Commission vows to break with troika-type conditions in recovery phase

European Commission President Ursula Von Der Leyen during a plenary session of the European Parliament in Brussels, Belgium, 27 May 2020. [EPA-EFE/OLIVIER HOSLET]

The European Commission has redoubled efforts to show that Europe will avoid mistakes made during the ‘Great Recession’ in dealing with the ‘Great Lockdown’.

It is increasingly evident that the Commission has no intention to return to the tight cash-for-reforms system to manage the post-COVID-19 recovery and that ‘hawkish’ member states could find it difficult to turn the proposed procedure into Troika-type oversight.

Commission defends gradual return to fiscal discipline to avoid 'mistakes' of austerity

The European Commission could start controlling deficit and debt levels from next year, once the recession is over. But the road to balancing public accounts again will avoid the “mistakes” of the last crisis, the institution said on Wednesday (20 May). 

The tone and message are different. And, above all, the proposals to cope with the downturn caused by the COVID-19 are nothing like the response that following the 2007-2008 financial crash, when the Commission’s insistence on austerity to balance public accounts resulted in a double-dip recession in 2012.

The conditionality attached to the €560 billion recovery and resilience facility tabled last week will help to judge whether the EU is willing to take a different course this time.

In recent weeks the Commission walked a thin line to show that we will not be back to the ‘troika times’. At the same time, the institution tried to win over the ‘hawkish’ group of Northern countries, stressing that the new instrument would not be an ‘open bar’ to spend EU funds.

Under the Commission plan, member states will have a margin to decide what investments and reforms they propose to save but also to transform their economies.

Countries will have to justify how their plans address the specific challenges and priorities identified as part of the ‘European Semester’, the EU’s coordination mechanism of national economies. 

EU recovery funds will come with strings attached 

The EU’s unprecedented stimulus to recover from the COVID-19 pandemic will come with certain conditions which should reflect the extraordinary nature of this crisis and the European goals, senior MEPs and diplomats have said

But as the Commission vice-president for Economy, Valdis Dombrovskis, said, there will be other indicators to follow besides country-specific recommendations, such as the contribution to potential growth, job creation, social resilience, the mitigation of COVID-19’s impact and supporting the economic, social and territorial cohesion of the country. 

In other words, countries will not have to explicitly include the granular recommendations that Brussels addresses to the capitals to access the funds, but rather use them as a “guide” to draft their proposals.

The Commissioner for Economy, Paolo Gentiloni, made it clear that the institution is not trying to introduce through the back door a cash-for-reform programme like those of the past crisis.

“This is not an adjustment program with a different name,” he insisted last week, adding that the conditionality intends to ensure “coherence” with EU objectives.

Furthermore, the Commission intends to cooperate with member states in the preparation of their investment and reforms plans, so there will be no risk of rejection if they don’t include the criteria, as may happen if draft national budgets fail to meet the fiscal targets.

In an interview with a group of European media, including, Budget Commissioner Johannes Hahn said he was not concerned about the conditionality or potential rejection of national proposals. 

Instead, he was more worried about proper implementation of the agreed plans, to ensure that the recovery funds are spent where they should be, and the milestones included to unlock the tranches are respected.

Member states’ intervention

The Commission, however, surprised observers by proposing that member states will be involved in the approval of national plans through the obscure ‘comitology’ procedure.

The inclusion of the capitals was a concession to the Northern bloc, especially the “Frugal four” (Netherlands, Austria, Denmark and Sweden), who have long insisted that Southern economies such as Italy should do more to reform their economies. 

Von der Leyen proposes €750 billion stimulus under member states’ grip

European Commission president, Ursula von der Leyen, proposed on Wednesday (27 May) an unprecedented stimulus of €750 billion, mostly through non-refundable grants, with governments having a crucial role in deciding how the money will be spent.

The EU-27 will have to give the go-ahead through a binding opinion to the Commission, validating each country’s investment and reform plans, objectives and milestones to access the funds. 

It remains to be seen how far the ‘hawkish’ group could tighten this conditionality in the negotiations during the coming weeks to approve the recovery fund.

But it seems unlikely that the “Frugal four” could turn the procedure into Troika-like oversight. 

These countries would find it hard to gather a majority to impose their will, since national investment and reform plans would be adopted by a qualified majority (at least 15 member states representing 65% of the EU population). 

In addition, if some capitals decided to interfere too much with their neighbours’ plans, they could eventually find themselves on the receiving end. 

Furthermore, the pressure to commit at least 60% of the funds during the first two years to urgently boost the economy does not recommend converting each national plan into an endless negotiation.

In this regard, Dombrovskis said he did not expect “micromanagement” by member states in the comitology process. 

Member states would not use their say to force the introduction of labour or pension reforms from those who request help, he said. Instead, the procedure was to ensure that there is a “consistency” between the investment and reform plans of all member states, so every country is treated in an equitable way, he added.

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The Hague and Vienna are insisting on including stricter conditionality attached to loans for coronavirus-hit countries, toughening up the formula proposed by the eurozone’s bailout fund (ESM) and seen by

[Edited by Zoran Radosavljevic]

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