Economic recovery will be the battered EU's 'Phoenix moment'

Giles Merritt predicts a dramatic revival in the EU’s fortunes as it masterminds a fairer, greener Europe while refereeing bitter rivalries.

After a decade in the doldrums, the European Union is heading into a tempest. Already there, you say? No, what we’ve seen so far are just the squalls that presage a perfect storm.

The storm isn’t necessarily bad news. The turmoil of Covid-19 and the approaching ‘Great  Depression’ will silence the eurosceptics’ question “what’s the EU for?”  The EU is going to be Europe’s saviour because preserving and adapting the single market will put its institutions, and above all the Brussels Commission, firmly back in the driver’s seat.

The inter-governmentalism that has been reducing the Commission to a mere secretariat for the member states is over; Europe can only survive the slump relatively unscathed if EU countries all pull together. The future will either see a more powerful Commission, or the EU sliding towards disintegration.

Weeks after the corona lockdowns began, EU governments were introducing beggar-thy-neighbour policies to protect their own jobs and business interests. To avoid mass bankruptcies, the Commission quickly softened the competition rules to allow bail-outs and guarantee schemes like payroll furloughs.

That was short-term action. Now the big question is what shape should the single market take? To preserve it, the pre-corona rules must be taken apart and reassembled to suit very different market conditions. Deciding which state aids and subsidies are essential to recovery, and which distort fair competition, will be central to Europe’s economic strategies.

The EU’s role will go far beyond refereeing disputes between governments and between corporations, and far beyond new trade and investment barriers to protect Europeans from ‘predatory’ Chinese or American investors. The power to levy its own taxes is the big breakthrough that, almost unnoticed, the Commission has won for itself.

Staggering under the weight of their soaring indebtedness, Europe’s national governments have, without yet announcing formal approval, quietly given a green light to the proposal that the EU should issue its own bonds to help fund the €750 billion recovery effort. It will finance its borrowings through an EU tax on carbon emissions and/or financial and digital transactions. The member states are at last surrendering their grip on all taxation other than the customs dues that fund the EU’s slender ‘own resources’.

The Commission’s powers are therefore set to receive a considerable boost on top of the longstanding competences that in any case assure it pole position in the recovery effort. Reviewing and reworking the EU’s single market rules will confer new levels of responsibility and authority on the Eurocrats, and give more weight to the European Parliament.

Two of the most obvious effects of the corona crisis have been widespread and vocal demands that recovery policies should strengthen the fight against climate change while also ensuring much greater emphasis on social equity. A fairer, greener Europe is to be the EU’s popular mandate. This sounds attractive, but it is also a political minefield.

EU member governments are already employers of last resort through their wage guarantees, and increasingly they will be shareholders of last resort. What are the new EU-wide rules that will be needed to ensure level playing fields between big, rich countries and smaller, poorer ones, and between competitors whose markets are being fundamentally disrupted? For instance, what handicapping system might strike a fair balance between Germany’s Lufthansa and Ireland’s Ryanair?

The aftermath of Covid-19 (assuming there’s no uncontainable second wave) is certain to be no-holds-barred contests between myriad stakeholders; consumers versus producers, social and cultural sectors versus essential goods and services, domestic versus foreign investors. The European Union will be at the centre of all these disputes.

Managing post-corona recovery is the opportunity the EU has wanted for some time. Its feeble reform and streamlining efforts more than 20 years ago arguably failed because they lacked the oxygen of public interest. That will not be the case for the decade ahead. If the EU is to emerge phoenix-like from these testing times it must display leadership qualities – and communications skills – that have been in short supply.

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