MNI INTERVIEW: Frugals, Germany Can Be Sold On NGEU2

MNI (BRUSSELS) - The European Union might be pushed to enact a second iteration of its post-pandemic recovery instrument NextGenerationEU, with Germany and other so-called “frugal countries” amenable to supporting such a scheme so long as it includes defence spending and is backed by sound financing, the European Parliament’s former secretary general Klaus Welle told MNI.

“NGEU 2.0 I think remains very tempting for many. Because you can have huge amounts of money available on the balance sheet of the EU and not the national balance sheet. I would be surprised if we are not in for a second round of this,” said Welle, whose 13 years as secretary-general until 2022 saw the parliament grow significantly in terms of political power and influence.

But more fiscally conservative member states are only likely to authorise NGEU2 or any increase in the European Union’s budget beyond the current limit of 1% of GDP if it is backed by sound financing as well as clear provisions for repayment, he said in an interview, adding that any new programme should also be subject to oversight by the European Parliament. The original NGEU provided EUR800 billion in loans and grants.

To overcome opposition to more joint EU spending from northern frugal states like Sweden and Denmark, defence spending would also need to be a focus, he said.

“In the sceptical north there would be an interest in common spending for defence. The frugal countries might see things differently if it also involves defence spending. There is also this idea of joint protection of European airspace – where will the money come from?”

Overcoming German opposition will demand sound financing, he stressed. (See MNI INTERVIEW:Any NGEU2 To Focus On Cross-Border Projects-Buti)

LONG-TERM BUDGET

“We can’t have additional debt without sound financing. We would need to combine it with the real introduction of new own resources.”

While the original 2020 NGEU agreement included a proposal for new own resources to pay back the programme’s grant element, agreement on specific repayment mechanisms has proved elusive, with Germany and France at loggerheads.

“The solidity of the financing and repayment would need to be clear for Germany,” said Welle.

That would mean an increase in the current 1% limit in the long-term EU 2027-31 budget. Commission staff are already working on the next Multiannual Financial Framework MFF and are due to make a proposal in 2025. (See MNI INTERVIEW: Fiscal Rules Require EU Fiscal Capacity)

“I think the pressures from different angles on the EU budget are just enormous. If you want to go ahead with enlargement in the next MFF you won’t be able to do it within the limit of 1%. There are big needs in digital infrastructure, then you have big necessities on defence and then demographics start to kick in.”

Welle, now chair of the Academic Council of the Brussels-based Wilfried Martens Centre for European Studies, said geopolitical risks offer good arguments for going beyond the EU’s 1% budget limit.

“Defence and enlargement would provide a bridge to convince otherwise more sceptical countries,” he said.