my latest interview in Bruegel’s newsletter
How worried are you about the EU?
The biggest economic recession in the history of the EU puts its political system, its citizens and its companies under enormous strain. Anti-EU forces have taken comfort in the German federal court’s ruling. But I remain hopeful because the political system reacts. In her joint press conference with Emmanuel Macron, Angela Merkel said “Europe has to act jointly. The nation state alone has no future”. The powerful CDU group in the Bundestag endorsed the plan to create 500 billion EU debt and the German finance minister, Olaf Scholz, even spoke of a “Hamiltonian moment”. It looks like we may actually see EU debt as insurance for this catastrophic pandemic. But the EU will not be able to avoid a debate on its own treaties as it lacks the right legal base for a true Hamiltonian moment.
What is the main debate now?
Central borrowing demands a clear plan on how to spend the money well and how to raise the necessary revenues. The EU needs to define goals. Does it want a “green” and “digital” recovery? If so, what pan-European investment plan can be mobilised quickly to drive the recovery in 2021/22? Who will monitor the implementation and make sure that money is well spent? In such challenging times, EU members need to shift the allocation of spending in the EU budget away from old-style pork barrels. It is also unclear what “European Champions” really are.
What about an EU equity fund?
In a recent paper, we argue that an equity fund should follow four principles: (i) firms need to have financially viable business models, (ii) state support should not undermine competition in the single market, (iii) state support should support broader societal goals, (iv) taxpayers should receive their share of rewards of the recovery. Agency and good governance are again important. A lot of money could be wasted if EU institutions are too slow and overlook these principles.