France and Germany Show the Way Forward in the COVID-19 Crisis

There were plenty of details and numbers to discuss, but a much larger issue was at stake: the question of whether a European Union worthy of the name still existed or whether it would disintegrate into its component parts under the weight of the crisis brought on by the coronavirus.

Since Monday, it has been clear: The talks between Macron and Merkel were successful and there are now justified hopes that once the corona crisis is over, Europe will emerge stronger and more united than ever before — rather than as a weakened, bickering mess. The plan for a “recovery fund,” which the two leaders presented in a joint video conference at the beginning of the week, is more than just financial support for those European countries hit hardest by the novel coronavirus. It is a grand vision.

For the first time, the EU will take on a significant amount of joint debt. Some even see the initiative as a step toward establishing a single European nation.

At the same time, the plan assembled by “Merkron,” as the German-French tandem has been dubbed, is a compromise. Germany, in particular, has taken a significant step, with Merkel abandoning principles that were essentially untouchable during the financial crisis and the euro crisis that followed. While the new fund will not be the equivalent of joint and several liability, the huge sum of debt now being taken on by Brussels is a step toward the much criticized “debt union.”

It is a risky move for Merkel as she approaches the end of her tenure. Times of crisis are always “times of struggle,” she said on Monday, “of commitment to an idea.” It’s just that this particular idea was never one that Merkel has been particularly fond of. That, though, has apparently changed.

As she did in the refugee crisis, Merkel is using her enormous popularity to lead Germany on a courageous, if not particularly widely supported, path. And one of her goals was likely that of correcting the widespread image of a miserly Germany, of a selfish country that emerges strengthened from all crises, even as the rest of Europe suffers and skimps.

A Thorn in Merkel’s Side

The German chancellor has now taken the first step, but she and Macron will also have to drum up the necessary support and their primary antagonist is likely to be Austrian Chancellor Sebastian Kurz, who has already registered significant concerns. He has long been something of a thorn in Merkel’s side, in part because of the widespread support he has found among conservatives in Germany. The hope is now that a compromise can be found by the EU summit in mid-June.

The crucial concept for the financing of the Merkel-Macron plan comes from European Commission President Ursula von der Leyen. Late March saw the third corona crisis video summit of European leaders end without agreement, a failure that was largely due to Macron, who joined leaders from several other EU member states in an alliance against Merkel. In a joint letter together with eight counterparts, he demanded the introduction of corona bonds as a reaction to the economic crisis — essentially joint debt that would be, in a worst-case scenario, backed by Germany alone.

The French president had long hoped he would be able to reform the eurozone together with Germany, but that vision had proved untenable with Merkel at the helm in Berlin. In March, it appeared that he intended to use the crisis to heap pressure on the German chancellor.

During the March 26 summit, the video conference lasted for six hours, with Merkel joining from home, where she was in quarantine. Macron remained largely in the background during the debate as the heads of government from Spain and Italy took the lead in fighting for euro bonds. “If you are waiting for corona bonds,” Merkel told Italian Prime Minister Giuseppe Conte, “they’re not coming.” Ultimately, the problem was delegated to the Eurogroup of the common currency’s finance ministers.

But then, at the end of March, an idea began to gain traction in the European Commission for finding a way out of the dead end. Commission President von der Leyen badly needed a deal on the EU budget, known as the Multiannual Financial Framework (MFF), for the period from 2021 to 2027. In February, the last attempt to reach a deal had failed.

That was when the MFF became a central focus of efforts to combat the crisis, and Merkel wasn’t opposed. She could even imagine funneling more money into the EU budget as a tool for combatting the crisis. Anything, she apparently believes, would be better than corona bonds.

Focusing on the EU Budget

The problem, though, is that aside from Germany, Austria and the Netherlands, hardly any other EU member can afford higher EU contributions. That conundrum led von der Leyen to focus her attentions on the so-called “own resources ceiling.” The term refers to additional money for the EU budget that member states don’t have to send to Brussels, but have to keep in reserve for an emergency. The upper limit of that reserve is now to be increased. And that pledge will then allow the European Commission to borrow significant quantities of debt from international financial markets.

That borrowing is the backbone of the recovery fund, with French Finance Minister Bruno Le Maire coming up with an early concept, which he presented in a telephone conference on April 2. And a short time later, Macron changed course, realizing that his goal of an ambitious response to the corona crisis could be better achieved through the EU budget than by continuing to insist on corona bonds, given that Merkel and northern EU member states remain adamantly opposed to that tool.

Von der Leyen introduced the MFF idea in an April 23 video conference, with EU heads of state and government authorizing her to develop the concept. “Don’t forget to talk to us first,” Merkel told von der Leyen at the end of the conference, a not particularly subtle reminder from the German chancellor that when it comes to money, it is the member states that have the power. After that video conference, Merkel and Macron began their series of discussions.

“The beauty of this plan was that it is both ambitious and practicable,” says a French diplomat. The key details were primarily agreed on during the second week of May, “but it was also the fruit of the three-year relationship between the two.”

Until the very end, von der Leyen’s team was in almost daily contact with the Chancellery and the Élysée, the seat of the French presidency. Merkel’s chief of staff, Björn Seibert, was in contact with her Europe adviser Uwe Corsepius, while Seibert’s deputy Stéphanie Riso spoke frequently with Macron’s Europe adviser Clément Beaune. Sometimes they would all join the same video conference.

To ensure that nobody lost sight of the most important points, a blueprint of the plan was drawn onto a whiteboard in Seibert’s office on the 13th floor of Berlaymont, the Commission headquarters in Brussels. It is a rather chaotic diagram, covered with arrows and notes. Von der Leyen had to repeatedly push back the presentation of her plan, holding discussions with 20 heads of state and government last weekend alone in an effort to account for all of the competing interests.

A Temporary Measure

For Brussels, the debt plan means an enormous increase in influence. The European Commission will become an independent player on the capital markets, a revolutionary step. Aside from a brief exception during the euro crisis, Merkel never handed Jean-Claude Juncker — von der Leyen’s predecessor — that much power. And even now, the German chancellor has insisted that the recovery fund be but a temporary measure, saying it is an exception.

That is primarily an effort to assuage conservatives in the German parliament, because the plan is a difficult one for Merkel’s own party, the Christian Democratic Union (CDU), to accept. With the exception of the refugees, no other issue has proved as controversial during the Merkel era as the discussion about joint European debt. To address such concerns, Merkel spoke on the phone last weekend with influential conservatives, including parliamentary group leader Ralph Brinkhaus and Markus Söder, head of the Christian Social Union (CSU), the CDU’s Bavarian sister party. She also spoke with Alexander Dobrindt, head of the CSU group in federal parliament. Merkel’s hope was that the conversations would ensure that nobody stood in the way of the initiative.

Leading German conservatives have spent years fighting hard against the concept of joint debt, to the point that many are now facing a rather difficult about-face to support Merkel’s initiative. Many are concerned that the Merkel-Macron package will be received by parts of the electorate as a sellout of German interests. That could serve to strengthen the right-wing radical Alternative for Germany (AfD), which has already emphasized its opposition to the plan.

Nevertheless, there has been relatively little resistance among German conservatives thus far. The proposal is not a violation of European treaties, say those involved, and is just a one-off anyway. More important, though, is the authority Merkel has recently recovered. In the corona crisis, she has managed to lead conservatives back to public opinion survey results that had seemed well out of reach just a few months ago.

“A Victory Hymn”

For Macron, the joint initiative is something of a delayed gratification. After years of futile campaigning and numerous disappointments, he has finally taken a significant step toward fulfilling his campaign promise of creating a strong, united Europe. And it came just as it was most needed: In contrast to all other European leaders, the pandemic has not given Macron a political boost. In surveys, he is currently behind the prime minister and has an approval rating of just 40 percent.

As such, the new German-French agreement could prove even more serendipitous when it comes to French presidential elections in spring 2022, should Macron be measured by the promises he has made. It would also take wind out of the sails of right-wing populist Marine Le Pen and her claims that in times of need, Europe leaves people to their own devices and fails to protect them.

In Spain and Italy, which will likely be the greatest beneficiaries of the recovery fund, government reactions have been positive. “Conte sings a victory hymn,” wrote the daily La Repubblica. Rome is hoping to receive around a fifth of the funds that will be made available, around 100 billion euros ($109 billion).

Conte’s biggest concern is now that ensuing negotiations with the rest of the EU could result in the size of the fund being reduced. To prepare for the battle, he has provisionally ratcheted up his own demands, saying: “To overcome the crisis, we have to expand the recovery fund.”

Overcoming Resistance

The strongest resistance to the German-French initiative is coming from the “Frugal Four” — sometimes less-charitably called the “Stingy Four” — of the Netherlands, Sweden, Denmark and Austria. Chancellor Kurz of Austria has already announced an alternative proposal, and his Dutch counterpart Mark Rutte is also under domestic pressure to avoid taking even a single step toward the Merkron plan. Back in February, Rutte brought a biography of Chopin with him to the bloc’s budgetary summit to pass the time, saying “our position is known and I don’t see what there is to negotiate.” Merkel is not a fan of such gestures.

The Visegrád Group is also rather skeptical of the plan. In the Czech Republic and Slovakia, but particularly in Poland and Hungary, there is significant concern that the fund could pose a threat to the large amounts of money they have been receiving from agricultural subsidies and from European structural funds. Czech Prime Minister Andrej Babiš said that the Merkel-Macron plan essentially punishes countries like the Czech Republic, whose management of the corona crisis, he says, has worked.

If you combine the Frugal Four with the Visegrád Group, about a third of the EU is critical of the Merkel-Macron project. But the Commission has a plan for winning them over. One idea is that of investing the money in future technologies. Furthermore, conditions are to be attached to the money. And finally, to meet a key demand from the Frugal Four, the money won’t just be provided in the form of hand-outs, but also as loans.

Ultimately, it seems likely that resistance to the plan will be overcome. Most politicians in Europe know that the bloc is in dire need of an agreement, if not at the EU summit in mid-June then, at the very latest, during Germany’s council presidency, which begins in July. And now that the ball is rolling, Paris believes, it will be hard to stop it. An adviser in the Élysée says that Merkel’s strong political gesture will make it extremely difficult for the plan’s opponents to reject it.

Icon: Der Spiegel

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