Jürgen B. Donges: "Europe has run out of leaders, now it only has officials"

The words of economist Jürgen B. Donges (Seville,1940), a member of the German Council of Economic Experts who has advised the governments of Chancellors Helmut Khol and Gerhard Schöder, are always listened to with great attention. He has a great knowledge of the intricacies of fiscal and monetary policies in Europe and is Professor Emeritus of Political Economy at the University of Cologne. He is one of the most media-friendly representatives of German ordoliberalism. Donges was invited on Monday to the Atalayar programme on Capital Radio, directed by Víctor Arribas, to share his vision on the new economic crisis facing the European Union.  

What do you think about the proposal of a 500-billion-euro fund for the reconstruction of Europe announced by Emmanuel Macron, President of France, and Angela Merkel, President of Germany?  

It strikes me that whenever there is a crisis in the European Union, people think about creating new mechanisms to mobilize resources instead of resorting to those we already have. In this case, a new reconstruction fund, but we already have other tools available, such as the ESM, the structural and cohesion funds or the European Investment Bank. Governments needing support can come to them and start receiving funding now. The new proposal will take some time to get off the ground and will involve a negotiation process. Austria, the Netherlands, Sweden or Denmark have already said that they do not agree with the transfers from the reconstruction fund and are betting on loans. There will now be a debate with which nothing will be resolved.   

The confrontation between the countries of the north and the south of Europe that we have experienced in the past is once again returning. The countries of the north are reluctant to give money to the countries of the south without linking it to some kind of conditionality 

Yes, that is the issue surrounding the discussion about corona bonds. The fundamental problem is that, if the public debt of the European Union is mutualised by law, we will have a big problem for the taxpayers. I, as a German taxpayer, wonder why I have to take responsibility for the debts of the Spanish Government without having had any influence on what and how that debt is used. In other words, we are a European Union of countries that are sovereign in budgetary matters. No Member State, not even Spain or Italy, is prepared to hand over its budgetary policy to European institutions. If we were to do so, it would be a different matter, and we could talk about a mutualisation of debt.   

This is not a fight between the North and the South. Italy is a good example of the fact that if we mutualise debt there are perverse incentives for rigorous structural policies and structural reforms. Back in 1973, after the oil crisis, very specific EU credits were given to countries in difficulty (such as Ireland or Portugal), and this can now be done without creating new mechanisms or political conflicts.   

Do you believe that the unity of the European Union is at stake at this time? Populisms, nationalisms, Eurosceptics... can they take advantage of this opportunity if there is no effective EU response to the crisis we are facing?  

I do not think so. I do not see any danger to the EU, at least not here in Germany. The EU is an institution that has prestige among the population as a peace project. The history of this institution shows that crises have gradually shaped it. In times of difficulty, the viability of the European project has been called into question, and then we have seen that it has come out stronger. The problem is not the EU as such or its institutions, what I miss is clear political leadership. That ended after the time of the Chancellor of the Federal Republic of Germany, Helmut Kohl, and French President François Mitterrand. We no longer have leaders of that stature, only officials, who meet and make plans, but we lack an overall vision for positioning the EU in the world. Sometimes it seems that Angela Merkel is in charge, but she is not a great leader either.   

The new interpretation of the ESM makes financial aid conditional on strengthening the health systems of countries in difficulty.   

That is a very good idea. We have seen that not all health systems in Europe were well prepared to deal with the pandemic. These investments are always necessary and improve people's lives.   

And would that not be a rescue of the health system? Can we not use the word rescue' on this occasion?  

I would not enter into a discussion on this term now. It is enough for me to know that the resources of the ESM will strengthen health care. The Spanish health system has not collapsed, but it does seem to me to be appropriate to allocate resources to improve it. I know that politicians always use language to distract attention from important issues, but the least important thing is the name. The important thing is that the funds should be used for specific purposes and that they should not be used to finance, for example, a minimum living income in Spain.   

As well as for the health sector, a new employment fund has been set up. Why are governments not using this money?  

I do not know, but you are right that there is a new system for unemployment benefits. It is logical to ask for conditions in return for the credits that are given. We have to make sure that the funds reach the people who really need them. That said, governments can also use their fiscal policy to boost the economy. European regulations limiting debt have been suspended. What strikes me is that, when I read the newspapers in Spain, what is being discussed is the introduction of the minimum living wage, as if that were now the essential thing. Now we must focus on promoting tourism or the car industry and we must not wait for Brussels to make a move. From Madrid we can already start to implement expansive fiscal policies.   

But Spain has a very high public debt, at 104% of GDP.   

The debt of Greece and Italy is also high. But now we must act and until the economic recovery comes, we must use fiscal policy. The debt is going to rise and, once the pandemic has been dealt with, a new effort must be made towards fiscal consolidation. We are now seeing how important it is to use the economic boom times to balance the public accounts. Germany has taken note of this, but Spain has not. Now Germany is going to go from a debt of 60% to 80% of GDP and the economy can cope with that.