The EU has been badly hit by the pandemic. Most if not all economies in the EU have been hugely impacted by it; even Germany, the powerhouse of the EU, has been hit by it though substantially less than that of other economies such as those in Spain, Italy and France to name but a few. The huge impact of the pandemic in financial terms has led to a major change in EU policy. In the spirit of togetherness a package worth about €750 billion to help those economies who are particularly struggling with the financial fallout was agreed earlier this year. This is indirectly linked to the wider EU budget for the upcoming period of €1.8 trillion. As the bloc is one of the major international players, what happens to the EU economy has a wider global significance and getting it back into some kind of order therefore assumes some importance.
However, politics is threatening to derail the process. The Covid recovery package has been linked to the acceptance by recipients of core EU principles including the independence of the judiciary. A few years ago this would have seemed very non-contentious. Any country joining the EU is required to sign up to what is known as the acquis communautaire. This basically is a 'health check' for those who wish to join the bloc which looks at their legal framework and makes sure that everything is consistent with what would be expected of a member state. Basically, if your legal framework does not conform then you will not be allowed to join. I worked in Romania back when the country was due to join the EU back in 2007 and well remember the frantic activity which took place in preparation for the deadline in terms of getting laws into line by the required date.
That situation has been complicated in the past few years though by the emergence of new governments in Poland and Hungary. The administrations of Mateusz Morawiecki in the former and Viktor Orbán in the latter have set their respective countries on a prospective collision course with the EU. They do not want to comply with these conditions and are refusing to sign up to them, even though most observers thought they had done so back in July when the scheme was first aired. Instead they are complaining about what they see as unfair treatment. Mr Morawiecki has protested that the measures are specifically aimed at his country and raised other grievances about the EU including a complaint that the cream of Polish youth has been skimmed off by other EU nations (to make matters even more complicated Poland is governed by a coalition which is significantly influenced by a veteran right-wing politician Jaroslaw Kaczynski). The PM's comments include veiled threats that if the issue is not satisfactorily resolved then it could jeopardise the future of the entire bloc.
This is a very unwelcome development for other EU leaders. It could for example delay the agreement of the main EU budget and lead to the rolling-over of 2020 budgets to 2021 as a stopgap measure with adjustments only in certain ringfenced areas. However a complete budget revamp would not be possible without the approval of both Hungary and Poland. It could also delay the rollout of the €750 billion recovery fund though that might have a negative impact on the two dissenting countries as it is theoretically possible to form an 'enhanced cooperation agreement' between the other 25 members. This would be very important for countries like Italy who have major issues with coping with the pandemic and its economic effects and has been awarded €209 billion from the recovery package. Any delay in accessing these funds could have major knock-on effects.
This may be a hiccup which is resolved after a process of negotiation. Yet it also puts the EU in a predicament. The bloc is effectively founded around some core principles and some of those which are now under question go to the heart of what it stands for. It is certainly majorly premature to talk about this as being the beginning of the end of the EU. It is as much as anything a battle of wills and with the EU having to deal with the imminent departure of the UK which in theory becomes final at the end of this year when transitional arrangements come to an end, the EU will be keen to look afresh at what it stands for. Poland and Hungary are net economic beneficiaries from the EU and so they also have much to lose. So too do the other potential beneficiaries from the recovery funds whose pay-outs could be delayed by the standoff. It is in everybody’s interests it would seem to come to an agreement on the difficult issues involved yet as we know from many countries around the world there is always a risk that political positioning takes precedence over economic common sense.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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