Last week’s video conference Summit of EU Heads of Government was important.
BREXIT
The leaders received a report on the meeting of EU Presidents Von der Leyen, Michel and Sassoli with the UK Prime Minister Boris Johnson.
They noted his decision not to seek any extension of the transition period.
Significantly, the EU leaders decided to make no change to the negotiation mandate given to the Commission for its negotiation with the UK on a future relationship with the EU. There had been suggestions in the UK media that the EU should loosen the mandate to facilitate the talks.
If a “No Deal” is to be avoided, the UK will now need to do some creative thinking about how it can give legally enforceable commitments to meet the concerns highlighted by the EU side on issues like
- guaranteeing fair competition, if the UK is to have access to the EU Single Market, especially on state to business and quality and environmental standards
- access for EU travelers to UK fishing grounds, if there is to be access for UK fish exporters to the EU consumer market for fish
- human rights guarantees, if the UK is to have access to police cooperation with the matters like the EU Arrest warrant
- an overall partnership structure to govern the future EU/UK relationship.
If there is a “No Deal”, the relationship between the UK and its neighbours could deteriorate quite dramatically. There will be bitterness on both sides. This will not be confined to economics, but will affect every aspect of life.
POST COVID 19 ECONOMIC RECOVERY PROGRAMME FOR EUROPE
The post Covid 19 economic recovery proposals put forward by the European Commission are really ambitious.
For the first time, the EU itself will be borrowing substantial sums on its own account and passing the money on to member states.
Detailed allocations of funds for each country have been suggested. These allocations are based on an analysis of which countries, regions, and economic sectors that have been hardest hit by Covid 19.
It is interesting to note that there are wide differences in the economic impact of Covid 19 within countries. For example two regions of Italy are much worse hit than the rest of the country.
The analysis of need, on the basis of which the Commission proposed allocations have been prepared, takes no account of the impact of Brexit. Even if there is an EU/UK Deal, Brexit will do a lot of additional economic damage from 1 January 2021 onwards. The allocations will have to be revisited at that stage.
If fully implemented, it is estimated that the Commission proposals could, by 2024, add 2% to the overall GDP of the EU.
Member states will design their own programmes for spending the money.
There will be equity supports for viable companies.
It is important that the money be spent in ways that will enhance the sustainability and efficiency of the EU economy.
Since the financial crisis of 2008, the Commission has developed expertise in identifying what works and what does not work.
The judgement as to what is a “viable” business, that should get help, will not be an easy one. Objective criteria should be used. Some will be disappointed. There will be controversy and accusations of favouritism.
Eventually, borrowed funds will have to be repaid, or rolled over into new borrowing.
Interest rates will not always be as low as they are today, especially if the global economy recovers and there is an increased demand for funds in other parts of the world. So rolling over debts may not be wise.
Keynesian economics is not easy to implement in democracies.
Keynesianism encourages governments to run deficits and borrow, when times are hard. But that requires them to run budget surpluses and to pay down debt, when times are good.
Politically, the first part is easy, but the second part is really difficult.
In good times, the expectations of the electorate of what governments should provide are very high and rise incessantly. There is no electoral appetite for using the good times to pay off debts. We need to keep that in mind.