August 10, 2020

Northern hawks reject a European anti-crisis fund

The ministers of Economy and Finance of the euro zone (Eurogroup) met yesterday in Luxembourg with the aim of reaching an agreement to launch a specific fund for the countries of the European currency. While the slowdown in the economy of the community club begins to be a reality and not a mere cloud on the horizon, the euro zone continues to disagree on the scope of this new instrument. True to the script of the epic Eurogroups, at the end of this edition no agreement had yet been produced. Despite this, the spirit of departure was somewhat more optimistic than in previous appointments. At the marathon meeting in June, the headlines of European countries limited themselves to agreeing on some principles of this new tool, but were not able to agree on the way of financing or size. This instrument will be part of the new financial framework for the years 2022-2027 that is being negotiated between the European capitals, but France and Germany intend that their amount can be increased through additional funds from the euro zone countries.

As a basis for the agreement, the northern hawks, led by the Netherlands, have succeeded in making this new fund dedicated only to promoting competitiveness and convergence between the countries of the single currency, with the aim of rewarding the states that put in structural reforms are underway to boost the economy. In this way, the main claim of the southern states is left out, which also pretend that this fund can come to the aid of those countries in trouble as a way to keep investments in periods of crisis and not fall into dangerous spirals. The purpose is to avoid repeating the pattern of what happened in countries like Spain, when the bursting of the real estate bubble triggered the fall of public investment and the worsening of the crisis. So far, not even the most optimistic expect the word "stabilization" to appear in the final agreement, since this term has become anathema to defenders of fiscal orthodoxy. They fear that receiving funds will discourage the implementation of economic reforms in the south.

But although words matter, the devil is in the details. And the countries of the south hoped to introduce this aid function through the back door in times of crisis with a countercyclical effect. Spain defends that this new budget has "added value" with respect to other instruments already in place and for this it was willing to fight for some of the elements present in the draft to prosper: the possibility that the percentage that the states have to co-finance will be greater or less according to their economic situation, a reserve amount allocated according to the circumstances or prioritize certain types of investments over others. "There are several mechanisms that could lead us to this countercyclical nature that we defend," said Acting Economy Minister Nadia Calviño. Although months ago the Spanish delegation threatened to veto a possible decaffeinated solution, now everything indicates that pragmatism has taken over the Spanish Ministry of Economy, which prefers progress, even if slight, before the paralysis.

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