The lost opportunity of Next Generation EU

Markus Formel / May 27 2021(4 min read) We all live in Amerika Europe, Amerika Europe is wunderbar. The song from the German band Ramstein, Amerika, has been an international hit. It had captured the sentiment of many, thinking that even though we do not live in the US, we practically live there. Our lives are centred around its politics, policies, military, international engagement, economy and culture. I had the courtesy to change the lyrics, to reflect the current wave of thinking - as it seems to me - of European politics. Kishore Muhtambabi had described the problem of the West in its hubris. This disease of Western hubris is spreading like a wildfire in European structures. Excessive Regulations, slow but sure harmonisation of taxes and social systems - see the European minimum wage - and the international politics, best describable as a trainwreck - see Borrel in Moscow, Sofage affair and Brexit, in which the EU looked like a big powerful bully. The 100 page-long regulatory manual on AI is only a cherry on top of all of this. It would not be the EU if it did not try to regulate to death the new up and coming industry. Countries having historically high debt and poor performance on international indexes of economic freedom. And they all seem very happy about it However, this could have all changed. If there had been an even better time to push for uneasy reforms and to change the paradigm, it was during the pandemic. The joint borrowing scheme - with which I disagree - could strongarm the big players and the economic losers to finally change. Billions of Euros is enough motivation for countries to shake things up. Italy is supposed to get more than 200 billion euros from the European Union. Yes. More than 20% for a country that has not done anything to improve its public finances - debt is on an aesthetic figure or more than 130%. I could name all the big spenders, but you probably get the point. The money is going to the worst-performing players on the team. But a critic may say, ‘they get the money in an exchange for reforms, right?’ The NGEU plan of Slovakia will have very little to do with the Next Generations. Money will be poured into concrete projects - literally concrete. And to repair hospitals, isolate houses and support technological development. What a new hospital and an isolated house have to do with the next generations is hard to describe. The problems of the “plan to buy voters with their own tax money” is not only endemic to the former Ostblock. France is planning to spend millions on repairing castles in its provinces. However, there was another way the EU could go around giving help to the European countries hit by the pandemic. They could have behaved like the IMF. First reforms, then money. Although I heavily disagree with bribing countries to reform themselves in exchange for European money, the possibility that the PIGS could default on their debt in the current situation is unimaginable. Helas, can you even imagine times, in which countries bankrupt by their poor governance in Europe. Well, I do not, the countries do not, the European bankers do not and politicians in those countries do not. What a pleasant cocktail of moral hazard. To curtail this poisonous mix of moral hazard, together with social populism, the EU could finally enforce the Maastricht criteria and the Pact of Stability and Growth. Make the money distribution so that the countries need to lower their debt, curb social expenditures, liberalise the markets and make the state slimmer. Embrace creative destruction of subsidised companies, local and multinational cartels and finally make Europe more competitive. But as we can see, European countries will need to learn the hard way. Inflation is on the rise, the money printers are churning all night and day on every continent and European bodies are thinking of new regulations and barriers. The interest rates - comfortably being ten years on 0% - will need to rise, the debt and its management will be more expansive and on the end of the road we will see would drive fast and safe and who does not. So, buckle up Europeans it will be a bumpy and dangerous road.

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