An agreement has been reached in Brussels on the creation of an economic recovery fund, as well as a new multiannual budget. What could the adopted agreement mean for the future of Latvia and the EU? What exactly was the spear broken? About it in the new series of the program “World in the Pocket” with the Deputy Director of the Latvian Institute of Foreign Policy Dr. Kārli Bukovski.
This week’s show focused on the events in Brussels, the European city we know so much. There, on Tuesday morning, after four days of bargaining, an agreement was reached to set up an economic recovery fund to help European countries recover from the economic damage caused by Covid-19. At the same time, the EU’s new multiannual budget has been adopted. This is relatively good news for Latvia, as we will have more than 10 billion euros available to us in the next 7 years. It is true that the EU will also take on an unprecedented amount of borrowing, which has been opposed by Germany for years.
Why about Was the European Economic Recovery Fund so widely debated?
Bukowski points out that it should be understood here that the money provided by the EU is in fact a loan granted to the organization. The 27-nation bloc does not have such a large scale and needs to borrow it. Therefore, at one point this money will have to be returned. Moreover, unlike in the previous crisis, it will have to be returned to absolutely everyone. The key issue is to ensure that this loan does not look irreversible and does not start to rock the financial system. The Netherlands, Austria, Finland, Sweden and Denmark, the so-called “austerity countries”, have called for an uncontrolled waste of money, despite the significant crisis, in the hope that at some point the currency may depreciate, GDP growth will start and lending will be easy. give back. “You can already think about it, but the question is whether it is really sustainable and creates credibility,” says Bukowski. The expert recalls that the global financial crisis of 2008 started due to the loss of trust among market players. Everyone realized at one point that it was simply impossible to repay the borrowed funds.
Could new austerity measures be adopted in Latvia?
The expert was asked about the political conditions that could accompany an agreement reached at EU level. In particular, during the negotiations, some Member States opposed the idea that tightening their belts could also be a condition for receiving money. Bukowski points out that the adopted agreement does not provide for this in itself. Admittedly, this is accompanied by instructions on what exactly to focus on spending money on. For example, climate conservation should account for at least 30% of funded projects.
However, Bukowski points to another possible challenge. “When we gather all the bills at the end of the year and look at how much we have spent, it is very likely that a rather unpleasant picture will turn out. Government debt is likely to increase as we borrow a lot and spend Covid-19 to overcome the crisis. In turn, an increase in debt will also mean that we will have to pay higher interest on it. It will then have to allocate more from the state budget, “says the expert.
Can EU money reach Latvia’s priority sectors?
Taking into account that the directions of the use of money are clearly indicated within the framework of the agreement, the question also arises whether it could reach the most important economic sectors for Latvia at all. After all, maintaining the climate is not really a dimension that would play a locomotive role in economic growth.
Bukovskis thinks that here Latvia could try to use its imagination and at the same time adapt to both its own and Brussels’ requirements. For example, you will have to think about whether to build a highway or a bicycle lane. The road can also be built in one that is easy to access to the gas station and one that has electric tanks. “We will have to be bolder and more innovative in the approaches we use to write and apply for projects,” says the researcher.
With how much «Brussels finger» Should Latvia count on receiving money?
Firstly, it is not that someone from Brussels is dictating something to us. “We have agreed to be monitored. It’s about the same as going to school and telling the teacher – no, you won’t teach me, “says Bukowski. At the same time, the expert recalls that Member States’ reports on how each country develops over time will certainly not go away. However, all this has always been the case. It will be unusual only, that there will be unusual increases in schedules (eg government debt, spending, health care spending). If usually they were flowing, then now there will be jumps up.
The agreement includes a clause on the need for recipients to adhere to democratic values - why did Poland and Hungary agree to this clause?
The Doctor of Political Science emphasizes that technical details are important in this context. The letter of agreement is written in such a way that there is a wide range of interpretations. On the one hand, the institutions of the European Union can say that this point has been included and we have made progress on this issue. Poland and Hungary, on the other hand, can say that no one will make them too democratic.
Or “frugal countries” leaders used the meeting of EU leaders to gain political points at home in an uncompromising position?
Bukowski says that it would be bad for a politician who would not try to get extra political points for himself. He emphasizes that, in any case, the fact that these countries have now made lower payments to the EU’s overall budget can be successfully sold to their companies. This multi-year budget was somewhat different from the previous one, because 7 years ago everyone was kind of unhappy. Now the opposite is the case – everyone has got something and everyone can grow with something.
Why could Prime Minister Krišjānis Kariņš play an important role in the negotiations?
It must be remembered here that he was a Member of the European Parliament. This, in turn, has allowed him to establish personal contacts with a large number of politicians. He has been a minister before and has a good knowledge of English, German and French, says Bukowski. The Prime Minister was also assisted by his presence in the political group of the European People’s Party, which also includes Angela Merkel. All these capacities are very important to defend Latvia’s interests in the European Union. The question is whether another prime minister would have been able to get closer to the core of decision-makers at all, as Krišjānis Kariņš was able to do, the expert continues.