The leaders of the European countries will gather on June 19 to discuss the European Commission’s proposal for an Economic Recovery Fund named “Next Generation EU”. This fund would have a value of 750 thousand million of euros, 2/3 of which in grants and 1/3 in loans, to be allocated to Member States. The goal of this fund is to support the re-launch of the European Economy pos-COVID, strengthen the countries most affected by the pandemic, and promote important goals related to the Green and Digital agendas that are seen as the future of Europe.

We typically say that European integration advances in steps taken as responses to crises. Indeed, this proposal is a show of strength and commitment of the European Commission, coming after Brexit and as a response to the COVID-19 crisis. I believe this to be the most important decision for Europe since the creation of the Euro. And this is not because of the size of the “bazooka” (about 5% of European GDP) and not because much of it will be allocated through grants (for a long time the European Commission has had a generous programs of grants to the less developed states, of which Portugal has been a key beneficiary). The great importance of this proposal is due to three main reasons:

First, the fund will be financed by raising debt by the European Commission on behalf of Europe. So, this is the first time that European bonds will be issued which means that, instead of mutualizing member states debt (which would always be opposed by some countries), Europe will be creating European-level debt to finance European policies. This will alleviate member states' spending constraints in the medium term (which is critical in the current pandemic environment), and will also empower the European policy agenda, as well as create a market for European debt.

Second, any entity that issues debt needs to be able to generate revenues. The European Commission has revenues coming directly from the Member States’ contributions (agreed on a seven years base - 2021 to 2027 now in discussion) and also revenues from customs duties and fines. But to be able to pay for the debt raised to create such a large Fund, more revenues will be needed. So, for the first time, there is a serious discussion of creating European level taxes, on areas such as carbon emissions or profits of global companies with no clear geographical base. If cleverly designed, these new taxes can be a powerful instrument for advancing European cohesion and policy goals and increasing the autonomy and strength of Europe and its Commission.

Third, given that this fund brings new money to the European table with no prior commitments, it provides policy makers with a blank canvas on which to design mechanisms and powerful incentives to advance an agenda centered on European values and interests. Increasing the cohesion of each state and the European market, strenghtening the national health systems and the well-being of citizens, supporting strong and independent institutions that promote democracy, freedom, transparency, multilateralism, and the rule of Law, increasing the independence of the European bloc in key economic areas vis a vis China and the US, implementing the green and digital agendas, all of these are goals included in the “Next Generation EU” fund.

In summary, although this may seem at first a large fund with a modest goal of Economic recovery, in reality the creation of this Fund can be a “game changer” - a paradigm shift for the European integration project, creating powerful fiscal tools at an European level, similar to what the European Central Bank was able to do for monetary policy. This is a change that could only be approved by Member states in the middle of the biggest economic and sanitary crisis since the end of the 2nd world war.

Many things could still go wrong. Leaders during the June 19th meeting may focus on the small details and on their narrow country political agenda and forget the bigger European and global goals. They may force the European Commission to lower its ambition. The instrument may end up being badly designed or may be implemented in such a bureaucratic way that it will be ineffective. However, the World now, more than ever, needs European leadership, in particular given an erratic American leadership and the growing economic power of non-democratic China.

The European values, identity and world view that unite us has to be stronger than what divides us. This will be Europe’s moment. We need a demonstration of strong responsible leadership in Europe. There should be a clear step forward and a moment to remember Jean Monnet's, a EU’s founding father, strongest conviction: "There is no future for the people of Europe other than in union".

Have a great and impactful week!

Filipe Santos
Dean of Católica Lisbon School of Business & Economics
Fundação Amélia de Mello Professor
Chair Girl Move Academy for Social Entrepreneurship

This article refers to edition #40 of the "Have a Great and Impactful Week" Newsletter.
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