed by
Ursula von der Leyen, head of the Euro-
pean Commission. But ultimately it
happened because the leaders of France
and Germany managed—in a crisis—to
settle their differences beforehand, then
bring others along. “Exceptional events”,
said Germany’s chancellor, Angela Mer-
kel, “call for exceptional new measures.”
The Franco-German tandem has
driven most of Europe’s advances. The
Maastricht treaty in 1992, for instance,
which led to the euro’s creation, was
masterminded by France’s François
Mitterrand and Germany’s Helmut Kohl.
Over the decades, even when leaders
have not got on, strong cross-Rhine
administrative links have endured. The
point is not that France and Germany
agree readily: they approach almost
everything—from defence to debt—
differently. But if they can agree, goes the
theory, fellow Europeans should be able
to as well.
This latest deal tested that principletothelimit.The“frugals”—Austria,
Denmark, the Netherlands and Sweden,
joined by Finland—dug in, insisting on
less money for grants and more for their
budget rebates. Tempers flared. At one
point Mr Macron “banged his fist on the
table”, according to an aide, accusing
Austria’s Sebastian Kurz of having “a bad
attitude” and the Netherlands of behav-
ing as Britain used to. It was exactly the
sort of lecturing from France that, when
it acts alone, so irks others.
Yet this time, Mr Macron and Mrs
Merkel led a double act. They devised a
joint plan in May, steered talks à deux,
even stormed out of a summit meeting
together. After concessions, the frugals
agreed to most of what they had rejected
just months ago. “Macron held out his
hand to Germany for a long time,” says
Tara Varma of the European Council on
Foreign Relations. “What made the dif-
ference is that in the end Merkel took it.”Backonthetandem
The Franco-German relationshipPARIS
Two leaders defied sceptics and secured the dealPartners at the masked ball