Josef Janning: No need for investment boom, economy will quickly pick up when the crisis is under control

As long as budget policy remains national, EU financial assistance will have to rely on providing credits at bearable conditions

There is much talk about the EU as a community of destiny, but its infrastructure is still too weak to protect Europeans. After the coronavirus crisis, there will be changes to the degree of outsourcing production beyond Europe. In this context, the EU will be a very important layer of policy making to make sure that such changes will not be taken as a protectionist instrument in the hands of national governments, says Josef Janning, political scientist, in an interview to EUROPOST.

Mr Janning, Europe and the world are on the brink of a collapse - tourism has come to a shuddering halt, planes have been grounded, borders have been closed, thousands are filing unemployment claims. Having a deep understanding of the EU's capacity to respond to crises, do you think that the bloc is supporting the ongoing efforts at national level in a fast, flexible and direct way?

The Covid-19 crisis serves as a reminder that the EU is not the centralist super-state as it has been denounced by many populist voices. In fact, the first responsibility and primary burden of managing the crisis falls on Member States. One might argue that a stronger EU, a bloc with more genuine powers and resources would be better able to direct resources to where the need is greatest - though the current drama in New York City and the state of New York demonstrates that even with a strong federal government in the US that is not to be taken for granted.

In this crisis, politics has shown that the reflex is strongest regarding the national level. The shutdown or lockdown severely affects the EU and its transnational mode of adding value, but that is not a fault of the EU or of Member States. It shows where we are today: In a system of rather deep integration but with no strong crisis management powers and resources on the European level.

Instead of focusing on joint efforts, many of the European governments' first instinct was to resort to protectionist policies. Does this indicate lack of confidence in European institutions?

Some reflexes were protectionist, such as the ban on the exports of medical equipment, others were simply driven by the immediate need to contain the spread of the virus. There is much talk about the EU as a community of destiny, but its infrastructure is still too weak to protect Europeans. After the crisis, there will be changes to the degree of outsourcing production beyond Europe. In this context, the EU will be a very important layer of policy making to make sure that such changes will not be taken as a protectionist instrument in the hands of national governments.

The European Commission, the European Central Bank, the European Investment Bank and the European Banking Authority have already announced the first series of measures to address the freefall of the economy. Do you believed these are the right type of measures?

With no relevant revenue source of its own and a budget of 1% of EU GDP, one shouldn't expect too much from the EU. Direct payments or subsidies are beyond its scope. As long as budget policy remains national, EU financial assistance will have to rely on providing credits at bearable conditions.

Where is this sum of €2.77 trillion, intended to keep the economy afloat, supposed to come from? At first, EC President von der Leyen said that the activities of the bloc's executive bodies were limited by the current multiannual budget.

There is little direct money the Commission could mobilise. Even diverting unspent resources to current needs requires the consent of Member States. Brussels can give access to capital, help coordinate efforts and oversee a more flexible application of single market rules in crisis response. These are all important tasks.

The governments of the most affected states - Italy and Spain, urged Brussels to launch a new massive public investment Marshall Plan in the whole of the 27-country bloc. What exactly do they envision this plan entailing?

The notion of a Marshall plan is a buzzword. Many don't understand or remember that it was US loans and financial assistance to help European companies to purchase goods from the US in hard currency. That is probably not what many have in mind who call for such a plan.

Onе should not overlook that the looming recession is not based on lack of demand, a low quality of product, low productivity or excessive pricing. It is a shock created by events outside of the economic realm, like a war but without all the destruction of material goods and equipment. There is no need for a state driven investment boom, because the economy will quickly pick up when the crisis is under control. Many companies may not be able to bridge the time between now and that point, and that is where political action is required.

Let us hope that the gloomiest forecast for the economy would not come to fruition. Even so, what will be, in your view, the most important policies as far as getting it out of the slump?

The most important factor is solid management of the medical dimension. Adequate strategies and means to suppress outbreaks of the virus will be the precondition to reopen businesses. That capacity is a public good for which politics bears primary responsibility.

Member States clearly vary in terms of capacity to recover. But even for the wealthiest of states the cost of this pandemic is putting an enormous strain on their finances. What are some key steps that weaker European economies like Bulgaria should take?

Greater economic output also means greater exposure to the economic risks of this crisis. This is not a crisis that hits the poorer countries harder because they are poor. Their risk lies in weak public services, in particular the healthcare system, and a less easy access to financial services.

What changes to the proposal for the next multiannual financial framework do you anticipate to see? The clash of interests was a serious one to begin with.

I am not so sure about the learnings for the next budget, mainly because of the many divisions between Member States about the budget. It would make sense to raise the budget, best based on a European tax, and to build in greater flexibility to deal with unforeseen challenges. Locking in the overall size of the budget and its principal spending blocs over a 7 year period is not the right approach, but as long as the budget needs to be endorsed by all governments, these decisions cannot be taken every year.

If such a big economy like the Italian collapses, considering the country's large public debt even before the coronavirus outbreak, will the euro be able to absorb the hit?

Yes, the euro represents much more than the Italian economy, and Italy will not collapse economically. The main risk that I see is a failure of the political system and public administration to take, implement and endure the necessary measures to control the pandemic. If the public loses trust more than is already the case, things could become chaotic, and public sector chaos cannot easily be controlled by any inside or outside actors.

Is there a scenario in which the coronavirus destroys the immune system of the EU?

Immunity comes with surviving the infection. There will be strong incentives for all European countries to use the EU in the effort to overcome the aftereffects of the pandemic. The EU could come out of the crisis stronger than before. However, the temptations to return to business as usual will also be high, and I can see how the EU will not be used as the level to build higher resilience and strategic reserves to prepare for the next crisis - because it will be costly, will require agreement, will need some reallocation of powers in favour of EU institutions.

  

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Josef Janning is senior associate fellow of the German Council on Foreign Relations. Prior, he has been head of the Berlin office of the European Council on Foreign Relations until November 2019. His topics of focus include changes in the international order and transatlantic relations, European integration, EU reform, European and German foreign and security policy. From 2013 to 2014, Janning was a Mercator Fellow at the German Council on Foreign Relations. Prior to that he served as Director of Studies at the European Policy Centre in Brussels. Between 2001 and 2010, Janning led the international policy work as Senior Director of the Bertelsmann Foundation, a major private German foundation. Earlier positions in his career include Deputy Director of the Centre for Applied Policy Research at Munich University from 1995-2007. Previously, he has held teaching positions at the University of Mainz, the Hebrew University of Jerusalem, and a guest professorship at Renmin University of Beijing. He has worked with leading think tanks in Europe, the US and Asia, and engaged in and led various international study groups, high-level groups and commissions.

Janning has published widely on European affairs, International Relations, EU foreign and security policy, German foreign and Europe policy as well as global affairs. On these issues he is also a frequent commentator with German and international media.

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