Rutte and Kurz Versus the Transfer Union

So far, the EU summit in Brussels has not made any progress. Austria and the Netherlands continue to oppose the current COVID-19 aid proposal worth 750 billion. Particularly Austria’s Chancellor Kurz is not inclined to transform the European Union into a transfer union – and rightfully so.

Real Disagreements Won’t Disappear Easily

The gap between the member states in the question of how the funds ought to be paid and whether stipulation ought to be attached to them remains substantial. Netherland’s Prime Minister Rutte and Austria’s Chancellor Kurz have proven to be hardliners, who are prepared to accept the failure of the plans rather than succumbing to a plan that, could turn out to become rather expensive of the member states.

That plan envisages that the total amount of Corona aid of € 750 billion will be taken up as joint debts of the member states by the EU Commission in the financial markets. The money will be paid to EU countries hit particularly hard by the pandemic, especially in southern Europe. Only € 250 billion are to be granted as loans that would have to be repaid by the recipients.

What Does Rutte Want?

Rutte rightfully seeks to tie the funds to the implementation of reforms. Moreover, he has advocated for a mechanism that requires a unanimous decision of the EU countries for any payment. Southern states such as Italy and Spain categorically reject the latter.

From an economic point of view, there is a strong argument for the package on the table. It would be a sign of European solidarity and nobility. However, the current circumstances are unique. One currently cannot predict the economic impact of the pandemic on the individual countries. Nevertheless, first indications have been witnessed on the labour market. With unemployment rising across the continent, governments have to find answers for people, answers that will not be cheap. Balanced budgets and reserves will thus be essential.

At the same time, the current situation shows one of the biggest fiscal problems in the European Union. While it has a common monetary policy, it does not possess a transfer system to support countries that are victims of an isolated event, such as COVID-19. Although the latter is a pandemic, it has had different effects on the individual states to date. For example, while Germany has been able to weather the crisis well so far, the Italian and Spanish economies are suffering severely.

The Austrian and Dutch Perspectives

For Austria and the Netherlands, payments are only fair if the European Commission monitors the quality of the respective proposals and only distributes the money if a country adheres to its commitments. However, this cannot be achieved under the current rules. In addition, and the Netherlands and Austria have this in mind, a country could not meet its requirements and still receive further financial injections later – based on the principle of solidarity. Their caution is hence justifiable, particularly as some countries are apparently inclined to utilize corona payments to balance budgets that had been handled inaptly for years prior to the COVID-19 occurrence.

It is not merely a question of whether or not the EU transforms into a transfer union. The latter de facto – albeit in infinitesimal form – is already in existence as transfer mechanisms are part of the current EU budget, i.e. in the EU’s structural funds. The issue is thus, to what extent the EU is willing to solidify the principle of joint debts amongst the member states.

Given the investment, the EU is about to make, certainty regarding subsequent use of the funds is a necessity. Corona payments must not be spent on a country’s crumbling structures. Governments that have not demonstrated a proclivity to balance their budgets should not receive funds without stipulations and enforceable guarantees. And thus Rutte and Kurz comprehend, perhaps better than any other European leader, that solidarity needs to work both ways.