ZEW Economist Friedrich Heinemann on the Bundestag Vote on the EU’s Own Resources Decision

The Bundestag will make a final decision today on whether Germany will approve the EU’s own resources decision. This decision paves the way for joint EU borrowing of 750 billion euros to finance the European coronavirus recovery package. Professor Friedrich Heinemann, research department head and public finance expert at ZEW Mannheim, comments on this matter as follows:

“It is fundamentally correct that the Bundestag is clearing the way for the European recovery package. Some of the highly indebted euro states no longer have a sufficiently strong credit rating on the capital markets to be able to keep themselves financially afloat through national borrowing. Nevertheless, the debate in the Bundestag so far fails to address the severity of the problem. The details of the own resources decision are not without controversy. Firstly, Germany accepts a de facto unlimited liability for all coronavirus-related EU debt due to unnecessarily high additional funding obligations into the EU budget. Secondly, the own resources decision lacks binding rules for swift repayment, which would lead to a rapid limitation of risks. Thirdly, according to the declared political will of major EU actors, the debt planned to last for almost forty years provides the gateway to permanent EU debt. The Bundestag should therefore have included many more safeguards in its ratification act. Policymakers and the public in Germany apparently had their minds on other things during the pandemic. However, they must be aware of the far-reaching implications of today’s decision. The Bundestag now approves a liability scheme that it would never have accepted during the euro debt crisis. Once again, a major crisis has led to a problematic, permanent course being set. With this own resources decision, the EU is embarking on a path towards debt communitisation and will still be incurring joint debt even when people will only know the COVID-19 pandemic from the history books.”