We are posting this article from Socialist Democracy (Ireland) about the EU response to Covid-19 and its possible longer term effects.

After four days of negotiations at the recent EU Summit (18-21 July) officials and government leaders came to an agreement on a recovery plan for a European economy badly impacted by the coronavirus pandemic. News of the agreement was greeted with a mixture relief and bombast. A sample of this was the declaration by European Council President Charles Michel that: “We did it! Europe is strong. Europe is united!”.

Recovery Fund

At the core of the plan is the creation of a recovery fund. For the first time in its history, the EU will borrow from capital markets to finance expenditures throughout the Union. The recovery fund, dubbed Next Generation EU, involves the commission borrowing up to €750bn in the financial markets. About €390bn of this sum will be distributed in the form of grants, with the remainder coming in the form of loans to facilitate the recovery in member states.


In order to unlock their allocated share of this funding, which will be distributed from 2021 to 2023, member states will need to prepare national recovery plans pledging to reform their economies

The allocation of recovery funds will be based on the economic harm done by the pandemic rather than on pre-crisis data on growth and unemployment. The consequence of this is to shift funding from low-income countries towards better considering the country size and favouring those countries that were hit by a stronger decline in GDP. With all member states expected to make a contribution, in terms of taking on some of the debt, the fund resembles an insurance system.

The plan also established a governance mechanism that will allow an individual member state to raise objections if it feels another state is failing to fulfil its reform promises. Any national government will able to temporarily block financial transfers to a country by demanding that EU leaders review whether commitments are being honoured.


The recovery plan is a scaled down version of what Ursula von der Leyen, European Commission president, originally requested from leaders in May. The grants component of the recovery effort was reduced to €390bn, considerably less than the €500bn recommended by the commission and pushed by Germany and France. Some countries, notably the self-declared Frugal Four of Austria, Denmark, the Netherlands and Sweden, strongly opposed the idea of taking on debt to issue recovery grants and fought to reduce the portion of grants in favor of loans. This group won some big concessions in the financial blueprint, including a significant increase in the rebates that are used to cap their overall contributions to the EU budget.

A new mechanism that would force member states to abide by basic EU democratic values and rule-of-law principles in order to keep the money flowing was also removed. This was clearly directed towards overtly authoritarian and reactionary governments in eastern Europe but opposition from Poland and Hungary saw this proposal passed back to the commission for further consideration. Another proposal to boost funding for medical research across the EU was also substantially scaled back. While much of this was window dressing to give the recovery plan a more progressive appearance the fact that it was abandoned so readily gives a real sense of the priorities of European leaders.


The claim made for the Recovery Plan is – that despite its flaws – it represents a step towards deeper integration of European states and an acknowledgment that a monetary union requires the sharing of debt. Endorsements of the agreement have come from across the political spectrum. For example, Shahin Vallée, a French economist and adviser to Emmanuel Macron when he was economy minister, has hailed it as “a leap towards genuine integration”. While the European Left – the grouping of left parties in the European Parliament – has described the agreement as “a first step in the right direction”.


However, a examination of the Recovery Plan – and the conditions attached to it – reveal a dynamic that is pushing more towards disintegration that integration. The main reason for this – which has been almost ignored by mainstream commentary – is that it is a plan for massive austerity. The European economy is already in a weakened state with the income of the eurozone forecast to fall by 10% in 2020 and the average budget deficit of states rise to 11% (though for weaker states the size of the contraction and deficit are much greater). If this were not bad enough the European Union is pushing for member states to balance their books by 2021. Even if a recovery reduces deficits to some degree the implication of the demand for a balanced budget would be – for most EU states – a level of austerity equal to 9% of GDP in cuts and taxes. This would surpass even the harshness of austerity imposed in the wake of the financial crash of 2008. The fact that drastic deficit reduction would be taking place in all states at the same time, and not just those subject to a bailout, would have a depressing affect on the whole European economy, reinforcing and deepening the cycle of recession and austerity.

A second serious weakness of the Recovery Plan is its relatively small size. As a fiscal stimulus it pales in comparison with the economic contraction that has taken place. Moreover, the funds available to states in no way offset the level of austerity that is coming. For example, Italy has been allocated around €80bn and Greece €23bn. Yet, because every member state must take on part of the new EU debt, net funding is lower than these headline figures. Italy is liable for just under 13% of this debt while Greece is liable for 1.4%. When their contributions are subtracted Italy’s and Greece’s net grants come to just over €30bn and €12bn respectively – or 0.6% and 2% of GDP on an annual basis between 2021 and 2023. Compared to the prospect of austerity equivalent to 9% of GDP, which will be required to balance their budgets, these are puny sums.

The third weakness of the plan is its political structure. This is a form of supervision, not only by the European Commission, but also by individual states who can freeze payments for up to three months if they are not satisfied with how the programme is being implemented by other member states. It is a blueprint for endless recriminations and increasing national antagonisms, particularly within a framework where one state – or a group of states – are seen as applying the whip of austerity to others.

The thrust of the EU recovery plan is an intensification of the assault on the working class that has been ongoing since the financial crash. It is a plan for the recovery of capital at the expense of labour. Neither is it a move towards greater integration of Europe. The negotiations and the final version of the plan – which removed the weak gestures towards solidarity- reveal that European capital is still very much wedded to the nation state. This has also been exposed by the lack of co-ordination in response to the current health crisis.

However, just because the capitalist class has proved incapable of uniting Europe, doesn’t mean that workers should follow suit and fall back into a form of nationalism. The example of Brexit shows that this is no alternative and is certainly not an escape from austerity or reaction. It is only the unity of the working class across Europe that holds out the hope of an alternative.

August 2020

This was first posted at- EU Recovery Plan – pulling together or falling apart?
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