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How France and Germany created the EU corona recovery fund

The corona recovery fund, now formally known as Next Generation EU, has been the European Union’s (EU) most important response to the economic and social damages caused by the Covid-19 pandemic. Unprecedently, the 27 member states entrusted the European Commission to borrow €750 billion and to allocate the money – in large parts in the form of grants – to the European countries hardest hit. Given member states’ opposing attitudes towards common debt and their different immediate reactions to the pandemic, the establishment of the Union’s corona recovery fund was remarkable. What explains the creation, timing, and scope of the recovery fund? Why was the Union able to agree on such comprehensive measures in a very short time?

Our article stresses the decisiveness of France and Germany – the Union’s “big two” – their tight bilateral political cooperation, and their crucial role in EU politics. We show why and how France and Germany, starting from different poles, came together and established joint positions on the corona crisis, paving the way for an overall European agreement. Applying and further advancing the “embedded bilateralism” approach, we find instances of crucial Franco-German leadership including agenda-setting, comprise-building, and coalition-building.

 

Franco-German leadership in the corona crisis

Agenda-setting: When the new coronavirus started spreading rapidly across Europe from late February 2020, member states, including France and Germany, initially took national measures for its containment. Deep divisions on the adequate European measures crystallized when France joined a group of other countries calling for the introduction of “corona bonds” while Germany advocated the use of existing instruments and credits only. In light of a dramatic downturn of the European economy, the pandemic would soon pose a major threat to the stability and cohesion of the EU.

French and German civil servants and policymakers – at first largely behind the scenes – started intensifying their bilateral consultations, seeking to overcome differences and find common ground. On 18 May 2020, President Macron and Chancellor Merkel proposed an EU recovery fund totalling €500billion, financed through common debt. The interviews we conducted for this research revealed that only a small number of people were involved in the preparations, with Macron and Merkel having had at least two direct exchanges per week since early April. France and Germany thus gave important political spin and weight to the upcoming “official” Commission proposal on a recovery instrument, released only nine days later.

Compromise-building: The Franco-German initiative most of all was a bilateral compromise in that both countries had developed joint positions and had deviated from previously held national positions. Germany, for its part, accepted the notion of common EU debt and direct financial transfers between member states. France, in turn, backed away from corona bonds and joint liability and agreed on tying the recovery fund to the EU’s regular budget with the respective political and economic conditions attached.

Beyond that, France and Germany represented larger camps of member states, taking their concerns and “red lines” into account. While France pushed for a rapid crisis response targeted at the particularly hit Southern countries, Germany – in line with other Northern countries – insisted the recovery fund to be a one-off instrument. When national leaders at their European Council meeting in mid-July signed off the recovery package proposed by the Commission, individual camps of member states – due to the unanimity required – obtained some concessions. The “Frugals” secured rebates on their contributions to the EU budget, while the Visegráds watered down provisions on a rule-of-law clause. Yet, the overall size and financing of the recovery package, as France and Germany had jointly advocated, remained.

Coalition-building: When Hungary and Poland in December 2020 still threatened to veto the package due to the planned conditionality clause, France-Germany signalled that they were willing, if needed, to move ahead with only 25 member states and establish the recovery fund on an intergovernmental basis. This threat of exclusion during political gridlock has had a prominent precedent from the time of the Eurozone crisis: When the British government vetoed the French-German proposal for new debt rules and a fiscal compact, the latter two moved ahead with a coalition of like-minded member states outside the EU’s regular framework.

 

Advancing European integration theory

France and Germany during the corona pandemic thus provided important leadership services. They gave guidance and orientation for an EU in deep crisis and enabled swift and collective action. Scrutinizing the two countries’ leadership role, our article advances the theoretical debate, especially about EU crisis politics. Scholars seeking to explain how the EU managed to find answers to pressing challenges or, by contrast, struggled to overcome joint-decision problems, usually invoke the grand theories of European integration: Supranationalists hold that Community institutions like the Commission enjoy great autonomy and, independently from member states, pursue policies leading to more integration. Intergovernmentalists, by contrast, claim that deliberation and consensus-seeking among all member states best address common problems.

However, these accounts often cannot explain why certain positions are established and how exactly moments of crisis can be overcome. The missing variable, we contend, is political leadership. Stressing the political dynamics between the national and European levels, the embedded bilateralism approach holds that France and Germany play a particularly important role in EU politics. As founding and the Union’s largest member states, they share a special responsibility for the European project. Embedded bilateralism shows why and how France and Germany, beyond their respective national preferences, at times develop common or even joint preferences, themselves being the result of their unique bilateral political relationship and role in Europe. Moreover, due to their overall size and joint resources – not least in economic and financial terms – these two countries can lay the groundwork for larger European compromises.

Other more recent EU crises show how difficult common solutions are if France and Germany themselves do not find together. The ongoing crisis in the EU’s migration and asylum system, for example, to date has led to little Franco-German leadership. Instead, we have seen instances of unilateral German action and half-hearted French support for a revision of the Schengen regime. Other than during the corona crisis, the two pivotal countries in the case of migration and asylum so far could not agree on joint political objectives and the adequate means to achieve them. As the corona crisis reminds us once again, without a prior Franco-German agreement the pre-structuring and shaping of larger European bargains and outcomes are difficult or unlikely.

 

This blog post draws on JCMS article, “Embedded Bilateralism, Integration Theory, and European Crisis Politics: France, Germany, and the Birth of the EU Corona Recovery Fund.”

 


 

 

Ulrich Krotz is Alfred Grosser Professor at the Center for International Studies (CERI) at Sciences Po Paris. He is the author of, among others, “Shaping Europe: France, Germany, and Embedded Bilateralism from the Elysée Treaty to Twenty-First Century Politics” (2013, with Joachim Schild), “History and Foreign Policy in France and Germany” (2015), and contributing co-editor of “Europe’s Cold War Relations: the EC Towards a Global Role (2020, with Kiran Klaus Patel and Federico Romero).

 

Lucas Schramm is a PhD Researcher at the European University Institute. In his dissertation, he analyses past and more recent political crises in the process of European integration, seeking to explain the variation in crisis outcomes. His recent publication includes the co-authored article “An Old Couple in a New Setting: Franco-German Leadership in the Post-Brexit EU” in Politics and Governance.



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