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The Frugal Four - European Post-Covid Economic Recovery

Published on 23 July 2020 at 10:30

The “Frugal Four” is the name given to the leading north-eastern European Union member states Austria, Denmark, The Netherlands, and Sweden. The group are committed to standing against the enlargement of the “common fiscal space” of the EU, advocating lower EU spending whilst promoting the idea that each country should cater for itself by its own “fiscal means”. The Frugal Four have recently expressed their joint resistance to the Franco-German post-Covid recovery proposal, announced on 18th May 2020, which calls for “European solidary” in issuing a common debt of €500 billion and distributing the recovery fund as grants among European countries hit hardest by the Covid-19 pandemic.

 

According to the statement, the EU recovery fund will aim to “provide EU budgetary expenditure for the most affected sectors and regions on the basis of EU budget programmes and in line with European priorities”. “We want to set up a temporary fund of €500 billion to provide EU budgetary expenditure, not loans but budgetary expenditure, for the regions and sectors most affected”, German Chancellor, Angela Merkel, told a news conference. According to the proposition, the European Commission will “borrow money on financial markets” to collect the goal sum of €500 billion. The money is due to be recovered by raising the EU’s “Own Resources” by acquiring the maximum amount that can be provided by each member state, and subsequently using it as a guarantee.

 

The “Frugal Four”, in response to the Franco-German proposition, was sure to highlight their unchanging position on the Multiannual Financial Framework (MFF) and requested that “national contributions are limited”. The four proposed to create an Emergency Recovery Fund based on a “loans for loans approach which is in line with the fundamental principles of the EU budget”. On 19th June, Mark Rutte, Dutch Prime Minister, faced off with Merkel in a video conference, and discussed his view that the EU should, as he told the Financial Times, immerse in a strategy which promotes a “realistic level of spending”. He also demanded that all countries pay back the funds they receive from the frugal four’s spending.

 

The Frugal Four’s main issue with the proposed Macron-Merkel EU recovery strategy is the fact that the four member states contribute the most to the EU budget. In a letter written by Austrian Chancellor, Sebastian Kruz, regarding the EU’s next long-term budget, he outlines the budget’s dependency on the four member states as well as on Germany, claiming that “75% of net payments to the EU budget” are funded by the five member states. This suggests that the frugal four’s opposition to the post-covid recovery scheme is fuelled by a lack of fairness in EU budget contribution.

 

P Bergsen suggests that had the United Kingdom still been a member of the EU, the current Franco-German proposal would “never have made it to the table” as the UK would have vetoed it. It seems that the frugal four are unwilling to bail out “spendthrift southerners” using their taxpayers money. Bergsen also mentions that one of the UK’s reasons for Brexit was to avoid being in the very position that the frugal four are now in.

 

The frugal four’s opposition to the subsidies have now “softened” but they still demand to retain their budget rebates. This issue has strained a rift within the union as one side has proposed a scheme of European solidarity as well as united reform, whilst the other refuses to provide a one-off contribution of financial aid in the form of grants in order to achieve this. One of the frugal four’s arguments addresses the union’s unrealistic or perhaps skewed definition of solidarity. When speaking to the Financial Times, Dutch politician, Malik Azmani, argued that ensuring taxpayers money is spent wisely “whilst finding a way out of this crisis together is showing the kind of solidarity that we need to recover in a sustainable way”. He also argued that pinning “frugal” against “solidarity” posed a “false contradiction”.

 

Conclusively, the Frugal Four have not recently been ones to partake in fiscal integration within the EU, allowing themselves mainly to focus on their own national governments and democracies. According to Bergsen, they have not looked to the EU for aid during the pandemic and have initiated schemes exclusively for themselves. The four member states see the Franco-German proposition merely as a bailout for southern member states which resembles previous bailouts, rather than a “one-off solution designed to soften the economic fall-out of a once-in-a-century pandemic”, which may subsequently allow for deeper fiscal integration in future.


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