"Hamiltonian moment for Europe": Merkel Backs Shared E.U. Debt to Tackle Virus

[Vouthon]

Merkel, Breaking German ‘Taboo,’ Backs Shared E.U. Debt to Tackle Virus

BRUSSELS — Faced with economic calamity and the threat of the coronavirus further fracturing the European Union, Chancellor Angela Merkel of Germany on Monday broke with decades of German economic orthodoxy and agreed to back the idea of collective European debt to help those countries that have been hit hardest by the pandemic.

If the other member states agree to the plan, it would be a major step toward a more unified Europe, and a sign that the pandemic might actually bring the bloc closer together instead of splintering it.

Ms. Merkel joined with President Emmanuel Macron of France to propose borrowing 500 billion euros, or $545 billion, for a common recovery fund. Its repayment would be the financial responsibility of the entire bloc, but it would primarily benefit the poorer south, which has been hit hardest by the virus.

Such a joint approach to borrowing has long been resisted by Germany and other member states in the north, and that reluctance has proved an obstacle to further European integration.

Mujtaba Rahman, chief European analyst for the Eurasia Group, said, “It’s a European revolution — if it goes through". For the first time, Mr. Rahman said, Europe will be able to “raise money and transfer it directly to the countries, regions and industries most in need, without further impairing their economic situation by increasing their debt.’’

Those receiving the funds would not be responsible for repaying them, Mr. Macron said. That would be the responsibility of the European Union as a whole through its joint budget.

Mr. Macron called the Franco-German proposal “a real change in philosophy.”

“We are proposing to do at the European Union level what we are doing at the national level,” he said, adding: “I think that it is a very deep transformation, and it is what the European Union and the single market need to keep their coherence. It is what the eurozone needs to keep its unity.”

“I think it’s quite significant,’’ said Guntram Wolff, a German economist who heads Bruegel, a Brussels think tank. “It is borrowing that will be repaid through the E.U. budget, and so it is the first genuine creation of long-term E.U. fiscal debt.”

Henrik Enderlein, president and professor of political economy at the Hertie School of Governance in Berlin, said in a Twitter post that the proposal indicated that collective European debt, a long-held “taboo,” for German politicians, “could become reality.”

This, Mr. Enderlein said, could signal a “Hamiltonian moment” for Europe. The federal assumption of state debt engineered by Alexander Hamilton played a crucial role in forming a collective identity for the United States in its early days.

“What matters most today,’’ Enderlein went on, “is that France and Germany have agreed that in a crisis the E.U. can issue its own debt at a large scale. The political signal here is that the E.U. is more than a grouping of nation states and has its own federal identity.’’​

 

[Vouthon]

Looks like the Greek sovereign debt crisis has proven to be a learning curve. They are not making the same mistake this time but rather aiming to mutualize and collectivise debt - for the first time ever - in a fund to be distributed by the EU itself as a direct grant to the countries worst afflicted by the pandemic, which they won’t need to pay back (not a loan and attendant bailout as with Greece back in 2009).

One cannot rewrite the past but we can prevent the mistakes of the past from harming our futures and I'm so pleased to see that the EU are planning to take this monumental (and needless to say "much-needed") step forward as a Union.

This kind of shared EU debt had always been resisted by Germany and a couple of other northern European countries but the coronavirus crisis has been so grave in its consequences that it has provoked, finally, what could be a new stage in EU economic integration.

Pope Francis, I imagine, will be greatly pleased if this passes with the consent of the other Member States and the Commission, given that he’s repeatedly been calling for more supranational solidarity within the EU (i.e. in his Easter Urbi et Orbi and on many occassions after). Most recently earlier this month:


Pope calls on Europeans to uphold core EU values - Vatican News

Pope Francis turned his thoughts to Europe “on the occasion of the 70th anniversary of the Schuman Declaration of 9 May 1950.”

Speaking to the faithful after the Regina Caeli prayer on Sunday, the Pope said that Declaration “inspired the process of European integration, enabling the reconciliation of the peoples of the continent after the Second World War, and the long period of stability and peace from which we benefit today.”

Inviting all those who hold positions of responsibility in the European Union never to fail to be inspired by the historic documents, he urged them to face the social and economic consequences of the pandemic “in a spirit of harmony and collaboration.”
​

Well, it looks like Monsieur Macron and Frau Merkel listened this time Your Holiness.

 

[Brickjectivity]

Looks like the Greek sovereign debt crisis has proven to be a learning curve. They are not making the same mistake this time but rather aiming to mutualize and collectivise debt, for the first time ever, in a fund to be distributed by the EU itself as a direct grant to the countries worst afflicted by the pandemic, which they won’t need to pay back (not a loan and attendant bailout as with Greece).

We cannot rewrite the past but we can prevent the mistakes of the past from harming our futures and I'm so pleased to see that the EU are planning to take this monumental step.

I have grudging respect for this decision.

This kind of shared EU debt had always been resisted by Germany and a couple of other northern European countries but the coronavirus crisis has been so grave that it has provoked, finally, what could be a new stage in EU economic integration.

It seems like a sneaky (positive connotation) move at this late hour. None of the opponents of the EU have anticipated it. All the talk about the EU assumes that Germany will hold out forever on this issue, that the bank will be the EU's killer. The situation in Greece, Spain and Italy have done a lot to push through and justify Brexit.

Pope Francis, I imagine, will be greatly pleased if this passes with the consent of the other Member States and the Commission, given that he’s repeatedly been calling for more supranational solidarity within the EU (i.e. in his Easter Urbi et Orbi and on many occassions after). Most recently earlier this month:

Why does he believe in taking this risk? ***edit***

 

[Vouthon]

Why does he believe in taking this risk?

If I may ask Brick, what risk do you perceive in this proposal for collective debt?

Mutualisation of debt and fiscal transfers, from wealthier to more depressed regions, were key in binding the early United States together in a shared civic identity with an ethic of solidarism extending beyond the particular interests of the individual States, with a view to the good of the whole as well.

The Papacy, as an institution, has been stalwart in its support for the concept of "ever-closer union" since the first steps towards political-economic integration in the 1950s, culminating in the 1957 Treaty of Rome. My signature quote from Pope Pius XII is derived from an address he made for that very event, regarding his hopes for a gradual growth in the competences of the new institutions:


Address of His Holiness Pope Pius XI to the Congress of Europe (1957)

The decisive point upon which depends the formation of any community worthy of the name : the formation of a European political authority which will have sufficient responsibility to be felt…whose High Authority has powers which are relatively broad …

A single external political community in Europe , though it will allow for the differences arising from varying interests, will also base itself on the common economic, spiritual, and cultural interests of its members. Such a community is becoming more and more indispensable…

You have already ventured to pass beyond the realities of the present, and are beginning to select the stones necessary for tomorrow’s building. We are happy to see such a spirit, persuaded that it comes from generous and upright motives. Your aim is to secure for Europe, which has so often been torn asunder and bloodstained, a lasting unity which will enable her to continue her mission in history.

With the concept and exercise of the fundamental liberties of the human person, this message can maintain the vigor and integrity of the operations of family and national society and, in a supranational community, can guarantee respect for cultural differences and a spirit of conciliation and cooperation, along with an acceptance of the sacrifices which it will entail and the dedication which it will demand.​

Francis has continued in that established tradition with explicit calls this year:


Pope mounts defense of EU amid coronavirus ‘paralysis’

In his daily livestreamed Mass from the Vatican’s Domus Santa Marta, the residence where he lives, Francis Wednesday prayed for the union.

“In these times in which we need so much unity among us, among nations, let us pray today for Europe, so that Europe manages to have this unity, this fraternal unity of which the founding fathers of the European Union dreamed,” he said.

Those remarks built on Francis’s Urbi et Orbi message on Easter Sunday, when he said “the European Union [is] facing an epochal challenge, on which will depend not only its future but that of the whole world”.

Francis’s key allies in Europe have also been pressing the case, acknowledging frustrations with the inability of the EU to get its act together but suggesting the right response isn’t to bail on the union but to beef it up…​

As for Francis, he led the church in Argentina during that country’s “Great Depression” in 1998-2002, and he understands how individual states often are dependent on larger institutions during moments of crisis. When those institutions are weak or unresponsive, therefore, his instinctive response isn’t to walk away but to reform…​

As he stated in Urbi et Orbi address two months ago for Easter Sunday:


"Urbi et Orbi" - Easter 2020 | Francis

Among the many areas of the world affected by the coronavirus, I think in a special way of Europe. After the Second World War, this continent was able to rise again, thanks to a concrete spirit of solidarity that enabled it to overcome the rivalries of the past. It is more urgent than ever, especially in the present circumstances, that these rivalries do not regain force, but that all recognize themselves as part of a single family and support one another. The European Union is presently facing an epochal challenge, on which will depend not only its future but that of the whole world. Let us not lose the opportunity to give further proof of solidarity, also by turning to innovative solutions. The only alternative is the selfishness of particular interests and the temptation of a return to the past, at the risk of severely damaging the peaceful coexistence and development of future generations​

 

[Brickjectivity]

If I may ask Brick, what risk do you perceive in this proposal for collective debt?

Mutualisation of debt and fiscal transfers, from wealthier to more depressed regions, were key in binding the early United States together in a shared civic identity with an ethic of solidarism extending beyond the particular interests of the individual States, with a view to the good of the whole as well.

In any venture there are risks. The pope does not know whether Europe will adopt a common debt structure. The USA did a poor job of what you are talking about. We even had a war related to it, if not caused by it. We're hoping that we have got something going that will last, but its not a settled question. I view the EU as another experiment less than sixty years old. Its a different experiment, but we can't presume it won't have the same problems. The root causes of the economic concentration could cause you to build up a similar stress (like a tectonic stress) to what the US has between North and South, and this can fuel other disagreements like ours has. Its not currently in danger of causing a civil war, but its still toxic.

The Papacy, as an institution, has been stalwart in its support for the concept of "ever-closer union" since the first steps towards political-economic integration in the 1950s, culminating in the 1957 Treaty of Rome. My signature quote from Pope Pius XII is derived from an address he made for that very event, regarding his hopes for a gradual growth in the competences of the new institutions:

You are seeing nationalist movements growing, questioning the EU movement. Maybe that is the reason why this idea of common debt is even being considered.

Francis has continued in that established tradition with explicit calls this year:

I am confused by the word 'Tradition' there. What if Merkel's idea is rejected by Germans? What if things change? He will then need to address the situation as it unfolds.

 

[Vouthon]

The pope does not know whether Europe will adopt a common debt structure.

Indeed he does not, but he has nonetheless stuck his staff into the ground and made clear his personal hope in that respect.

From his perspective, I'm sure he sees it as a duty incumbent upon him, as the occupant of an office traditionally concerned with fostering unity on the continent of Europe and across the culturally-diverse Catholic world of some 1.1 billion people.

Given that Catholics still make up a substantial demographic in Europe (and are well represented among the ranks of it's heads of state), his voice is perhaps not without some weight.

It is a common enough assessment amongst economists that the eurozone should have unified its debt structure from the beginning, as the United States did with Hamilton's plan in 1791, when he convinced US states to guarantee each others’ debts through a federal debt structure.

A common currency requires a shared fiscal policy backed up by an effective banking union. But the EU, due to cultural divergence amid its member states, pursued a monetary union without a shared fiscal structure.

Now, this "Mercron Plan" would introduce large transfers rather than loans to hard-hit regions, financed by commonly-issued EU debt.

The EU, as presently constituted, is an incomplete "halfway-house" union lying somewhere between the original US Articles of Confederation (1777) - with degrees of shared sovereignty in reserved areas under EU competence alongside almost total fiscal autonomy at the member state level - and the federal United States Constitution of 1789 onwards.

I think I now understand why your referring to it as a risk - its a very live constitutional issue concerning the ‘balance’ between member states and citizen rights, a
matter of determining the right balance between states and people - the exact same issue that bedevilled the United States from its declaration of independence in 1777 till the American Civil War in the 1860s.

The Articles of Confederation were originally structured around a union of states. The US constitution, by contrast, reconstructed the polity as a union of people at the federal level. But the issue festered under the surface for decades, as typified by the Confederate States of America being formed as a union of states again later in American history.

The EU is in a similar state of constitutional ‘debate’, except that it is presently a “halfway house” between confederation and federation, at once both an intergovernmental union of nation-states and a supranational union of citizens. Finding the perfect balance between the two, while respecting each, is a pressing matter that is yet to be satisfactorily resolved.

In the US case, the Articles of Confederation resulted in a weak central government in which the former colonies of differing strength jockeyed for power under the constant threat of financial ruin, culminating in Shay's Rebellion (1786-7).

Resistance in the EU has traditionally come from northern European states that did not want (for understandable reasons) to foot the bill for less frugal, debt-laden southern states.

But in a Union which is more than the sum of its parts, as with the United States, the sacrifice of a degree of debt mutualisation / collectivisation has to be in place so that poorer or afflicted members feel like they are part of a union that shares both burdens and benefits.

There are a great deal of "ifs" here, so your caution is well met. On the positive side, though, this "Mercron Plan" is three times the size of the USA's postwar Marshall Plan.

The 1948 Marshall Fund – US aid to European countries devastated by 1939-45 war – was around $15bn – or $165bn/Euros150bn in today’s money. The Mercron Plan is almost triple that. Moreover, it involves mutualized debt with fiscal transfers, to the extent of being a straight grant to the afflicted states with weaker debt markets that won't further indebt them (it's not a loan, so no defaulting on sovereign debt this time).

Had these measures been in place in the 2000s, arguably the Greek crisis would not have worked out in the way that it did.

 

[Brickjectivity]

Indeed he does not, but he has nonetheless stuck his staff into the ground and made clear his personal hope in that respect.

From his perspective, I'm sure he sees it as a duty incumbent upon him, as the occupant of an office traditionally concerned with fostering unity on the continent of Europe and across the culturally-diverse Catholic world of some 1.1 billion people.

Given that Catholics still make up a substantial demographic in Europe (and are well represented among the ranks of it's heads of state), his voice is perhaps not without some weight.

It is a common enough assessment amongst economists that the eurozone should have unified its debt structure from the beginning, as the United States did with Hamilton's plan in 1791, when he convinced US states to guarantee each others’ debts through a federal debt structure.

A common currency requires a shared fiscal policy backed up by an effective banking union. But the EU, due to cultural divergence amid its member states, pursued a monetary union without a shared fiscal structure.

I was mostly unaffected by EU problems, but I did hear about them. I remember there was some discussion about them here at RF.

I remember surviving terrible news casts about those problems. I only watched a little. Some other people weren't so lucky and watched repeatedly the same news over and over until dead -- either on CNN or Fox. I'm not serious about that. They only looked dead.

Now, this "Mercron Plan" would introduce large transfers rather than loans to hard-hit regions, financed by commonly-issued EU debt.

Thanks I had not heard about it until your posts.

The EU, as presently constituted, is an incomplete "halfway-house" union lying somewhere between the original US Articles of Confederation (1777) - with degrees of shared sovereignty in reserved areas under EU competence alongside almost total fiscal autonomy at the member state level - and the federal United States Constitution of 1789 onwards.

I think I now understand why your referring to it as a risk - its a very live constitutional issue concerning the ‘balance’ between member states and citizen rights, a
matter of determining the right balance between states and people - the exact same issue that bedevilled the United States from its declaration of independence in 1777 till the American Civil War in the 1860s.

The Articles of Confederation were originally structured around a union of states. The US constitution, by contrast, reconstructed the polity as a union of people at the federal level. But the issue festered under the surface for decades, as typified by the Confederate States of America being formed as a union of states again later in American history.

The EU is in a similar state of constitutional ‘debate’, except that it is presently a “halfway house” between confederation and federation, at once both an intergovernmental union of nation-states and a supranational union of citizens. Finding the perfect balance between the two, while respecting each, is a pressing matter that is yet to be satisfactorily resolved.

In the US case, the Articles of Confederation resulted in a weak central government in which the former colonies of differing strength jockeyed for power under the constant threat of financial ruin, culminating in Shay's Rebellion (1786-7).

What an interesting commentary on history. I enjoyed that.

Resistance in the EU has traditionally come from northern European states that did not want (for understandable reasons) to foot the bill for less frugal, debt-laden southern states.

But in a Union which is more than the sum of its parts, as with the United States, the sacrifice of a degree of debt mutualisation / collectivisation has to be in place so that poorer or afflicted members feel like they are part of a union that shares both burdens and benefits.

There are a great deal of "ifs" here, so your caution is well met. On the positive side, though, this "Mercron Plan" is three times the size of the USA's postwar Marshall Plan.

The 1948 Marshall Fund – US aid to European countries devastated by 1939-45 war – was around $15bn – or $165bn/Euros150bn in today’s money. The Mercron Plan is almost triple that. Moreover, it involves mutualized debt with fiscal transfers, to the extent of being a straight grant to the afflicted states with weaker debt markets that won't further indebt them (it's not a loan, so no defaulting on sovereign debt this time).

The Marshal Plan was good both for Europe and USA. Its probably why we all eat Danish butter cookies here. They're good. I cannot understand the difference between 165bn Euros and 495bn Euros, but I understand they are both a lot of money. I think I get your point though. The Marshal Plan was intended to discourage war, and this new bank could be similarly effective or unifying. Is that what you are saying?

Had these measures been in place in the 2000s, arguably the Greek crisis would not have worked out in the way that it did.

If they do this I'll believe that the EU will indeed become like one large country. I'll expect that.