We Cannot Predict the Future, But It Is Our Duty to Work for a Better One

When the first news of a virus afflicting people on the other side of the world started arriving in Europe, it all seemed so distant and far away in our perception. But then suddenly, families and companies here were hit as well, value chains ran the risk of being disrupted, and schools and borders were temporarily closed. To contain the pandemic, protect the most vulnerable and ensure the sustainability of national health systems, national governments imposed strict lockdown measures and economic activity went into a tailspin.

Europe was again plunged into a crisis, the third in a single decade. As Jean Monnet once said, however, “Europe will be forged in crisis, and will be the sum of the solutions adopted for those crises”. While many were betting against Europe mustering coordinated actions and showing solidarity, Europe demonstrated its strength, coming up with a common, unified response to tackle the unprecedented damage brought by the virus.

In the year of the 70th anniversary of the Schumann Declaration, the 27 Member States decided for solidarity – one of the founding values of the European Union and certainly one of the most esteemed and claimed by their citizens.

We Europeans are experiencing challenging times and the Union has displayed its ability to respond to different challenges in record time. From the availability of supplies and equipment in the health sector to a common approach toward travel measures and the establishment of green lanes to ensure the free flow of goods and services. The European Parliament and Council have adopted a new set of rules allowing full flexibility in the use of structural funds. The Union has together managed to pave a common path.

Europe began as an ideal shared by a few. It has become an opportunity for many. It is now responsible for “investing in a collective recovery and a common future”. It is time to rethink our economies and our societies and chart a course towards a green, digital and resilient future. This pandemic will bring about structural changes and accelerate solutions, while policies will be forward-looking to ensure a smooth transition into a fully-fledged recovery.

Europe must be a role model for the world. Europe must lead. Time is running, citizens are waiting and for many this is “Europe´s moment”. It is time to put selfishness aside and build together a better and brighter future.

The Multiannual Financial Framework (MFF), i.e. the EU budget, is the main tool for providing investment in Europe. The sleepless nights in negotiations leading up to its adoption were widely publicised. Discussions have always been characterised by contradictory demands for more money for national envelopes and, in the same breath, lower financial contributions, even if the starting point is always EU priorities, goals and challenges. At the end of the day, national interests always tend to prevail, undermining the overriding interest in real, strong commitments to a Union pursuing common goals.

Before the pandemic, several EU summits unsuccessfully tried to ease the gridlock over the next EU budget. The pandemic did not completely change the chess match, but Europe´s response to the present unprecedented crisis was historical and remarkable.

The new recovery instrument Next Generation EU (NGEU)

Next Generation EU (NGEU) – the new recovery instrument – is worth 750 billion euros. The money is to be raised in capital markets by the European Commission and mainly disbursed to the Member States through grants – 390 billion euros versus 360 billion euros in loans. Together with the MFF, the recovery package amounts almost two trillion euros. Is this a Hamilton moment? Well, probably not, but there are underlying principles in this response that are worth celebrating.

First of all, there is the principle of common issuance of debt. Europe is assuming joint responsibility by taking on a considerable amount of debt to finance its recovery. Even if the instrument is temporary, the principle of debt mutualisation is being applied. A budgetary line of debt interests and repayments is also part of the budget. It is like Eurobonds. Together with SURE (Support mitigating Unemployment Risks in Emergency), a temporary instrument to support short-time work schemes, the Commission is going to capital markets to borrow almost 850 billion euros. Moreover, the 100 billion euros in SURE are to be issued as social bonds, while around 30 per cent of NGEU will be issued as green bonds dedicated to green investments in the Recovery and Resilience Facility (RRF). The issuance of these social and green bonds will for sure not be a matter of indifference to the capital markets.

Secondly, there is the issue of governance of the recovery instrument. Despite its legal basis (Article 122 TFEU), the instrument is embedded in the EU budget. The European Parliament was the first institution to call for recovery bonds guaranteed by the EU budget. Because an intergovernmental solution could not garner enough support, European leaders agreed to set up a recovery fund, tasking the Commission with this and basing it on the Community method. The fact that this crisis response has been designed within the EU institutional framework shows that our EU treaties still have the needed flexibility. On the other hand, it also makes this solution subject to the principle of unanimity and, unfortunately, some Member States are already taking advantage of this to push through their own parochial interests. The proposed governance did not exclude a need for improvements, notably in terms of its political, democratic accountability and legitimacy. A procedure for monitoring NGEU in the inter-institutional agreement, a commitment to revise the financial regulation and a joint declaration on future use of Article 122 TFEU are important achievements in the institutional framework as a result of the negotiations with the European Parliament.

Thirdly, this instrument has brought home in the debate once again the importance of pursuing EU policies. In the State of the Union 2000 speech, the President of the Commission announced a Health Union. This crisis has triggered profound economic transformation. Green and digital transitions are more important than ever and this crisis has just made us more aware that we have no time to wait. Today we have the opportunity to discuss EU public goods and the role of national policies and investments in common goals such as the reduction of CO2 emissions and the building up of 5G networks.

The Recovery and Resilience Facility (RRF), the main tool of Next Generation EU, offers a unique opportunity to change our economies in a greener and more resilient direction. The RRF is a fiscal tool that helps us manage the economic cycle. It is temporary, but underlying it is the principle that there is a need for a fiscal stabilisation tool. Member States are to prepare reforms and investment proposals in their Recovery and Resilient Plans. This is a unique opportunity to carry out desirable, growth-enhancing reforms, e.g. in the education system, or to increase the resilience of public health systems, the efficiency of the public administration and judicial system, and to redouble efforts to achieve climate goals. Will this open the door to review the European Semester in the direction of a more holistic approach and increased democratic legitimacy? As some commentators have already noted, the Semester may finally be dangling out the “carrot” for implementation of reforms that has been lacking so far.

The greatest challenge is now to implement the Recovery Package (MFF and NGEU). Southern and central eastern European countries will be the biggest beneficiaries of the main component of Next Generation EU. Together with the structural funds, these Member States will be the biggest beneficiaries of EU funds. Therefore, the European Institutions and Member States should work together so that money flows on time, absorption does not become a hurdle, there is administrative capacity at national level to carry out very large amounts of public investments and monitoring does not become an obstacle.

The Multiannual Financial Framework (MFF) 2021-2027

Assuming responsibility also means thinking about the future. Thinking about common policies in which outcomes and their European added-value may only be realised in the long run. My generation is a generation that has brought progress to the world, but in many aspects this has been a progress which has also compromised the future.

While historically speaking the Recovery Package (MFF and NGEU taken together) constitutes the greatest amount of financial firepower in the EU arsenal, the long-term EU budget (MFF) that is linked to structural policies for Europe is at its lowest level. The conclusions drawn regarding the EU summit in July 2020 were positive overall (for some even exceeding expectations), but, at the same time, leaders produced some disappointments. While national envelopes were maintained and the balance of grants and loans changed, EU programmes suffered significant cuts, while others were even smashed.

The position of the European Parliament has been crystal clear since the very beginning – we need to increase the ceilings of the EU budget. Fifteen flagship programmes need to be beefed up. At the end of the negotiations, the European Parliament managed to secure for the first time extra money to reinforce key EU programmes in areas including health, creative industries, research, young people and humanitarian aid. The total amount of these top-ups is 15 billion euros, and another one billion euros will be put aside if unexpected future crises need to be addressed.

Without voicing any kind of preference for any particular policy area, I would like to note three areas that I think deserve serious consideration by policymakers for the next years.

Our ambition to live a decent life is stretching planetary boundaries. The challenge is “to meet the needs of all, within the means of the planet”. Europe must address the major obstacles challenging the well-being and our planet, from climate change to loss of biodiversity, resource depletion to pollution. Making Europe carbon-neutral by 2050 is one commitment. All energy is to come from renewable sources, buildings are to be renovated to become more energy-efficient, energy is to become more affordable and banks and pension funds are to refrain from investing in fossil fuels, instead opting for clean energy. Europe has a common agriculture policy. What we need is a transition to a sustainable food system based on high-quality food, protection of human health and environment and localised food production. Europe must take actions to preserve and restore ecosystems. E.g. Europe together with our international partners in the United Nations must clean up our oceans. Cleaning up oceans will increase their biodiversity, it will increase the number of species and it will allow sustainable fishing and secure food chains. The same goes for the forests. Our forests are a fundamental component of our planet, too. They are important centres of biodiversity.

Europe has so far failed to develop a European Digital Policy and lags behind its peers. The pandemic has shown that digital technologies offer new possibilities, new forms of organisation based on networks as well as new ways for citizen participation. Technologies are not neutral, they embody certain values and favour certain interests. Present-day technology is in large areas dominated by the US and China. Nevertheless, Europe can still push forward its own digital transformation. Europe needs to develop a strategy that leverages its advantages and supports societal sectors such as transport, green transition, health, defence and security. To this end, we need to invest massively in supercomputing and data-processing, artificial intelligence and data-learning. We need to spur innovation and develop technologies that can promote our European values and way of living.

Being European also means meeting our responsibility by defending multilateral rules and striving for changes based on shared values, rules and reciprocity. Europe must build a new global governance structure that reforms the multilateral system and partners across world regions. Europe should join forces to promote human rights and democracy all over the world, and our responsibilities start right at our own borders. Our neighbouring regions continue to be marked by instability and conflicts. Only with credible instruments and investment programmes can we restore the credibility of the EU´s neighbourhood policy. During the next seven years, Africa, the continent whose youth represents around 60 per cent of its population should be given special attention. The EU must strengthen its partnerships to render them more inclusive, flexible and resilient.

Financing the EU budget and repaying our commitments

Consequently, we also need to find new sources of revenue to finance the EU budget, the so-called "own resources". In doing so, we must be coherent and responsible, but also creative and imaginative.

Why is it so important to find genuine own resources? Europe is to borrow a lot of money in the coming years and it is being planned to repay it over the next 38 years. It is the next generation that will be responsible for repaying this sum. It is our responsibility to create the necessary financial resources to make this repayment possible.

First of all, it is important to clarify that European taxes are not necessarily tantamount to own resources, i.e., new sources of taxation at EU level do not mean new sources of revenue for the EU budget. Secondly, I advocate new own resources being aligned with European priorities and cover the costs of NGEU. These key principles are now laid down in the inter-institutional agreement which includes a basket of possible new own resources linked to our environmental goals, digital transformation and the fight against tax evasion and fraud as well as a binding roadmap setting out the time frame and modalities for the introduction of new own resources – e.g. based on the Emission Trading System (ETS; to be introduced by 1 January 2023) or in the form of a Financial Transaction Tax (FTT; envisaged to be introduced by 1 January 2026).

The choice of a basket by the European Parliament is not an entirely innocent matter. Based on its financial commitments (repayment of debt, interest rates and financing of EU policies), Europe is well-advised to use own resources that are available to the greatest extent possible. Some of its own resources will decline over time, namely environmental ones, if policies in this area are successful. We should not be afraid to put proposals on the table. Let us join in action with other sectors, partners, etc. Let us all work together to find the best way to avoid jeopardising the future of next generations even more than we already have.

Last, but not least, it is crucial for the EU to show that it is coherent when it comes to its own values, including protecting fundamental rights, democracy and rule of law. Strengthening fundamental rights, democracy and rule of law requires a comprehensive approach, with a monitoring system based on a system of peer-to-peer reviews for all Member States and a mechanism that enables the EU to stop funding governments that disregard the fundamental values of the Union – “respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights”. Meanwhile, we have a strong mechanism linked to Article 2 TFEU and based on an efficient and applicable conditionality. Its consistent application requires that we finally demystify the notion that in Europe it is possible to trade or exchange values for money, or that values are for sale.

As Elvira Fortunato, one of the most brilliant Portuguese scientists, awarded with the Horizon Impact Award 2020, said recently: “The world will be better. This pandemic has reminded all of us that there are alternatives”. Never before has it been so easy to change – as long as there is a political will to do so.
 

The views expressed in this article are not necessarily those of Friedrich-Ebert-Stiftung.