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The Fiscal Centralization Of Europe Will Not End Well

One of the side effects of the corona pandemic has been a new, integrated fiscal response from European governments. After five days of negotiation (estimated by some commentators to be the longest in EU history) the EU27 agreed, last month, to allow the raising of debt at the federal level. The amount is a mere Eur750bln but the action marks the beginning of a new phase in the European experiment.

The new Multiannual Financial Framework (MFF), as the EU budget deal is known, will cover seven years between 2021 and 2027. The deal has two parts, the regular EU budget, worth nearly Eur1.1trln and a Eur750bln Next Generation fund – or NGEU. It is worth noting that, in a departure from previous policy, Eur390bln will take the form of grants. Not only will this not add directly to European governments’ debt loads, but it breaches what had always been deemed to be a red line in allowing intra-EU fiscal transfers.

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