June 11, 2020

€750 Billion Recovery Plan Tests Estonia’s EU Policy

Henri-Kristian Kirsip/Government Office of Estonia
Estonian Prime Minister Jüri Ratas attending the online meeting of the European Council on 23 April 2020.
Estonian Prime Minister Jüri Ratas attending the online meeting of the European Council on 23 April 2020.

In the ongoing discussion on EU recovery package, Estonia has failed to send the message that it is actively taking part in European efforts to look for ways to repair damaged solidarity in the Union.

In recent weeks, European media has been filled with a lively debate on the Commission proposal for an EU recovery package that aims to alleviate the economic recession caused by COVID-19. The proposed €750 billion plan, to be funded by joint debt and distributed to member states in the form of grants (worth 500 billion) and loans (250 billion), has received the warmest welcome from Southern Europe and the iciest one from the ‘frugal four’: Austria, Denmark, the Netherlands and Sweden. The Visegrad four are split, with Poland and Slovakia being favourable and Hungary and the Czech Republic strongly opposed.

In the European-wide debates, the views of the Baltic states are nowhere to be seen. The Estonian government is expected to come out with its position in the coming days. Views inside the government have been split between the more pro-EU stance of the Centre Party (Keskerakond) that holds the prime minister’s position, opposed by its two national conservative coalition partners, the Conservative People’s Party of Estonia (EKRE) and Fatherland (Isamaa).

In the earlier phase of the corona crisis, many Estonians expressed bitter disappointment at Poland and Finland – both close partners of the Baltics – for their lack of solidarity in imposing closures of borders, and at the EU for being slow to react. However, in the ongoing discussion on the recovery package, Estonia has failed to send the message that it is actively taking part in European efforts to look for ways to repair damaged solidarity in the EU.

What the Package Is – and What It Is Not

In the national debate, two main counterarguments to the recovery package have been made. First, there is fear of the EU’s “federalisation” and loss of nationality sovereignty, touted above all by the radical right-wing EKRE and echoed by its more modest national conservative peer, the Fatherland. Representatives of EKRE have decried the transfer of further powers to Brussels and called for a referendum.

Opposition to further deepening of integration is of course a legitimate political stance. However, this argument does not quite hold up to the actual content of the Commission proposal, which is about a one-time crisis response measure that does not change the nature of the EU, does not require change of the EU treaty, and hence does not need to be decided at a referendum.

It has not been helpful for the Estonian debate that many commentators in Europe who tend to support deeper integration have misleadingly celebrated the recovery proposal as the EU’s “Hamiltonian moment” and step towards a fiscal union. For some Europeans this is a dream, for others a fear, but so far it is not a reality. It should be made clear in the debates that the prospect of a fiscal union is to be debated later on in a separate setting – such as the Future of Europe conference – but is not to be decided through the adoption of the recovery fund.

What’s the Price of Common European Interest?

The second counter-argument is economic: the package is seen to reward countries for bad economic management and breaking the eurozone rules, create an even more unsustainable level of debt, and transfer money from poorer Eastern member states to richer Southerners. Previously, Estonia has shared the views of the fiscal hawks in Northern Europe and been opposed to the idea of Eurobonds. This used to be also the position of Germany – until chancellor Angela Merkel turned her mind and became convinced about the need to come up with new instruments in this extraordinary crisis, in order to help those countries and sectors that have been hit hardest by the virus.

Germany sees the recovery fund to work for the benefit of the EU’s economy as a whole and is prepared to pay significant sums for it. However, Germany has (thus far) not turned into a supporter of a fiscal union or Eurobonds. Along the same lines, some prominent fiscal hawks in Estonia, representing the right-wing Reform Party, which is currently the leading opposition force, have expressed (reserved) support to the package as a necessary step in the current exceptional circumstances.

Coming to the pros, Estonia would be among net beneficiaries of the package. According to the proposal, it would receive up to €3,3 billion, including €1,8 billion in grants. However, the main argument for the proposal is indeed that it is in the interest of Europe as a whole: its economic recovery, political unity and sense of solidarity. This view has been expressed by Prime Minister Jüri Ratas and some other representatives of his party.

Estonia has been slow to formulate its positions and interests, which is obviously a precondition for being able to influence the eventual size, shape and conditions of the package that requires unanimous approval by member states. This is not the first time that the coalition is split over EU policy. A similar divide occurred, for example, over the EU’s goal of climate neutrality last year. Eventually the pro-EU stance of the prime minister determined the government’s position. It remains to be seen if the same pattern will be repeated. If the argument of common European interest fails to convince the sceptics, money might help.

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