The current EU Parliament and Commission had just begun the work of their five-year agenda when it was derailed by Covid-19 and then the Ukraine war. As the institutions' mandate enters a final phase, Real Economy gets the views of key players in Brussels on one of the EU's most difficult chapters.
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00:00 [MUSIC PLAYING]
00:02 COVID-19, the war in Ukraine, the energy shock,
00:05 and inflation--
00:06 Europe's economy has been rocked by a series of crises
00:10 over the last five years.
00:12 Nobody would have predicted that we could have
00:15 had two black swans in a row.
00:18 [SPEAKING FRENCH]
00:20 I think this mandate was a success for Europe.
00:27 So as Europeans get ready to go to the ballot box,
00:30 in this episode, we're assessing the EU's economic performance
00:33 and prospects.
00:34 How can the bloc boost growth and productivity?
00:37 Is the Green Deal still on track?
00:39 And do trading relationships with countries like China
00:42 need a reset?
00:43 Welcome to Real Economy.
00:45 In a moment, I'll speak to some of the key political players
00:51 trying to steer Europe's economic destiny.
00:54 But before all that, here's our crash course.
00:57 [MUSIC PLAYING]
01:00 The pandemic and the war in Ukraine
01:03 have defined EU politics for the last five years.
01:07 The huge 800 billion euro Next Generation EU Fund
01:10 was a historic economic response.
01:13 Deployed to accelerate the bloc's post-pandemic recovery
01:16 and green and digital transition,
01:18 it saw member states issue joint debt for the first time.
01:22 But COVID also forced Brussels to temporarily
01:25 abandon its fiscal limits.
01:27 Since then, many member states have racked up record debt
01:30 to GDP ratios and issue the energy shock
01:33 and high inflation of 2022 only exacerbated.
01:38 Recently reformed spending rules aim to bring these gradually
01:41 back under control.
01:43 But with post-pandemic funds also due to end in 2026,
01:47 the big question now is, will Europe
01:49 have the money it needs to invest and compete
01:51 for the future?
01:53 What started with a virus so small your eyes couldn't see it
01:58 has become an economic crisis so big
02:01 that you simply cannot miss it.
02:04 COVID-19 saw the EU issue common debt for the first time.
02:09 This historic move was most visible in the shape
02:11 of the Next Generation EU Fund.
02:14 So how do MEPs view such a financial tool?
02:17 Do they see it as a successful blueprint for the future
02:20 or should it go back to being economic taboo?
02:23 We would never have thought that in this war between the frugals
02:28 and the countries of the Club Med,
02:29 we could agree on, for the first time in history,
02:32 a common debt.
02:33 I see Next Generation EU as a prototype
02:36 and it's important that the prototype flies well
02:39 so that we can indeed make it permanent.
02:41 A new investment mechanism best be created
02:45 after Next Generation EU to invest on climate transition,
02:49 on digital transition, on European pillar
02:51 of social rights, on defence.
02:53 Right now, if you have highly indebted countries
02:56 but they are able to tap in to this new box of Pandora,
03:00 which is European common debt, when
03:02 they are able to tap into that, well,
03:05 it creates a whole new ballgame when it comes to finances.
03:07 So we believe that it's a mistake
03:09 and we should not go down that road.
03:12 So what's the EU Commission stance?
03:14 Might it use such economic instruments again?
03:17 How can we participate to the global race
03:20 for clean technologies, to the challenges of competitiveness,
03:26 without a single euro of common financing?
03:33 I think this is honestly impossible.
03:38 Recently revised fiscal rules aim
03:40 to slash the debt built up during the pandemic
03:43 while this sees a return to the old thresholds of deficits
03:46 at 3% and debt at 60% of annual GDP, respectively.
03:50 Member states have been given more flexibility
03:52 on how they go about debt reduction.
03:55 But will there be enough money to pay for things
03:57 like the green transition, especially
03:59 with post-pandemic funding ending in 2026?
04:04 On the debt side, you know, we are struggling a lot with this.
04:09 Nobody knows in this moment of time
04:10 how to pay the interest rates.
04:12 That's why debt means interest opportunities
04:15 for the next generation to invest.
04:17 We need economic growth.
04:19 That's the power base of Europe, that we are economically strong
04:23 and we have to restart the engine.
04:24 As a whole, we can't say that the problem of the EU
04:29 and the euro area is that we have too high debt.
04:34 It's a problem from single member states.
04:36 We have to address it.
04:37 We have common rules.
04:39 But at the same time, we have to compete at global level.
04:42 If you want the investments that are needed
04:45 for the green transition, for digital, for defence,
04:47 and all the rest of it to happen,
04:49 yes, we will need to borrow, because not all of it
04:52 will be able to be funded by cut sales where or by new taxes.
04:56 And indeed, some of it should be national borrowing
04:59 and some of it should be joint borrowing by the European
05:02 Union.
05:03 The idea that you support public investment through the EU level,
05:08 I think, will plausibly stick around.
05:14 Because if not, we can probably give up on the Green Deal.
05:18 Another hot topic is trade with China.
05:20 Brussels has accused Beijing of subsidising key sectors
05:23 while restricting access to its own markets.
05:26 For now, the European Commission's policy
05:28 has been to de-risk from China, but will it need to go further?
05:32 It must be a win-win, a win-win.
05:35 Above all, the European Union must stop being naive.
05:39 The relationship must be one of commercial partners,
05:42 and of course, continue to work with partners
05:46 as long as they accept our rules.
05:49 Let's go and try to talk to the Chinese how we can really
05:51 create, how we can make agreements.
05:53 And we should also accept that one country is maybe
05:56 more competitive in maybe building electric vehicles,
05:59 maybe building solar panels or wind turbines.
06:02 Well, if the Chinese are willing to pay for our energy transition
06:05 by all means, then we can focus our resources on other areas.
06:09 To compete with other economic areas,
06:12 we must be a block, an economic block.
06:15 And for it, we must be sure that the internal market can
06:20 work on this direction.
06:22 The first thing is stop being naive.
06:24 I mean, China is protectionist, the US are protectionist,
06:27 and then we would say, OK, well, we should not restrict access
06:31 to our market because they will restrict access to theirs.
06:34 They are restricting access to theirs.
06:36 We have to keep the economic ties,
06:38 so nobody wants to stop them.
06:40 But we have to rebalance that.
06:41 And in such a strategic battle with the Chinese,
06:44 we should be ready to defend our markets.
06:49 And finally, given the huge challenges
06:51 Europe has navigated recently, what's
06:53 the current economic picture?
06:55 Inflation is coming down.
06:57 The ECB is expecting to get back to target sooner,
07:01 and they are also expecting to loosen sometime
07:05 in the coming quarter.
07:06 And so there is sort of a sense that there
07:09 will be a turnaround in the summer.
07:11 And the main driver here is that real incomes are recovering.
07:15 With inflation coming down, wages are catching up.
07:18 Reactions to the pandemic was unprecedented.
07:22 The sure mechanism, next generation, EU.
07:25 The reaction to the war was also unprecedented.
07:28 The unity on sanctions, on the political reaction,
07:33 on the decoupling from Russian gas.
07:35 But if 2024 we'll see an acceleration of the activity,
07:40 I think we will conclude that we were
07:43 able to address these two black swans in the right way.
07:48 Indeed, we may all be forgiven for hoping
07:50 the next electoral mandate is less tumultuous than this one.
07:55 (upbeat music)
07:58 (upbeat music)