If we had to pinpoint a single tragic error in the modern history of European integration, it is the moment sometime during the euro crisis when pro-Europeans gave up on eurobonds and a fiscal union. Instead, they adopted Angela Merkel as their new role model, the pragmatist-in-chief.
What made their plight even more tragic was the mistaken idea that they were in possession of a clever and legally watertight funding mechanism, which gave rise to the Sure unemployment reinsurance programme, and later the recovery fund.
FAZ tells us this morning why this strategy is not working. The Commission has put a figure on the annual costs of the Green deal, a whopping €620bn. The Commission itself has only allocated €82.5bn towards this, via the social climate fund.
You can add a few euros here and there from various other pots, but this is not going to come close. Thierry Breton wanted a debt-financed €350bn funds for green investments, to match the size of the US inflation reduction act. That would have done the heavy lifting. But this was killed off by member states.
When the EU launched the recovery fund in 2020 we expressed scepticism about whether it could form a blueprint for future lending. There is simply no consensus in the EU for a perpetuation of a financial instrument that is ultimately secured by the member states themselves. What is also not helping is that the financial markets are not bestowing top-notch valuations to EU-issued debt for the simple reason that it is not sovereign.
You can package a bunch of mortgages into a collateral debt obligation. But you can’t repackage or reclassify sovereign debt. What characterises a sovereign borrower is the power to raise funds through taxes. For as long as the EU is reliant on the kindness of member states, it is not in a position to fund some of these giant programmes. What the EU needs, dare we say it, is the real thing: a eurobond. Or else, it has to admit that it cannot do as much as it wants, for lack of funds.
The Green deal is not the only unfunded programme. The project for a greater geopolitical role for the EU is in the same category. In addition, there is the cost of the reconstruction of Ukraine, which the Commission puts at €384bn a year.
Since there is no way they can fund this out of their own resources, we believe that more smoke-and-mirror tricks are on the way. No prizes for guessing where this will leave the substance of the Green deal.