July 21st 2020: A Landmark Day for European Integration?

Five grueling days of negotiations between the EU’s national leaders, the longest European Council summit in over 20 years, has finally resulted in a €1.82 trillion deal. Combining the scheduled 2021-2027 multi-annual financial framework of €1,074.3 billion with the COVID-19 recovery fund of €750 billion, it can now proceed to the European Parliament for amendments and eventual implementation.

By far, the most significant and indeed historic part of this deal is the COVID-19 recovery package, entitled the “Next Generation EU instrument”. Touted by Brussels insiders to be Europe’s “Hamilton Moment”, the package will be funded by capital raised on the financial markets by the Commission. Meaning that for the first time ever, the EU will borrow funds as a collective entity, a symbolic display of deepened integration between the 27 member states. This all being achieved despite the reluctance shown by the leaders of Sweden, Denmark, Austria, and the Netherlands, known as “the frugal four”.

Despite this being, as French President Emmanuel Macron stated, a “historic day for Europe”, it is yet to be seen whether mutual debt will be a one-off event, or will spark a new wave of integration, especially with regards to fiscal and monetary policy.

On the national front, Malta will be receiving €1.9 billion as part of the ordinary 2021-2027 budget, and an additional €327 million from the COVID-19 recovery fund. Hence doubling the €1.1 billion that was allocated to Malta for the years 2014-2020.

It is worth noting the drastic shift in European macro-economic thought seen in the economic response to this crisis. No-one questioned the necessity for immediate economic stimulus, and hence borrowing. This being in stark contrast to the years of austerity seen after the 2008 financial crisis.

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