By Gian Maria Milesi-Ferretti
The Hutchins Center on Fiscal & Monetary Policy and the Center on the U.S. and Europe hosted Paolo Gentiloni, Commissioner for the Economy in the European Union, for “Next Generation Atlanticism? A conversation about economics and geopolitics” on October 14. Brookings’ scholars Gian Maria Milesi-Ferretti and Thomas Wright led the conversation. David Wessel moderated. This post summarizes the conversation, which focused on the key economic challenges facing Europe as it recovers from the COVID-19 pandemic (including the potential impact and uses of the Next Generation EU Fund) as well as transatlantic and other foreign policy issues. *Event transcript can be accessed here»
Mr. Gentiloni stressed both the speed and the size of the policy response to the COVID crisis at the European Union level: the actions of the European Central Bank, the suspension of the restrictions imposed by the Stability and Growth Pact, which allowed national governments to undertake a strong fiscal response to the crisis, as well as the common issuance of European debt to finance short-term work schemes and subsequently the recovery program. The joint response to vaccine procurement, after a difficult start, has now helped ensure that over 75 percent of EU citizens are vaccinated. This has allowed the re-opening of activity and underpinned a strong economic recovery. Real EU growth this year is forecast at around 5 percent by the IMF.
While risks and uncertainties remain — linked to the evolution of the pandemic, supply-side bottlenecks, the spike in energy prices, and the large increase in public debt — the challenge for the European Union is how to find ways not just to make up the ground lost because of the pandemic, but to yield more durable and sustainable growth, he said. Spending on public investment to support the greening of the economy and its digitalization are important tools, and so are the reforms that national governments committed to in their recovery plans.
Mr. Gentiloni also noted the importance of the recent agreement on international taxation, and the fact that all 27 member states of the Union signed the agreement, including some, like Ireland, for which the decision to accept a minimum corporate tax rate of 15 percent was difficult. Together with the other international tax agreement pillar–the re-allocation of taxing rights, based on where profits are generated — this was a turning point. The European Union has committed to achieving its implementation by 2023. He said the agreement, long discussed, reflects the change of administration in the U.S., and singled out Treasury Secretary Janet Yellen for her role in forging a consensus.
On the geopolitical front, Mr. Gentiloni highlighted the welcome shift of the new Biden administration towards multilateralism. The difficulties with the AUKUS developments and especially with the withdrawal of troops from Afghanistan reinforced an awareness in the European Union of the need to try to play a more important geopolitical role, he said. This is particularly important in areas crucial for Europe such as the Mediterranean, North Africa, the Balkans, and can be good for NATO and for the US-EU partnership. The EU faces a challenge in achieving these objectives—for instance, progress on European defense has been very limited. At the same time, it is on the same page as the US on the need to address the China challenge, and strongly committed to NATO, which plays a crucial role vis-à-vis Russia.
In regard to China, Mr. Gentiloni said, the EU is fully aware of the challenge posed by an authoritarian model where economic success is not coupled with democracy as we know it. Europe has to face this challenge also in some aspects of its own political landscape as well. It is trying to support an open economy, open trade, and to avoid the negative economic consequences of a decoupling or a closure of this international economic relations. This double track is challenging, not easy of course, as exemplified by the difficulties faced by supply chains during the crisis and the need to take care of European autonomy in some strategic supply chains without breaking international trade relations. The EU realizes that it needs to strengthen its political position vis-à-vis China and Russia if it wants to keep open the doors for trade and investment.
In regard to Brexit, Mr. Gentiloni mentioned that the problems should not be exaggerated. It was very difficult to reach the so-called Northern Ireland protocol, which came on the basis o f a UK proposal that the Commission accepted. Of course, things can be made more flexible, but this protocol cannot be attacked or cancelled without causing dangerous political consequences, even more so in Ireland than with the EU–and this is not the right thing to do.
On the availability of COVID vaccines for less developed countries, Mr. Gentiloni said the problem with the authorization of exports from the EU of 800 million doses is that these doses are not reaching especially the low-income countries, and here more effort is needed. The, next G-20 in Rome at the end of October could be a turning point and increase commitments from different advanced economies. Richer countries need to be more ambitious, and this can be done. The issue is very important—nobody is safe until everybody’s safe, and the costs are not that high. It is not only an issue of solidarity, but also of the well-being of advanced economies. On the COVID front, it is also important to ease traveling rules. The so-called Green Certificate in the EU has been a big success, allowing travel and access to indoor activities all over Europe with the same QR code. This is a good way to increase and facilitate exchanges and travel, and could be extended to developing countries.