As Europe emerges from the worst of the coronavirus pandemic, it faces challenges on an epic scale.
In Italy and Spain, the spectre of spiralling, unsustainable debt jeopardises recovery in economies that were already fragile. In Brussels, there is concernthat amid the post-pandemic fallout, the generational task of addressing the climate emergency and implementing tough green targets will be put to one side. Europe’s place in a newly multi-polar world, dominated by the increasingly tense rivalry between the United States and China, must be worked out anew. Post-epidemic, there is a new emphasis on economic self-sufficiency, particularly in medical manufacturing and key industries. The European Union’s future trading relationship with Britain needs to be agreed in a matter of months.
In a context this formidable, it is the EU’s good fortune that Germany, the largest and most powerful member state, will take over its rotating presidency this week. For obvious reasons of history, Germany has traditionally been reluctant to punch its weight on the European stage. But extraordinary times demand clear leadership. The German chancellor, Angela Merkel, appears determined to provide it. Outlining her plans for the presidency recently, Ms Merkel told German MPs that: “Europe needs us, just as we need Europe.” Brexit trade talks are likely to be treated as one dimension of a bigger problem: shoring up the single market during a period of economic turmoil.
In an interview with the Guardian and other European newspapers this weekend, Ms Merkel made it clear that her most urgent priority will be to reach swift agreement on a €750bn post-coronavirus recovery fund, to be financed by EU-issued debt and distributed to countries in the form of grants rather than loans.
Signing off on this innovation, first proposed by Ms Merkel and the French president, Emmanuel Macron, in May, would be a landmark moment. The prospect of pooling debt with impecunious southern neighbours has traditionally been anathema to the EU’s more prosperous member states, with the resistance usually led by Germany. A so-called Frugal Four – Austria, Denmark, Sweden and the Netherlands – will mount a fierce rearguard action to water the plan down. But the searing experience of the last three months appears to have changed perceptions in Berlin of what is possible and desirable.
Domestically, a sacrosanct commitment to balanced budgets has been put to one side to allow a gigantic stimulus package and state bailouts. At a European level, Ms Merkel believes a step-change in solidarity is required. She has rightly warned that a failure to take collective action to stabilise Europe’s reeling economies will play into the hands of anti-democratic and authoritarian forces.
The tone and approach are strikingly different from a decade ago, when Ms Merkel and her then finance minister, Wolfgang Schäuble, helped enforce EU-wide austerity measures in the wake of the financial crash. But during her 15-year stint as chancellor, Ms Merkel has demonstrated a peerless ability to adapt to changing circumstances. Before Covid-19 struck, she was viewed as a lame-duck leader, having announced her intention to stand down in 2021. Instead, Germany’s assured handling of the epidemic has enhanced her authority and provided the political capital to take necessary risks in what has become a crisis presidency. Germany has sometimes been criticised for “leading from behind”. For the next six months, Ms Merkel will be leading from the front. For the EU, at a time when the stakes have never been higher, that is good news.