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Time for the EU to go big, or go home
Why is it so difficult to get Europe to aim for the impossible?
Alexander: Hey Ben, it’s been a while! The last time we had a (formal) chat, I was complaining that the French government was just reacting to Covid instead of anticipating the obvious with pre-emptive shutdowns, and...well, it looks like we’re back to the exact same situation. Which brings me to a larger point of frustration that’s bubbled up inside me all year long while observing — and living — Europe’s response to the pandemic: it’s not learning fast enough, and it keeps making the same mistakes. It’s not audacious enough, and though it’s cautious approach is meant to be risk-averse, it doesn’t realize the enormous amount of risk hidden within that attempt to avoid risk.
I’ll pick on France for a minute: it would have been overall cheaper and more pleasant for everyone here if a year ago Macron had announced a €5 billion moonshot project to fund vaccine development at the Institut Pasteur, Sanofi, Valneva, and any other French biotech I’m not aware of, and had succeeded in putting at least one French vaccine on the market. His government has been willing to spend hundreds of billions to support the economy through lockdowns, but not 2% of that to shoot for the supposedly impossible, but only real solution to the crisis. Why?
The same problem continually manifests on a European level — an inexplicable aversion to spending enough money to just do things right the first time, and which ends up costing far more in the long run. This was on display over the summer, when the Commission’s philosophy was getting good prices on vaccines, rather than taking a ‘whatever it takes, whatever it costs’ approach. An absolute folly, considering that the purely economic costs of the pandemic are in the tens of billions of dollars per day.
The US approach stands in stark contrast: it opened the taps and spent whatever was needed — who cared if someone made money in the process, the goal was solving the crisis as fast as possible.
(Of course there’s a component of this that I find unconscionable and that I’m proud of Europe for reflexively not copying: banning exports. The US continues to sit on tens of millions of doses of AstraZeneca’s vaccine, which can’t even be administered in the US because it hasn’t been authorized, versus having allowed AstraZeneca — and others — to tap US-based production in order to meet global obligations. It’s a nationalistic “America First” policy put in place by Trump that puts a heavier burden on the rest of the world’s producers to meet global demand, and I’m profoundly disappointed by the Biden administration’s continuation of it).
Now, I can both see a repeat of this self-defeating philosophy rearing its head in the lack of a sufficient economic response. Europe learned from the 2008/9 financial crisis in the sense that the (totally arbitrary) 3% debt-rule is suspended, there’s been some coordinated fiscal response, and nobody is calling for austerity...yet. But it hasn’t really learned, because the response is inadequate; it refuses to invest in itself at a level sufficient to succeed. The whole philosophy is still “what’s the minimum we can do?” That produced the current vaccine fiasco, and it’s going to produce an economic fiasco in the future.
Benjamin: Here we go again indeed – not just the two of us chatting, but Europe reverting back to its bad, old habits of lore. Euro crisis 2012, anyone?
I couldn't agree more with your points on vaccines, stimulus and this mix of learning too slowly, yet also being very risk-averse, in a situation that’s evolving rapidly, day by day.
The sluggish vaccine rollout has its own set of structural reasons:
a mismatch between what the EU (or rather, the European Commission) was asked to do and what it actually could do – both legally and when it comes to the budget;
the unwieldy “in-between” that sees EU member states moving responsibility to Brussels but keeping the decision and money with them, often resulting in inadequate outcomes for everyone involved;
the – frankly quite dismal – decision of the US and UK to not export any vaccines, after a year of warning of “vaccine nationalism” (and the EU, of course, staying faithfully open and trustful);
and also just genuine trust in market participants and open markets to an astonishingly large degree, that made them see very late that more state action might be needed.
But above, and there the vaccine debate intersects with the stimulus and all the other issues you mentioned, it is a question of lacking ambition.
For some reason or another – and I’ve got quite some ideas – European countries have convinced themselves that they are being outrun, outcompeted and outwitted by the diligent workers of East Asia and the whizz kids of Silicon Valley. This worldview permeates media reporting, politics, even lots of analysis. It is all about threats and how “small, slow, old-fashioned” Europe can (or rather cannot) keep up with the loud drums of Chinese state capitalism or the tech wizardry of American Big Tech.
And yet, it actually can. It is still the world’s biggest trade bloc, has pioneered the modern welfare state, its living standard and work-life balance is one of the best in the world. But it has talked itself into a profound sense of defeatism and miserabilism, often tinged with nostalgia about the golden years of the welfare state in the 70s and 80s – even though there would be plenty of opportunities for an investment spree today, too, if Europe only wanted it.
Confidence is lacking and that hurts ambition, too. “No, we can’t!” is the slogan under which most European politicians operate most of the time. Even if they actually could.
Alexander: There are really two issues here. One is institutional structure, the other is cultural/philosophical (in the sense of institutional and political culture).
The institutional structure one is easier to deal with. Part of the problem with Europe’s response is that the EU never had any authority in health matters, and it’s not a federal institution with the powers to respond to a crisis that a national government has. And ad-hoc negotiations among 27 member states is not a recipe for acting swiftly and decisively in the face of a crisis.
Going forward, this seems to be a fairly clear and uncontroversial area to beef up the EU’s own authority. What if the Commission (the executive branch) could declare a European state of emergency, which would unlock some pot of money (say €100 billion) that could be spent without needing to run to either the European Parliament or the member states for approval? This could either be pre-budgeted, or perhaps a declaration of emergency would allow the EU to float “emergency bonds” in the same way that the IMF can tap its Special Drawing Rights.
The philosophical approach seems like the tougher one, and I have a tough time getting it. I read endless laments about why Europe doesn’t have tech giants, why it’s behind when it comes to space, or AI… But it’s just a question of money! SpaceX exists because of contracts from NASA (whose budget was $22.6 billion in 2020, compared to an ESA budget of $7.7 billion and some additional hundreds of millions doled out in national space agencies — mainly France’s CNES). So if you want there to be a European SpaceX…well, then quadruple funding to the ESA and say, we’re going to land someone on Mars by 2030, whatever it costs!
Instead, Europe’s obsession with never spending “too-much” left the parts of it subjected to austerity with an output gap that never got closed after the 2008/9 financial crisis.
And once again, there’s a new gap in fiscal stimulus and investment between Europe and the US on the horizon, threatening to result in a real economic divergence between the two.
There are more nice charts in the full Financial Times article. But the point is, the first €750 billion wasn’t enough. What Europe needs is a second, €2 trillion package that combines direct payments to people with investments in basic R&D, space, green infrastructure, health, and education. And heck, why not even throw in a €20 billion “Big Ass Moonshots” fund (or, BAM!) which would be basically a ton of different contests, with really significant prize money for startups, universities, research teams that compete (with the idea of leveraging far more than €20 billion in private investment towards solving those problems).
Benjamin: Absolutely! And what I am actually grateful for is that many people – including economists and even some politician — are starting to push back on this myth that what we have now is all we can achieve, and that’s it.
The institutional details and politics are of course a bit complex and tricky, but nothing that could not be worked out. In the case of European stimulus, the rising tide it could cause would really lift all boats — from boosting growth to rising incomes and climate friendly tech to building the euro as a reserve currency and giving European tech giants to grow.
I honestly believe that we’ve come to a point where it’s not politics or even distrust between countries or towards the EU that’s holding us back. Yes, that is a formidable challenge – we’ve seen it during the negotiations for the Recovery Fund — but it can actually quite easily be tackled once there is a real sense of urgency. And the belief that it makes sense to put something big on the road together.
This belief, though, is missing most of the time.
Whenever not pushed or prodded by a massive external crisis, European politics — but also European debates, in the media, among many academics and so on — reverts back to a cautious, risk-averse and often even rather fearful approach to most topics.
Going to Mars? You wish! That’s something only the Chinese or Americans can do, most Europeans would tell you. Or that it doesn’t matter (right now), which in the case of Mars may even be true. Unfortunately, this mindset is applied to almost all bigger issues these days.
One thing I’d like to bring up, though: Why is France, why is Macron not more energetic? And why aren’t the governments of Spain, Italy, or yes, even Poland?
Because let me say one thing about Brexit — while it was and is swashbuckling hogwash, informed by lies about the EU — one thought underpinning it was that Britain can be great, can be big, ambitious, leading. We could go into the psychology of Empire and the war for all that and we know why Germany, for example, is struggling so much with the same thing. Perhaps also why small countries like the Netherlands, Denmark or Austria prefer the niche to the grand design.
But France? Italy? Spain? Poland? Why don’t they do much more to shape the form and ambitions of the EU, leverage its strengths and refresh the debate?
Southern Europeans, we need you!
Alexander: I do think Macron’s initial intentions were to be ambitious on a big, EU scale — before his presidency got sidetracked with his own blunders and the soul crushing marginalia of French domestic politics (for another time, maybe). Although, I would love to see France spearhead a ‘coalition of the willing’ joint bond issue among any countries that want to join in order to fund a €1 trillion stimulus package (and maybe it really will happen!) even if that’s probably just half of what the whole EU really needs.
I see three more issues at hand: a narrative issue, a first-mover issue, and a perspective issue. The stories we tell ourselves about ourselves matter - if the narrative is constantly that the EU is bumbling, bureaucratic, slow, and hamstrung by the need for consensus among 27, then people will more or less expect that and the administration will meet them where their expectations are.
That leads to a first-mover issue: People need a reason to think that the EU can be bold and ambitious on their behalf; but without them pushing for it, EU politicians will be too afraid to go there. Someone with a truly ambitious vision needs to step up and make people dream again (or perhaps, for the first time).
And on the issue of perspective, well, you come from a small country, so maybe you can tell me how on point you think this is. Humans aren’t good at relating to big numbers. Sometimes I get the impression that talking about millions is easier than talking about billions, because the former seems conceivable and the second is so big that it’s abstract. Maybe this is just me, but whenever I think about budget numbers, since my immediate reference point is having grown up in the US, the numbers thrown around on a European level just don’t seem big to me. And I have the impression they seem really big to most Europeans.
€10 billion is a lot in the perspective of Austria’s budget, and so it probably seems astronomical to an Austrian voter to talk about the EU spending €10 billion doing something. But in my mind, €10 billion is about the minimum number even worth contemplating for almost anything; less than that is basically throw-away money, so insignificant on a Continental-scale we might as well not care.
Maybe EU stimulus checks could start to tackle this? If European policymakers understood the psychological impact of seeing $1400 drop into your bank account labeled “IRS” then maybe they would be inclined to do the same thing, so that every European would see a €1000 deposit with “European Union” as the depositor.
Benjamin: I’m sure Macron had — and still has — ambitions. Yet it surprises me how much he is still willing to “wait for the Germans” or others to come around. Sometimes you have to move fast and break things, to shake things up.
But southern Europe is bigger (and France is only partly part of it anyway). How come Italy and Spain do not present their own vision of the EU’s future? And why do they not blow out their deficits like the US does? It’s now or never, when looking at the unprecedented support of the ECB and how all fiscal rules were temporarily suspended. They hold back, out of fear of being chastened later on — or because they may simply have lost the belief that they can change their economies’ trajectory by thinking big and being bold — and we are all the poorer for it.
This ties into the issues you identified so clearly: The narrative by now in southern Europe (perhaps even more than in the north) is one of being slow and lagging behind anyway. No point in thinking big and being bold (Draghi is perhaps changing that a little bit for Italy). The respective national clichés tend to reinforce these notions.
And finally, let me get to your excellent point about perspective, particularly because I come from a small country. This is tied to the narrative, too, very much so.
Modern Austria’s national story begins with a radical transformation – from the center of a huge multi-ethnic empire to a small, Alpine country that quite literally saw itself as “not viable.” We all know what that led to in the interwar years and during the Second World War.
But for our purposes, the more interesting part comes after: Suddenly, after the war, small Austria believed in itself and its own viability. It grew rapidly and became one of the richest countries in the world. Perhaps even more importantly, it developed a strong national identity (studies often show the national pride of Austrians up there with US-Americans and Canadians).
And in that time, big things were even possible for a small country – from building dams like the Kaprun hydropower plant to creating world-beating businesses.
But the EU together…the EU doesn’t have these moments yet. These (trans-)national myths and experiences of achieving something big together. Don’t get me wrong, keeping the peace and building the EU, with all its ancillary effects — open borders, Erasmus, the single market, the euro — is amazing. But there’s a reason that the bridges and buildings on euro banknotes are fictional. It is hard to be proud of bridges that don’t actually exist.
There’s so incredibly much shared history, achievement, people, stories, highs and lows to share, reminiscence and draw lessons, strengths and hope from. But as long as European politicians are afraid of tapping into this, the EU will keep us waiting for those €1,000 helicopter money in our account.
And the €10 billion, €100 billion, €1 trillion — not a big deal if you think and feel big. Very much a big deal as long as your bridges lead nowhere.