Let’s Stop Humiliating Southern Europe: Six Key Lessons for the Future of the EU

All things considered, Poland has been successful in the negotiations, but owes it to… COVID-19. Without the pandemic, we would not have received an additional 34 billion EUR; without the pandemic, we would probably not have been able to save the 90 billion EUR from the new EU financial plan, since more funds would have gone to the countries of the South.

The ‘decade of crises’ has strengthened the divisions. Both on East–West and North–South lines, although the latter is even more relevant. Whatever the Polish media say about the importance of the dispute over the rule of law, it is not an issue that keeps European leaders awake at night, even if it is a comfortable topic for those in Western Europe who are convinced of the existence of a civilisation gap between the East and West of Europe.

The reason is quite simple: not only is the historical, symbolic, political, economic, and social relevance of countries such as Poland or Hungary less for the entire EU, but the dependence of Central European economies on Germany is also so great that there is no major threat in this part of the EU. The dispute on the North–South line is different: the exit of Spain, or especially of Italy, from the eurozone would be a fatal blow not only to the European project as it stands today, but also to the economies of the North.

Of course, the phantom of Southern European countries exiting the eurozone has haunted us regularly since 2010, when Greece got into major problems – which still haunt them – but it was never as real as in the spring of 2020. The pandemic crisis that has struck Southern Europe moved the discussions about Italexit (or other exits) from the tabloid press, rallies, and cafés to politicians’ offices.

During an April summit, when the European leaders of ‘the frugal four’ – led by the Prime Minister of the Netherlands, Mark Rutte rejected the proposal to launch Eurobonds, which the Southern states were begging for, the Union really stood on the precipice.

750 billion EUR to share? It’s not the amount that counts, but the conditions for spending it.

Is the consent of ‘the frugal four’ plus Finland to launch a modified, scaled-down, but still huge EU Next Generation programme (ultimately, the original split of the package – 500 billion EUR in grants and 250 billion EUR in loans – has been broken down instead as 390 billion EUR and 360 billion EUR) proof of a change in the approach of The Hague, Vienna, Copenhagen, Stockholm, or Helsinki to the problems of Southern European countries? The answer to this question is ‘no.’

After all, one needs to remember what often escapes the public debate, namely, that the budget is not only about amounts, but also (and perhaps first of all) about the rules of spending it. The issue of the rule of law, which has been spurring public debate in Poland for several days now, is in fact nothing compared to other criteria.

First of all, objectively large funds must be planned, spent, and accounted for in a very short time, in practice by the end of 2023. Anyone who has witnessed the implementation of public investments, where local government entities are also involved, knows perfectly well that the investment process usually takes much longer. This means that the money from the reconstruction fund will mainly be able to support initiatives or projects which have already been started, and not entirely new ventures.

Secondly, the list of goals and eligible expenses is clearly restricted, and countries in crisis today will have to co-finance these projects from their own, often empty, pockets. Thirdly, countries wishing to take advantage of the aid will have to submit for approval a reform plan to improve their economic health; the final decision on granting aid is to be taken by the European Commission and… by a qualified majority of the EU Council, i.e. European capitals.

This seemingly uncontroversial prerequisite will, however, give rise to many tensions, as has already been evidenced by the Greek experience: this principle is perceived in society as an informal restriction of sovereignty. Furthermore, the decision will not be made only by Eurocrats, but also by specific countries, which already heralds a political disturbance – all the more so because the criteria behind the decision will be discretionary and may be based more on stereotypes than reality. In this context, it is worth recalling that Italy, accused of conducting an irresponsible and wasteful economic policy, was maintaining the original budget surplus for several years before the crisis of 2008.

This does not mean, of course, that the money cannot be acquired. The point is it will be very difficult. Certainly, there will be countries that cope better, but there will also be those who will only see this money on paper (Poland is doing relatively well with the absorption of EU funds, which gives cause for some hope, as long as other Member States and the Commission do not try to make us ‘jump through hoops’, which unfortunately appears to be a feasible scenario).

Therefore, as rightly pointed out by Dr Konrad Popławski from the Centre for Eastern Studies during an internal seminar, at the end of the day it may turn out that a large portion of the 390 billion EUR allocated to grants will not be distributed at all, and that the responsibility for the fact will be borne by states in… the South and the East. And the northern countries? Well, in return for their supposed generosity, they hav3e wrestled off additional discounts by keeping it possible to retain most of the duties collected, e.g. in the ports of Rotterdam and – of course – Hamburg. One can therefore say, ‘All quiet on the Northern front.’

European South: Let’s stop humiliating them!

Although the post-pandemic shock influenced the strategy of Germany’s European policy, it completely failed to change, or perhaps it even deepened, the tensions between the North and South of Europe.

According to the report of the Centre for European Policy Studies published in April 2018, since the outbreak of the debt crisis in the euro area in 2010, differences have been growing not only in terms of income, but also in the volume of consumption or investment – not to mention the trade balance. Official unemployment in Spain in May 2020 reached almost 15%. And that is despite the exodus of several hundred thousand young Spaniards – a phenomenon whose consequences do not need to be explained in Poland, seeing how we are still experiencing the socioeconomic issues related to the huge post-accession emigration.

However, the worst factor at the moment is that the less optimistic socioeconomic situation of the southern countries will most likely deteriorate dramatically as a result of the pandemic crisis: according to European Commission forecasts, the GDP of Italy, Spain, and France, i.e. the countries most affected by COVID-19, will decline in 2020 by over 10%.

However, leaving others to do an in-depth analysis of the socioeconomic situation in southern countries, we should emphasise that the lack of understanding of the causes of Italy’s or Spain’s (as well as France’s) problems manifested by the results of the last summit will strengthen anti-integration tendencies in those societies.

In Eurobarometer studies in the autumn of 2019 – i.e. before the pandemic – during which the French, Greeks, Spaniards, and Italians once again felt abandoned by the EU, more than half of them declared a lack of trust in the EU; only the United Kingdom and Cyprus recorded lower scores. Moreover, Spain (along with Cyprus) recorded the largest drop in confidence in the EU compared to the previous survey.

Therefore, if it turns out that access to the money negotiated during the last summit for the countries of the South turns out to be limited, and will additionally involve the need to endure humiliation from the ‘austere’ parties, the spectre of the Spanish or Italian exit will become more real than ever before. The British experience shows that the process is very difficult to stop once it has started, because it follows the logic of a self-fulfilling prophecy.

To sum up, it is not the results of the summit itself, but the practice of applying the agreed arrangements that will determine – let’s not be afraid to say it – the future of the EU. This also applies to public debate, including the one in Poland: the sooner we get rid of the stories about wasteful Greeks, lazy Spaniards, or irresponsible Italians, the greater chance we have of saving the Community. Particularly because we know very well how irritating stories about Poles ‘stealing’ jobs from the French or the Germans can be.

European East: Central and Eastern Europe as a political attachment

Okay, but what is the role of Poland and the other countries in our region in these negotiations? We have to face the facts – those who believe that Poland has risen from its knees and that Prime Minister Morawiecki is shoving European leaders around are wrong. However, it is not true that this is the doing of the PiS (Law and Justice) government, which I have been stating for quite a few years (even in the summary of the European ‘good change’ policy), so I shall only briefly recall the key arguments.

Central and Eastern Europe, including our country, played an important role in the budget negotiations in 2005 (the memorable ‘Yes, yes, yes’ by Prime Minister Kazimierz Marcinkiewicz), but mainly because it was in the interest of the German economy, which was still ‘Europe’s sick man’ at that time, though it now sounds a bit abstract.

The German elite realised that transferring large sums to the East would be a development stimulus for their own companies. And as history shows, this forecast turned out to be extremely accurate. One should also remember this was during the war in Iraq, when Poland, along with Spain and Italy, was considered by the United States part of the so-called new Europe – Chancellor Merkel’s gesture of giving us an additional six billion euros at the last minute was to be a signal that ‘old Europe’ is also serious about us.

The situation was somewhat different during the next negotiations. In 2012 the key problem was both to alleviate the negative effects of the eurozone crisis and to appease the British, who had started heading in a direction that had been dangerous for the EU. Berlin, which had been the ambassador of our interests seven years earlier, made a decision to pamper London.

Polish diplomacy, focused on an alliance with Germany (just to recall the words of Minister Sikorski from November 2011, ‘I am more afraid of German inactivity than of German power’), having learnt the ropes, moved to the French camp at the last minute, with the primary goal of saving the Common Agricultural Policy. The aftermath of those moderately successful negotiations was the reorientation of Polish foreign policy towards Central Europe, as declared in March 2013 in the annual exposé of the Minister of Foreign Affairs, Radosław Sikorski.

This was, however, slowly becoming the end of an era when Poland and other countries in our region constituted an important counterbalance to the main European powers in mutual British–French–German–Italian disputes. Great Britain’s slow but consistent ‘drift’ and the growing problems of the South had plowed through the European political architecture. The last touch to the old order was the election of Donald Tusk as the President of the European Council in August 2014.

From then on, the importance of Poland began to decline for structural reasons. It must not be forgotten that it was then the new ‘Lisbon’ voting system came into force in the EU Council, based on the ‘double majority’, which in practice prevented Central and Eastern Europe from blocking decisions taken by a qualified majority. One must also not forget that in those years (the first half of the 2010s) protest movements began to be politically institutionalised in Western Europe as a result of the economic crisis, which considered the eastern enlargement of the EU to be one of the major reasons for the worsening of their circumstances.

When Emmanuel Macron used this ‘anti-Eastern’ card in his 2017 campaign, therefore, it was not accidental. One may risk the hypothesis that last year’s negotiations on the appointment of key positions—in which our region did not receive a single nomination—were a symbolic confirmation of this process of ‘pushing out’ Central and Eastern Europe. As a result, this year’s budget negotiations did not demonstrate any new quality: it was already clear from the Commission’s preliminary budget proposals in the spring of 2018 that we would play the role of an attachment, and it is from this perspective that the results of the summit should be assessed.

How much of this money will eventually find its way into Polish coffers?

Regardless of all the deliberations devoted to determining whether the rule of law will or will not affect the possibility of using EU funds, one cannot shake the impression that in negotiations on the new budget, the rule of law was like the goat from a Jewish folk tale from Poland. After all, we are talking about successfully clearing the room of a goat which we had put there ourselves in the first place.

As a result, by focusing on removing the goat, it was more difficult for us to try to change the distribution of funds under the new budget – in the previous one, Poland would receive less than 11% of all the money, and now only 8.5% (90 billion EUR), which is a decrease of more than one-fifth, or essentially as much as the Commission put forward in the initial proposal. This means that we did not win anything in this matter during the negotiations. Moreover, if we took the value of the ‘negotiated’ funds per capita, even though we do not know the final data yet, Poland would probably be closer to the end of the line among the beneficiary states.

It is also true, however, that our leverage in the negotiations was minimal: decisions to transfer funds from the Cohesion Fund to the South and to modify the Common Agricultural Policy were made long ago, independent of us. Therefore, Prime Minister Morawiecki was able to walk in and collect an additional 500 million EUR, which Prime Minister Orbán ‘admired’ so much, but it seems that it was the de facto peak of our negotiating potential.

Moreover, in the course of these negotiations it might have turned out that, in line with the St Matthew effect, they could have even taken away what we thought we had. Fortunately, this was not the case, which in itself can be considered a moderate success, given our negotiating potential and the long-standing forecasts of turning on the tap of European money after 2020 – all the more so seeing how the EU Next Generation programme will make the stream of funds continue to flow abundantly. By adding the funds from the 2021–2027 budget and the money from the Reconstruction Fund (34 billion for 2021–2023), it comes to 124 billion EUR (a total of 160 billion EUR, if we were to include the low-interest loans), which makes almost 550 billion PLN when converted at the current exchange rate. This is one quarter of our GDP. If we consider the annual value of the allocated funds (taking into account the RFF schedule), it is approx. 23 billion EUR, or around 100 billion PLN – over 20% of the Polish budget. Of course, as I wrote earlier, spending all this money will be a huge challenge, but such a problem is way better than having to drastically cut funds, as heralded for many years now.

With all this in mind, one can argue that Poland has achieved something, but owes it to… COVID-19. Without the pandemic, we would not have received an additional 34 billion EUR; without the pandemic, we would probably not have been able to save the 90 billion EUR from the new EU financial plan, since more funds would have gone to the countries of the South.

The huge sums they’ve been granted from the EU’s Next Generation programme, as well as the anger towards the countries of the North, has somewhat dampened the eagerness to withdraw money from our region, which could potentially become an ally in the fight against the stingy North. One cannot rule out that we will soon be talking about the Madrid‒Rome‒Warsaw axis within the EU, even though today such a prospect still seems rather far-fetched.

By the way, if we are to seek a clear success for Polish negotiators, it is through preserving the package that we will receive from the Reconstruction Fund (RFF). For reasons not fully understood, the structure of this fund was based on indicators from the ‘European Semester’, i.e. a periodic review of the economic condition of the Member States. Poland did well in the last review, but a significant deterioration was forecast; it was this factor that made us the fourth largest beneficiary of the RFF.

Even despite the fact that after the forecasted decline in the European Semester, our situation is still better than that of many EU countries, and – according to the current forecasts of the Commission (as well as new data from the economy) – the effects of the COVID-19 pandemic on Poland’s economy will be the mildest across the EU. The fact that it was possible to maintain such a principle of allocating money from the RFF, even with the complicated conditions for its spending, is in itself a huge success, especially considering that the 34 billion euros will increase our ‘output’ from the EU budget by over 30%, which is more than we had lost due to cuts in the Cohesion Fund and the Common Agricultural Policy.

Six Key Lessons for the Future of Europe

After analysing the results of the European Council summit that ended on Tuesday at dawn, from the perspective of individual Member States and regions, it is time to move on to a synthetic summary of what this summit means for the EU as a whole. If leaders of states en masse proclaim victory in the negotiations today, then the biggest loser is the EU itself, although of course this assessment must be more nuanced.

Firstly—and this is probably the most important conclusion after these budget negotiations—despite reaching an agreement, the way in which it was secured proves the durability and depth of divisions within the Community.

The societies of Spain and Italy have only become convinced that dreams of European solidarity are a phantom, which will fuel disintegration movements in the coming months, especially if the North keeps humiliating its poorer partners in the South.

Moreover, as rightly pointed out by Prof. Tomasz Grzegorz Grosse, one must bear in mind that introducing the principles of the rule of law into the rules of spending European funds, even if they remain only on paper, could potentially be an element of pressure, not only against Poland or Hungary, but also other countries, particularly in southern Europe, where political movements questioning the existing shape of integration would come to power. It is thus difficult to imagine any room for a structural reform of the eurozone, which could otherwise be forced by southern governments not kept in check by the rule of law.

Secondly, as a result of negotiations, some funds were cut, e.g. for the continuation of the Horizon 2020 programme.

It was this programme which, through a tender process at the European level, funded the most ambitious and innovative research and development projects, allowing the Union to at least try to strive for a strong position on the international market. The same applies to the funds for the construction of European military power under the European Defence Fund, which also failed to avoid cuts.

Even though, as a result of the pandemic (another miracle of COVID-19) we will probably be dealing with some form of regionalised globalisation, which will weaken China’s competitive advantage and enhance the industrial potential of the Old Continent whilst increasing the importance of the European internal market in the global US–China trade war, although this strong position of the EU will be susceptible to the decisions taken in Washington and Beijing. Of course, Europe will still try to build its strategic autonomy, but in view of the internal tensions described below, this task will be extremely difficult to carry out.

Thirdly, the summit confirmed the relevance of climate policy for the future of the EU.

Malcontents (including the European Parliament) may claim that the summit has reduced the value of the Just Transition Fund from 37.5 billion EUR to 17.5 billion EUR, but they should remember that originally (before the outbreak of the pandemic) it was supposed to be only 7.5 billion EUR, and furthermore, that a huge package of 390 billion EUR from the RFF must be spent on goals that are at least partly consistent with the assumptions of the climate policy.

Fourthly, although some commentators have drawn attention to a peculiar ‘Hamiltonian moment’, due to the final structure of the Next Generation 2020 programme, it is difficult today to see a chance for success of the EU’s vision of federalisation.

Unless it is in a much narrower group than today’s ‘27’. This is all the more true since making the distribution of funds from the RFF dependent not only on the decisions of the EU Commission and the Eurocrats, but also the Member States in the EU Council will increase the existing tensions between European capitals.

Fifthly, the philosophy behind the Reconstruction Fund clearly shows that there is no question of any actual communitarisation of the debts of Member States, or of any actual EU fiscal policy.

A slight sweetening of the summit’s bitter taste can only be found in the fact that regardless of the failure of an EU fiscal policy, there has finally been a real chance to introduce new European taxes, the enforcement of which would be difficult to achieve on a national level.

This concerns both the tax on plastics, which is to enter into force as early as next year, and the digital tax and carbon tax at the EU’s borders (the de facto ecological custom duty), which, according to the summit’s conclusions, are to be introduced starting in 2023. A tax on financial transactions is to be implemented later on. One may risk the thesis that apart from the obvious fiscal dimension (new sources of EU budget revenues), these taxes can be an instrument supporting the competitiveness of the entire economy undergoing an energy transformation. It is worth adding here that this element of the agreement between the heads of governments is Warsaw’s doing to some extent, as it has long been trying to break into the European mainstream with proposals to create a system of ‘EU’ tributes.

Finally, the recent summit was an extremely important theatre, but we will have to wait some time before fully interpreting its provisions and their effects.

After all, one should not forget that the terms of spending funds in specific regulations will be determined by the European Parliament and the EU Council, voting by a qualified majority, and consent for their launch will be issued by European capitals. Therefore, it is only the shape of the aforementioned regulations, as well as the political practice of the functioning of the EU Next Generation that will allow a precise image of the EU AD 2020 to be drawn. Unfortunately, today this picture appears rather grim.

Polish version is available here.