This op-ed has previously been published in the EUobserver on 17 July 2020.
The Netherlands and Spain are at opposite ends of the debate about the EU's recovery package. But they must realise they are in the same boat.
The Covid-19 pandemic has triggered an unprecedented recession in Europe which has hit the EU at a delicate moment. It could be the toughest test for European integration yet. A strong, fast and coordinated, response is essential.
In March, the EU initially acted in an uncoordinated way. Since then, several EU institutions have taken fast and bold steps.
The European Central Bank has deployed an unprecedented asset-purchase programme, the European Commission has for the first time ever lifted restrictions on fiscal expansion and state aid, and the Eurogroup agreed new European Stability Mechanism credit lines, emergency measures to support those unemployed, and new funds for the European Investment Bank. Now it is time for the heads of state and government to rise to the challenge.
Spanish PM Pedro Sanchez. 'In the case of Spain, there is a widespread agreement on the need to reform the education system; the labour market; its fiscal framework; public administration; and social policy' (Photo: Council of the European Union)
A speedy economic recovery will help avoid a long, drawn-out social, economic and political crisis.
Moreover, this crisis is an opportunity to put the European economy on a trajectory to meet the digital and green challenges of the 21st century. It is also a test of EU solidarity.
In a world increasingly shaped by Sino-American geopolitical and economic competition, no European state can afford to stand alone. Today's complex geopolitical landscape makes a united Europe even more necessary.
The current crisis is like a meteorite that has come crashing from the sky. It is the fault of no EU government and dealing with the fallout requires cooperation.
Dutch election
The internal market, the monetary union and the Schengen travel zone are at risk, and populist anti-EU voices stand ready to exploit disagreements that have emerged among member-states.
A piece of unfinished business is the so-called EU Recovery Fund.
It is based on a Commission proposal, and is integrated into the EU's draft seven-year budget. It would allow for investment in the EU of almost two trillion euros, some of it in the form of debt issued by the Commission.
The sooner a deal is reached, the quicker the money can be released and the faster the recovery will be.
Upcoming elections in countries like the Netherlands- where the government holds a tiny majority - also mean that the longer it takes to reach a deal, the more its parliament will be in election mode, making passage of a deal more difficult.
There is a window to reach an agreement this month.
The Netherlands and Spain think differently about a number of elements in the recovery package.
Dutch concerns about the need for conditionality are well-rehearsed, but so is the notion that the Netherlands is one of the largest beneficiaries of a strong single market.
Likewise, Spain knows a blank-cheque from the North is politically and morally indefensible. So any deal must strike a balance between funding and conditions; between reforms and solidarity.
“Spain knows a blank-cheque from the North is politically and morally indefensible."
On this the two countries agree. As they do on the need for a digital, inclusive and green recovery.
If well-designed, the Recovery Plan could also help forge a more geopolitical Europe, and increase Europe's strategic autonomy by investing in new technologies, strengthening the international role of the euro, and reducing dependencies while avoiding the trappings of protectionism.
To achieve these goals, the Recovery Plan needs to be sufficiently large to ensure that the recovery does not increase economic divergence inside the Union.
Large differences in the amount of state aid given by member-states has the potential to unlevel the playing field inside the EU .
Subsidise - but scrutinise
A substantial part of the plan should, therefore come in the form of subsidies. This level of solidarity is also necessary to avoid dangerous increases in the public debt of member states that might trigger a new eurozone crisis.
In exchange, there is a broad understanding that the plan must incorporate an adequate EU-level monitoring mechanism to ensure that funds are spent appropriately and that there is enough accountability.
Solidarity also means acknowledging that every country must reform.
"Solidarity also means acknowledging that every country must reform."
The country specific recommendations that the European Commission publishes in its European Semester reports are a good place to start.
In the case of Spain, there is a widespread agreement on the need to reform the education system; the labour market; its fiscal framework; public administration; and social policy.
Spaniards know that these reforms are due, just as they knew a structural transformation of the economy was necessary when the country joined the EU more than thirty years ago.
In the Netherlands, there is also work to be done: loopholes for corporate tax evasion must be plugged, self-employed workers must be better protected, and its large current account surplus must be addressed.
During the previous crisis Europeans learnt the hard way that domestic ownership of national reforms is crucial to boost for their long-term success.
By contrast, rules perceived as being imposed from the outside might spark anti-EU sentiment.
Giving other governments or their parliaments a veto over how recovery funds are spent, would be a recipe for acrimony and failure.
Instead, the European Commission, with its deep technical knowledge of each member state's economies, is the best-suited institution to monitor reform implementation, yet its monitoring capacity and its enforcement role should be improved.
Another EU-level institution that should play a role is the European Parliament. The joint issuance of debt requires joint democratic control of how this debt is spent and repaid.
Of course, national parliaments have a role to scrutinise these plans, but so does the European Parliament. It should have a say both on the general guidelines of the plan and in the monitoring of the good use of the funds.
Spain and the Netherlands – the fourth and fifth economies in the EU– ultimately have a shared responsibility to make this work.
About the authors
Monika Sie Dhian Ho is general director of the Clingendael Institute in The Hague and Charles Powell is the director of the Elcano Royal Institute in Madrid. This piece was co-written by Rem Korteweg, senior research fellow at the Clingendael Institute, and Federido Steinberg and Miguel Otero-Iglesias, senior analysts at Elcano.
