Lessons of London Debt Conference 1953: The EU is sharing a Common Destiny

Elisabeth Hellenbroich

On April 23^rd the EU heads of states had an exchange of views during a four hour “Video conference” in order to consult on specific measures that should pave a way for the EU as a whole to find a way out of the corona crisis and begin economic “reconstruction.” The heads of state while not being able to decide on a new “grand strategy” for the Economic Recovery of Europe ended their exchange of views by adopting the measures which the EU finance ministers had agreed upon two weeks ago. It’s a 540 billion Euro package which includes “credits” form the European Investment Bank (EIB) for small and medium sized European companies; short work money (SURE) from the EU for European employees who are not ensured against unemployment; as well as “credit lines” from the European Stability Mechanism (ESM) for the EU states which are the hardest hit by the corona crisis. These measures are supposed to go into effect as of June 1rst.

In addition the EU heads of state gave the European Commission the “mandate” to work out over the next weeks a concrete financial plan for the “economic relaunch” of Europe. The idea is to work out a common EU budget (2021-27) that may involve a volume up to 2 trillion Euros and in which each EU member state is supposed to contribute 2% of its GDP.  This common budget for the reconstruction includes “credit lines” issued for member state as well as money from the EU budget in terms of direct “subsidies” (a demand which according to FAZ Italian Prime Minister Conte had raised). French President Macron stated that some regions in Europe which are severely hit by corona should get “transfer payments” – given the fact that “if part of Europe collapses all of Europe will collapse.”

As the French financial daily “Les Echos” commented, the EU leaders were unable to agree on the “grand lines” for a European Reconstruction plan.  They only announced that they would mandate the “European Commission” to work out plans for reconstruction .Yet, the discussion “was not unfruitful.” The Newspaper referred to ECB president Christine Lagarde who had alerted the EU leaders that they should be prepared for a 15% GDP reduction this year and referred to German Chancellor Angela Merkel who after the discussion had emphasized that she supported the idea of a “gigantic” relaunch and who stated after the discussion that “substantial investments were needed.” President Macron was quoted for having spoken about a “consensus” and for having stated, that there is “need for a rapid and strong response.” While formally there was no discussion any more about Euro Bonds, there should be however enough maneuvering room to define in what ways financial “subsidies” should be given to states which are severely hit by the crisis. States which can’t afford to be suffocated by the need of having to pay off a huge load of state debts.  Hence what must be discussed about in the next weeks is the issue of “debt servicing”, the possibility for a “debt relief” – just as was discussed in 1953 at the London debt conference concerning Germany’s debts.

Macron: Fatal Reparation Demands after WW I

What is at stake and what has so far divided the majority of EU member states from some Northern European states, is in essence  linked to the question whether the European Union remains a “political project” based on solidarity, or whether the EU is  just a “commercial project”. In her speech in front of the German Federal  Parliament, April 23^rd  previous to the Video Conference,  German Chancellor Merkel had emphatically underlined that “Germany is only in a good shape if Europe is in good shape” and that “we are all bound together in a community of destiny” .

Some very constructive ideas were outlined  by  French President Emmanuel Macron  who in a lengthy interview with FT (April 17) warned that the EU could collapse as a “policy project” unless it supported some of the hardest hit EU countries in the Corona pandemics  –such as Italy- and agreed on an “Economic Reconstruction Plan” for the EU. In order to illustrate what is presently at stake within the Eurozone, he used the examples from history, pointing to France’s “colossal and fatal error in demanding reparations from Germany after world war I” which triggered a populist German reaction and the rise of Nazism. “It’s a mistake we avoided after World War II, we said ‘There are some debts- Marshall Plan’.” The Marshall Plan with “helicopter money” tried to finance the recovery of the war ravaged European continent.  “We are at a moment of truth,” Macron emphasized during the interview, “which has to decide whether that European Union is a political project or just a market project.”

Reviewing the last years in which Europe had been challenged with: first a crisis of terrorism in all countries, then migration which destabilized Europe and then the new phenomenon with  a health crisis breaking out in China “which will have economic effects since we are very interdependent”.  Macron stated he believed “that we are about to exit a world which was hyper-financialized in a way, where there was financial hegemony and hegemony of the non-co-operative military powers, and we can enter something which will enable us to reshuffle the cards.” He pointed out that in the midst of such “existential crisis” when people look to co-operate, there is the time to “rethink multilateralism” that had always its finest hours in the aftermath of great world wars.

Call for solidarity with Italy and Spain

Several times Macron reiterated the need to have “utmost solidarity with Italy and Spain, because among European democracies, they were the first to be hit hard by the pandemic. And they have handled it with a lot of courage and bravery, and if I may say so, they have picked up the broken pieces for the rest of us (…). But we benefited from the learning and co-operation of these two. It was hard to help Italy with equipment when the shock arrived because we were all lacking some. So we made an effort, and delivered millions of masks to the Italians” and “we will deliver respirators.” He said he was proud that “France did not close its border with Italy.”

The French President compared the “corona virus” to “an asymmetrical shock, an epidemic which has spread throughout the entire world (…)  At first, there was a national withdrawal, too many countries sealed off their borders and merely continued handling the crisis at a national level. Today, we work within the European Union and Eurozone without respecting our treaties. He underlined in this context that what we need now is “financial transfers and solidarity” so that Europe can carry on. He also underlined that countries which today have a financial solidity, are the countries which when it comes to macroeconomics are the “net beneficiaries” of the Eurozone and the European Union. “They are the countries that are by far the biggest beneficiaries of Eurozone and the common market. We can’t have a common market where some are sacrificed. So we are at the moment of truth when it is no longer possible — I’m not talking about [the debts of] the past — to have financing that is not mutualized for the spending we are undertaking in the battle against Covid-19 and that we will have for the economic recovery. Because we are facing a real strategy of recovery. We need to have an economic  relaunch (…) It’s impossible to leave this to single nations. Impossible because it’s not sustainable.”

Macron: Moment of Truth

Being asked by FT that the Dutch and the Germans are not ready to do so, Macron stated that he was in constant “dialogue with Angela Merkel and Mark Rutte (Netherlands)” and that he could sympathize with some speaking about ‘moral hazard.’  “I’m not saying that we must cancel all previous debts. I’m saying that in order to continue a shared journey, we must go forward with it. And each time we have faced such moments in history, when we said that the people who had sinned must pay, a hundred years ago, we made that mistake. A hundred years ago when France came out of World War 1 it said “Germany will pay. A colossal, fatal error, . . . that led to the rise of populism in Germany, hatred on behalf of the rest of Europe, and fifteen years later, the worst happened.”

According to Macron Europe has no choice. “The subject is the unravelling of the European project or moving ahead with it, there is no choice. So call it what you like, monetary fund et cetera . . . I’m not a fetishist when it comes to deciding what we should call it, it could even be called the European budget, or the multi-annual financial framework, the MFF. The key thing is the ability to issue common debt, to have a common guarantee, to fund expenses in certain countries. This funding cannot be set according to your level of GDP or what you have contributed; it will be done in accordance with your needs, because we decided to have a shared journey.”

Macron quite sharply observed the logic of the populists who regularly express their cynicism concerning the European project. As Macron noted, the populists will say: “What is the adventure you are offering us? These people will not protect us in times of crisis, they won’t protect us the next day, they show us no solidarity. When migrants arrive, they ask us to keep them for ourselves. When an epidemic arrives, they ask us to handle it… They are all for Europe when it’s about your labor and your markets and producing car parts that we no longer make in our own country.  But they’re not for Europe when it comes to mutualizing debts“. So we have reached that moment of truth when we must know whether or not the European Union is a political project or strictly a market plan. I believe it’s a political one. When it is, humanity is placed at the center and notions of solidarity are put into place.”