Merkel-Macron deal: for Poland the devil will lie in the detail

The plan to stimulate an EU-wide recovery from the pandemic recession was unveiled by the French President and German Chancellor. It seems to echo some of Poland’s proposals.

French President Emmanuel Macron and German Chancellor Angela Merkel presented a joint initiative to stimulate the EU’s recovery from the coronavirus crisis on Monday, after weeks of debate over how to deploy billions of euros needed to end a painful recession. In a joint video conference they called for the creation of a 500 billion Euro fund to offer grants to countries and regions hardest hit by the COVID-19 pandemic.

Borrowing to spend

They also said they were proposing to authorise the EC to borrow money in the financial markets in the EU’s name. The two biggest EU countries, whose agreements often pave the way for broader EU deals, proposed that the EC borrow the money on behalf of the whole EU and spend it as an additional sum to the 2021-2027 EU budget that is likely to be close to 1 trillion euros for that period.

President Macron intimated that this was the first time France and Germany agreed to let the EU raise debt jointly. He insisted that money from the recovery fund would be made available in the form of grants rather than loans. He said he believed that it is what the EU, its single market and the Euro zone require “to remain united”.

According to the project grants from the proposed recovery fund will have some strings attached. They are to be "based on a clear commitment from Member States to follow sound economic policies and an ambitious reform agenda.”

The proposal echoes calls for a more ambitious approach to the joint EU spending that has been coming from both Southern and Central Europe. Polish Prime Minister Mateusz Morawiecki recently called for a more ambitious budget to be funded through EU-wide taxes. Neither the French nor the Germans want to see EU-wide taxes established over which they would not have control. That is why they have opted for the EU raising money on the markets in solidarity.

However, for Central Europe the issue will still be how much cohesion and agricultural funding remains committed to the region. They will also not welcome proposals to link the money to environmental and climate objectives. The Visegrad Four states will be resistant to the financial envelope for them being reduced to support Southern Europe.

It is also unclear whether Scandinavian countries, Austria and Holland will support this approach. They have so far remained sceptical about an ambitious EU budget.

The EC is to present its own proposal for a Recovery Fund linked to the EU's next long-term budget on May 27 and said it welcomed the initiative from Paris and Berlin saying that it “goes in the direction of the proposal the EC is working on.”

Details of the project

Chancellor Merkel and President Macron’s proposal includes strengthening the health sector. To enhance European capacity, a joint stockpile of medical equipment and medical supplies and the coordination of the procurement of vaccines and treatments are to be funded.

The plan seeks to “boost the modernisation of the European economy and its business models,” particularly emphasising environmental and digital targets. These include conditionalities in the areas of climate, biodiversity and environment, including increasing EU targets for reducing emissions in 2030, with the goal of climate neutrality by 2050, and implementing climate conditions on state aid.

The proposal also provides for a strengthening of European self-sufficiency. This is intended to reduce European dependence on the outside world and better protect European companies through efforts to diversify supply chains and promote “an ambitious and balanced free trade agenda with the World Trade Organisation at its core.” Finally, the Franco-German proposal calls for the swift return to a fully functional Schengen area and the single market.