Leading article

New fault lines are appearing in the EU

25 July 2020

9:00 AM

25 July 2020

9:00 AM

Anyone who imagined that the departure of Britain would make for more harmonious EU summits in future will have been disabused of this belief by the four days of meetings to establish an EU coronavirus recovery fund, which came within an hour of being the longest on record. Agreement was reached on a €750 billion package — just over half of which will be made up of grants and the rest loans — but not before the French President, Emmanuel Macron, had reportedly thumped the table and accused a group of countries of putting the entire European project at risk through their refusal to sign for an even higher sum. Even now, the deal might still run into trouble: the European parliament is already voicing objections.

For connoisseurs of EU summits it must have been a bit like the old days, when a recalcitrant Britain would invariably find itself accused of thwarting the dream of ever-closer union. With Britain no longer there to represent their interests, the leaders of the ‘frugal four’ — the Netherlands, Denmark, Sweden and Austria — instead found themselves being held up as the bad guys. The Dutch PM, Mark Rutte, was even accused of behaving like the British.

Heavily outnumbered, as ever, by the more extravagant consumers of EU funds, the frugal four leaders were asked to fork out to bolster the economies of countries — notably Poland and Hungary — which have been less affected by Covid-19 than their own. They were forced to look on, too, as Angela Merkel reassured Viktor Orban that she would help him with the rule-of-law proceedings against Hungary; the country had been threatened with the move in retaliation for failing to observe the EU’s democratic values in its domestic law. We have now found out just how solid those values are.

While the frugal four succeeded in trimming the package of grants from a proposed €500 billion to €390 billion, they failed to prevent a significant step forwards in the EU’s ambitions to be a super-state. For the first time, the European Commission will be allowed to borrow large sums on the international money markets. This fundamentally changes the scope of the organisation. No longer will it depend entirely on funds transferred from member states. Along with being able to borrow in this way, its budget and ambitions can now be expected to swell.

These proposals will also exacerbate the tensions between north and south. The European Council — not just the Commission — will have a role in determining whether a country is eligible for funds. It is easy to imagine an electioneering Dutch prime minister objecting to more money for an Italy that, in the eyes of his electorate, hasn’t reformed sufficiently. The effect of these inevitable rows will be to irritate voters in both countries.

No less significant are plans to establish direct forms of revenue for the EU in the form of a carbon border tax, a plastics tax, a digital services tax and a financial services tax. Needless to say, these proposed levies are being sold on the basis of their social and environmental objectives; yet they are, beneath the surface, a blatant attempt to establish the EU as a tax-raising entity and further strengthen the centre at the expense of the member states.

The expansion of the EU’s fiscal ambitions are a vindication for those who have long warned that the EU is evolving by degrees into a de facto nation, squashing the sovereignty of member states in the process. During the Brexit referendum campaign, the Remain side attempted to present staying in the EU as the safe, known option. Yet it was nothing of the sort. The EU was bound to continue to evolve, whether we stayed in or left, and in ways which we would find dis-agreeable. What would a Remain Britain have done at this summit? Blocked everything to the ire of the French and the Germans — or gone along with a mildly diluted version of this current scheme?

Now is the time to look beyond the divisions of the referendum and realise that our departure from the EU means that from the end of the transition period we will have freedoms to stimulate the economy that no EU state will enjoy. Decisions over stimulus packages can be made wholly in Westminster. Just as important, if not more so, will be the fact that the UK can decide how to regulate the industries that will drive the economy forward once the pandemic is over.

This week’s summit has exposed the EU’s potential existential crisis. Where once it was a club of more-or-less equals, it is now made up of a few big payers and lots of recipients: only nine of the 27 member states are net contributors to the budget. Moreover, the endless financial crisis in Italy — whose economy, even before Covid, had barely grown over the course of this century — has turned one of the EU’s largest founder members into one of its biggest problems. It is painfully clear that the rot in Italy is thanks to what some still see as the EU’s greatest achievement — the single currency, which first treated Italy to an unsustainable boom and then, after the crash, placed its economy in a straitjacket, with its government unable to devalue its currency or set its own interest rates.

This said, no one in Britain should be willing the demise of the EU. We need strong European economies to aid our own recovery, and an explosive disintegration of the EU would hardly help ensure that. Yet it is quite right to savour the freedoms we gain by leaving the EU in an orderly fashion. The challenge for the government is now to ensure that those freedoms are used well.

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