On her first State of the European Union (SOTEU) speech, Ursula von der Leyen outlined the challenges lying ahead for the Union, as well as the planned response. Overall, a balanced speech with plenty of unique insights, but one that could have insisted more on the future path (if any) of common fiscal policy.
The European Union received international praise for its response to the coronavirus crisis. Although now the second wave of infections creates much turbulence, the preparations in the meantime led to a better response from the health care system.
The political response impressed too. The European Union leaders agreed to joint debt issuance (i.e., embryonic common fiscal policy) and set in motion the way to go about it (i.e., Recovery Fund).
However exactly these elements lacked substance in yesterday’s speech. If it was a time to reinforce the commitment, yesterday was it, and von der Leyen missed it.
Few Things That Yesterday’s Speech Missed
As mentioned earlier, the consensus on fiscal policy was a key issue that marked financial markets. In the negotiations leading to the restructuring of the Recovery Fund, the “frugal North” countries led the pack of members asking for more reforms and promises from the South. This is anything but consensus, and the commission should insist on solving such issues before it is not too late. Yesterday was the perfect chance to remind everyone where the European Union stands regarding this and what are the steps ahead. So far, it is unclear how the fiscal policy agenda will function post-covid19 crisis.
Then there is the Green Deal. Europe engaged in an ambitious project to slash carbon emissions, and yesterday was the chance to raise the bar to an even more ambitious target. However the problem for it (and for the digital projects too), is the lack of funding. There is simply no money for it as only the MFF (multiannual financial framework) funds are available for long-term projects.
All in all, a balanced speech from von der Leyen, but one that failed to bring something new to financial markets. A stronger commitment and leadership are needed, but also more clarity.
It is one thing to say that the European Commission raises its ambitions for the Green Deal outcome without actually saying how it is going to do about it and with what money. The risk is that these will end up empty words if not followed by concrete steps, especially regarding the funds involved.