Macron and Merkel Zoom in on a fund to kick-start Europe’s economy

Things, as they say, are afoot in the wind in Europe. While it would be too much to say that the continent has been asleep these last three months, it has certainly not been pulsing with vitality. But, with help from Germany, assisted by France, that might be about to end.

Across the continent, the lockdown has eased considerably this week, most obviously for those living live outside the  big cities. The number of deaths has fallen markedly in recent days and the feeling is growing that the worst may be over, at least for now.

But the economic crisis is still revving up. There is division of opinion over the likelihood of a second and subsequent wave of coronavirus, none at all about the extent of damage done to Europe’s industry and commerce or of the prospect of a recession stretching years into the future.

In a bid to come up with some form of palliative, France’s Emmanuel Macron is daring for the first time to look away from the ongoing health emergency and towards what needs to be done to protect jobs, businesses and society at large. The economic rescue package unveiled in stages by the finance minister Bruno Le Maire is currently costed at €110 billion (£100bn), but is certain to rise. France is also liable for its share of the €500bn EU stimulus package, built around ECB bonds (though not coronabonds), access to an expanded Economic Stability Mechanism and cash found down the back of the Commission sofa.

Macron is looking to find ways of growing the economy that do not risk the health of his compatriots or consign millions of them to the ranks of the long-term unemployed. Today, he took part in a lengthy video conference with the German Chancellor Angela Merkel, who may head the EU’s most oven-ready post-coronavirus economy, but is painfully aware that customers in the near future could be in critically short supply. France and Germany remain the twin engines of the EU. With Britain out of the picture and Italy out for the count, it is up to the two largest and richest member states to come up with something that keeps the idea of the European Project alive at a time of unprecedented stress.

Over the last 12 months, the French President has seen his reputation jump around like the ECG reading of a damaged heart. His support in the country is higher now than it was in the wake of the gilets-jaunes protests and more recent demonstrations against his attempts to reform public sector pensions. His handling of Covid-19 is generally adjudged to have been flawed (marked by an alarming lack of prepardedness), but to have improved significantly as time went on. There is recognition of the fact that deaths in the thousands would have occurred no matter who was in the Élysée as well as of the obvious intelligence and – dare it be said? – empathy that he brought to the task. Even so, he knows that there is much scepticism out there and that one false step now could scupper his hopes of re-election in 2022.

Merkel, by contrast, is cresting a wave of trust that she never expected to see. A veteran of the 2008 financial crash, the ensuing eurozone crisis and the arrival in Germany in 2015 of some one million Muslim immigrants, she had watched her popularity slide under pressure from both Left and Right and a growing feeling even among her supporters that she had outstayed her welcome.  Instead, to the consternation of her opponents, she will leave the Chancellory for the last time in 2021 as the uncrowned Queen of Europe. Under her leadership, Germany has so far suffered just 8,049 deaths from Covid-19 – one of the lowest mortality rates in the world – causing her once more to be seen by a majority of her countrymen and women as “Mutti,” the mother of the nation.

Yet while President and Chancellor share a common purpose – kick-starting Europe out of the greatest slump in modern history – there remain serious obstacles in their path. Macron believes that a common crisis requires a common solution. He wants the EU to step up and become the vehicle that carries all of Europe to safety. He wants to accelerate plans for further and deeper economic integration across the Eurozone and has called publicly for much greater engagement by Berlin in a bailout for the southern, Club Med nations, which may or may not include France.

If this doesn’t happen, he warns, the EU is in danger of collapse.

Merkel would love to have signed up to such a deal. Unfortunately, she had to think of Germany first, which, though one of the EU nations least affected by the pandemic, still faces a lengthy recession and the needs of a stalled and scarred economy. Not only that, but the Federal Constitutional Court – based in Karlsruhe, as far away from Berlin as possible ­– recently ruled that the Chancellor could not commit the federal government to invest in shared liability coronabonds, as currently set up, without infringing the country’s basic law.

Tant pis. Es tut mir leid.

In the event, the form of words that was struck at least appeared to take EU solidarity to the next level. It was proposed that a new fund be established, to a value of €500 billion, to help the countries worst hit by the coronavirus, most obviously Italy, but also Spain and, logically, Belgium – perhaps even France. The cash would be borrowed in the international money markets, underwritten by the EU and not, specifically, German and other northern member states. It would not be classified as aid, but rather added to the general budget administered by the Commission in Brussels. In this way, it might be possible for Berlin to avoid censure by its Constitutional Court, though that remains to be tested.

It could be that the scheme, if endorsed and put into effect, could placate Italy and the other Club Med states. We won’t know until the details and potential eligibility are thrashed out. Confronted by one crisis after another, Italy is permanently on the brink of doing something rash. If sufficiently provoked, in other words not given what it considers its due as a founder member of the EU and the country most impacted by both Covid-19 and the never-ending crisis of the single currency, it might eventually go through with one of its threats and either abandon the euro or even invoke Article 50 of the Lisbon Treaty, sending the EU into paroxysms of fear and anxiety.

Such are the stakes in this most remarkable of all years for Europe since 1945.

But we should not get ahead of ourselves. The Big Two video conference is unlikely to be the cause of such precipitous action. If, on the other hand, the long-term disbursement of the proposed new fund fails to satisfy the appetite for aid in Europe’s Deep South, expect alarm bells to start ringing in the Berlaymont.