Europe’s Marshall Plan for its neediest countries

A proposed $545 billion in grants for economic recovery reflects a renewed identity for the EU – after a humbling neglect of its weakest members.

German Chancellor Angela Merkel in Berlin holds a joint video news conference with French President Emmanuel Macron May 18.

One moment of extraordinary leadership during the pandemic came in mid-April with a moment of extraordinary humility. The president of the European Commission, Ursula von der Leyen, gave a “heartfelt apology” to Italy for Europe’s failure to support it when the coronavirus had overwhelmed the Italian health system.

“Now everyone has realized that we must protect each other,” said Ms. von der Leyen, adding that the apology must be followed up with results.

One month later, an extraordinary result has begun to emerge.

On Monday, the Continent’s two largest economies, Germany and France, proposed that the European Union provide $545 billion in grants to help the economic recovery and reconstruction of member states hit hardest by the virus. Top of the list are Italy, Spain, and Greece.

The Franco-German initiative, which still requires approval by all 27 EU states, has been likened to the Marshall Plan, the massive aid sent to Europe by the United States after World War II. Yet the proposed grants would be more than three times that of the Marshall Plan in today’s dollars.

Besides the size of the proposal, the other extraordinary aspect is a humble acceptance by Germany to allow the European Commission to borrow the $545 billion on financial markets. As Europe’s wealthiest country, Germany has long opposed the EU taking on debt that it says would be paid back largely by German taxpayers. Until now the EU’s response to the crisis has been to offer only loans to member states, some of them with conditions.

To justify Berlin’s turnaround, Chancellor Angela Merkel explained that the damage from COVID-19 is the worst crisis that the EU has faced in its history. The Continent, which is the world’s largest single market, may be facing a long recession. “Such a crisis also requires the appropriate answers,” she said.

The pandemic was also not the result of any country’s failure to manage its economy well. This helps remove the “moral hazard” of the EU borrowing money and giving it to the neediest countries.

Germany and France want to strengthen European solidarity at a time when the economic downturn could add to the rise of populism and nationalism. The EU’s core mission is to prevent the kind of destructive nationalism that led to two wars in the 20th century. Its leaders also worry that one impact of the coronavirus might be a rise in economic inequality between states, perhaps leading to a split-up of the EU.

The plan to take on debt is seen as a “Hamilton moment” for Europe. In its early days, the U.S. gained a unifying identity when Treasury Secretary Alexander Hamilton arranged for the federal government to assume the debts of the states after the Revolutionary War.

For Europe, a unifying moment was gained after it witnessed extreme suffering in Italy and then one leader, Ms. von der Leyen, apologized. Now the humble admission of indifference may result in a generous plan to make a difference.

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