Europe's week: Franco-German recovery plans, recession fears and US-China relations
When politicians characterise something as “historic” — these days when everything seems to be unprecedented — it better be strong.
And indeed: Germany broke with two taboos it has cherished for decades.
The transfer of funds from richer countries to poorer ones and the borrowing of money by the European Union as a collective.
This is part of a joint French-German proposal of a €500-billion economic recovery fund.
“This is a historical step for France and Germany, and this is a historical step for the whole European Union because this is the first time when France and Germany stand together to have a funding through debt of new investments for the EU countries,” Bruno Le Maire, France’s finance minister said.
The proposal signals that at a time of existential crisis, more European integration is the answer and not less.
That is remarkable in itself, as such thinking has become pretty much out of fashion.
The decision, though, risks prompting a political backlash in Germany, where Merkel’s populist opponents are already sharpening their knives.
Emmanuel Macron is facing political discontent at home as well – he already lost his majority in parliament after a group of disgruntled lawmakers defecting from his centrist party.
Finally, there is resistance from what has been dubbed the “frugal four” – member states advocating fiscal discipline like the Netherlands, Sweden, Denmark and Austria.
“Of course we want to show solidarity and we want to support countries like Italy, Spain or France that were hit hard by the crisis. But our approach is that we want to help with loans and not by a ‘communitarisation’ of debts,” Sebastian Kurz, Austrian chancellor explained.
The “Frugal Four” have lost their German ally on this and their promised counter-proposal might be dead on arrival. But then, everything is negotiable.
China and the USA
Whether negotiations can repair the critically damaged relations between the United States and China is seriously in doubt, especially in a presidential election year.
Donald Trump is depicting China as the world’s bogeyman, although he initially praised China for its coronavirus response.
Trump’s narrative of a larger anti-American conspiracy between China and the World Health Organization (WHO) to cover-up the outbreak is meant for a national audience.
But it has pushed the WHO into dangerous political territory.
At the WHO virtual assembly this week, Chinese President Xi Jinping tried to set the record straight.
Beijing had acted with openness, transparency and responsibility, he said.
China provided the information to the WHO and the relevant countries in the most timely fashion and shared control and the treatment experience with the world without reservation, he said.
Meanwhile, Trump escalated the fight against the WHO and doubled-down on his threat to cut US funds permanently.
“Basically they have to clean up their act,” Trump said. “They have to do a better job. They have to be much more fair to other countries, including the United States. Or we’re not going to be involved with them. And we’ll do it a separate way, ok.”
Global cooperation risks and rewards
The ongoing rift between the United States and China over WHO can seriously undermine the global cooperation against the virus – at a time when scientists are struggling to find a vaccine and many countries are taking a calculated risk by re-opening their economies.
“There is a serious risk that we focus on this risk alone and start to ignore other objective risks that are still around or that are emerging. And I think the whole crisis around COVID is a good example. This risk was always there, it was actually known, but it somehow got forgotten, and then caught us very unprepared,” says Peter Giger now, chief risk officer at Zurich Insurance Group.
The well-known long-terms risks like the climate crisis or rising inequalities have been kind of shelved during the coronavirus crisis, but they won’t go anywhere. Is there a risk that governments now treat them like some luxury issue?
Giger admits it is a risk.
“It also shows that humans are very good to respond to immediate threats and maybe not so good to respond to strategic threats,” he said.
There has been concern that Europe is facing the risk of “another lost generation”, something which Giger has spoken about.
“We saw that after the financial crisis some ten years ago how difficult the young found it to get employed, to find permanent employment in many countries,” he said. “The second aspect is that we have old-age pension systems in many jurisdictions that are an unsolved issue, were an unsolved issue before, and are an even bigger issue now. Again, it’s intergenerational.”