After four days of tough negotiations, with pounding of fists on the table and slamming of doors, the 27 members of the European Union (EU) agreed on a 750 billion euro fund (US$857 billion), divided between grants and loans for post-Covid “reconstruction.” Here are the keys to understanding the pact and who will end up paying for it.

1. The Covid-19 crisis hit Europe intensely beginning in March, when Italy and Spain became epicenters of the crisis. Forecasts for the European economy ranged from a total debacle to the “mother of all recessions,” as one senior BNP Paribas executive put it this week. With Spain’s GDP falling by nearly 10 percent, France and Italy close behind, and a drop that may reach 7 percent in Germany, the outlook has historic ramifications.

At the height of the coronavirus in April, with major countries still in lockdown, EU heads of state agreed on a first emergency package of loans of up to 420 billion euros to be implemented this autumn. But with that pending, and because of deep differences among member states, they have now decided to establish a much larger aid and stimulus fund for post-Covid “reconstruction.”

2. At the end of May, Germany and France agreed to propose this extraordinary 750 billion euro fund. Given the magnitude of the crisis, Germany has been moving away from its traditional opposition to any kind of “mutualization” of debt among its European partners. Adopting this plan for a massive injection of money and credit represents a more “New Keynesian” policy to try to avoid a sharp decline in the European economy and the strong trend toward geopolitical fragmentation that carries.¹Translator’s note: John Maynard Keynes, a British economist working in the first half of the twentieth century, developed as his central theory that government intervention can stabilize an economy. Most specifically, he advocated increased government expenditures and lower taxes as a way to stimulate demand and pull an economy out of a downturn. His idea had a fundamental impact on government economic policies. New Keynesian economics is based on classical Keynesianism, but with a disagreement over how quickly wages and prices adjust — and so the New Keynesians advocate economic models that recognize what they call “sticky” wages and prices, meaning they adjust more slowly to short-term economic fluctuations. They contend that this “stickiness” explains economic factors such as involuntary unemployment and the impact of government monetary policies.

3. The 750 billion euro fund is based on issuing new bonds — new debt. Strong resistance from the so-called frugal states (the Netherlands, Denmark, Sweden, and Austria), along with Finland, led to decreasing the amount of direct subsidies. The fund will include 390 billion euros in direct subsidies (52% of the total) and 360 billion euros in loans (48%). New EU taxes will be implemented to repay the joint debt, including a levy on first-use plastics, a carbon tax, and a digital tax. Each state will have to repay its own debt, which for Italy and Spain puts public debt at unprecedented levels.

4. Mark Rutte, prime minister of the Netherlands, had been making strong statements against a possible agreement, cynically pointing to the wastefulness of the southern European countries as the cause of the crisis.²Translator’s note: Rutte has come to be called “Mr. No.” As Reuters reported, “The moniker derives from an April video clip, frequently retweeted, that shows a Dutch waste collector shouting at Rutte not to give money to ‘those Italians and French.’” Rutte promised to remember. He also declared, on the very day the summit began, that countries such as Spain and Italy would have to implement new labor and pension reforms in exchange for European funds.

During the negotiations, Rutte succeeded in lowering the amount of direct aid. He also tried to secure “veto power” over the agreement, but he did not fully achieve that objective. However, he did manage to get a clause in the agreement that establishes an “emergency brake” if any country feels that another country is not complying with the “conditions” set for receipt of the funds. Rutte and the northern European countries insisted on the clause as a way to force Italy and Spain to impose new anti-worker reforms and budget cuts once they begin to receive the aid.

5. Germany, the Netherlands, Sweden, Austria, and Denmark won an additional benefit: continuation of the system of “rebates” (something the United Kingdom had once imposed) that discount their contributions to the EU budget. These five countries will receive rebates that total up to 7.6 billion euros.³Translator’s note: These “rebates” are reimbursements to states that are net contributors to the EU budget. Britain first won them in the 1980s; France had hoped to phase them out in the post-Brexit EU.

6. To avoid a veto by Hungary and Poland, the pact relaxes the so-called “rule of law conditionality.” In other words, the EU will not be able to demand conditions from these countries regarding violations of democratic freedoms or the hardening of political regimes.⁴Translator’s note: As Reuters reported, EU leaders “concerned by the increasing authoritarianism of Hungarian Prime Minister Viktor Orban” … nevertheless agreed to “vague language [that] paled in comparison to earlier promises of tough conditions.” Orban told reporters that “he had ‘thwarted and repelled’ efforts to tie disbursement of funds to democratic values. Polish Prime Minister Mateusz Marawiecki hailed the ‘whole architecture of supervision’ as a success.”

7. The Spanish State will receive 140 billion from the recovery fund — 72.7 billion in direct subsidies and the rest in loans, to be paid out between 2021 and 2022. The EU pact means the “progressive” Spanish government will be much more restricted with respect to any sort of “social” measures. In fact, the proposal to reverse “the most damaging aspects” of the labor reform is definitely off the agenda (and its complete repeal is now ruled out definitively).

8. The pact, promoted by the Franco-German axis and the countries of Europe’s south, results from concessions made by both parties in the negotiations with the countries of northern Europe. However, this “breathing space” for the EU’s future cannot hide deepening internal fractures. The United Kingdom’s departure from the EU with Brexit, the tension between Brussels and the Hanseatic and Visegrád blocs,⁵Translator’s note: The New Hanseatic League, or Hansa, is a bloc of finance ministers from several EU nations — Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands, and Sweden — that was established in February 2018 based on a founding document setting out fiscally conservative principles regarding the “architecture of the Economic and Monetary Union” of the EU. Its name comes from the trading partnership known as the Hanseatic League that existed in northwestern and central Europe from the 14th to the 16th or 17th centuries (depending on how one defines the League’s demise). The Visegrád Group, also known as the Visegrád Four or V4, is an alliance of four EU countries in central Europe — the Czech Republic, Hungary, Poland, and Slovakia — that met in Visegrád, Hungary, in 1991 to discuss mutual cultural and political interests. The four countries all joined the EU on May 1, 2004. and the increasing global geopolitical tensions between the United States and China continue to eat away at the EU project right as it is challenged by a crisis with an unknown end point. This is exacerbated by the uncertainty over the likely “second wave” of Covid-19, which seems to be starting already in some countries, and how it will affect EU economies.

At the same time, this new fund will increase the indebtedness of states, with conditions imposed on any kinds of new “social” policies and with future pressure for new reforms that favor multinational companies at the expense of the rights of the working class.

9. Contrary to all the speeches about “success” that celebrate this as a “history-making” pact that will save the EU, it is clear that it will actually be like an artificial respirator in the face of the predicted short-term collapse. Because of the dimensions of the crisis, it is unclear how much it will actually be able to contain and reverse the effects of the crisis at the economic and social levels. Under all circumstances, though, the governments of the European imperialist states will continue to try to make the working classes and oppressed peoples throughout the world pay for the crisis.

10. Today, from German chancellor Angela Merkel to Pablo Iglesias in Spain,⁶Translator’s note: Iglesias, the secretary-general of the Podemos party in the Spanish State, is the second deputy prime minister of Spain and led his party into the Spanish State’s government at the beginning of 2020. European leaders are celebrating this pact, talking about European “solidarity” and the future of the EU. In reality, it is a pact aimed at saving the capitalist economies and the profits of the multinational companies, a single market for Dutch and German exports, and the rest of the business of the imperialist bourgeoisies.

While the workers and oppressed peoples gain nothing from these pacts among European capitalists, the alternative lies not in the arguments — whether from the Right or the Left — for some spurious return to “national sovereignty” in the imperialist states. The only progressive path in the face of this crisis is the struggle for an anticapitalist program of class independence, for working-class governments, and for the Socialist United States of Europe.

First published in Spanish on July 21, 2020, in Izquierda Diario (Spanish State).

Translation by Scott Cooper