They are preparing for a big deal in the case of the Merkelék virus, for which the Hungarian government may be seriously concerned

Two explanatory statements and two important speeches.

On three fronts at the same time, very important things were said on Wednesday in EU affairs, which will eventually interconnect and also affect the economic policies of the Member States in the coming years, namely:

• Unusually, the two most influential members of the German Constitutional Court were forced to explain and defend last week’s far-reaching decision in parallel interviews in the German press: Andreas Vosskuhle, who retired as president of Die Zeit the day after the decision was announced, and Peter M. Huber, who also played a key role in drafting the decision, at the Frankfurter Allgemenine Zeitung and the Süddeutsche Zeitung, respectively. They explained that What was the real reason and purpose of “torpedoing” the ECB’s bond purchase program?and why they were given 3 months to demonstrate that the program was proportional to the objectives and therefore did not violate its own mandate.
• Chancellor Angela Merkel addressed the German Parliament And he said that, respecting the decision of the German court, we must act wisely to keep the euro alive (!), and at the same time, the coronavirus recovery fund must also be strong. For the latter, the German state must dig deep into his pocket, while regretting the need for political union (!) In his speech.
• After the weekend, the German court threatened the German government with infringement procedures for a decision. Ursula von der Leyen on Wednesday described the framework for a three-pillar recovery fund at the European Parliament (EP) in Brussels. The President of the European Commission is also under great pressure, as the EP has threatened to veto him if the institution is not sufficiently involved in drawing up and monitoring a sufficiently ambitious plan and if there is no new EU budget revenue. He also explicitly promised the last two in his speech. for MEPs, the President of the Commission.

Unprecedented Peak: What do these have to do with each other?

Vosskuhle, who has repeatedly “leveled” European integration with Constitutional Court decisions in recent decades, emphasized in the newspaper, among other things:

They are convinced that their decision is good for Europe because it strengthens the rule of law and will become increasingly clear in the medium and long term.

According to, the constitutional courts of the Member States can rarely, in exceptional cases, intervene (there have been many examples of this), when they see that the European processes violate the constitution of their own Member State. In the present case, they considered that the effects (of economic policy) of the ECB’s asset purchase program effectively violated the German Constitution, as it gave German institutions the exclusive right to shape economic policy.

Vosskuhle said anyway: after the German decision, the Polish Constitutional Court will do what it wants, but

however, they no longer have to be taken seriously because they are puppets.

Given this, the president of the Polish Constitutional Court was outraged and described the statement of his German counterpart as scandalous, stressing that his institution was really independent from the Polish government.

Peter M. Huber, perhaps more influential with the departure of Vosskuhle, said in two interviews: yes, there may be situations in which the constitutional court of a Member State can overturn a decision of the Court of Justice of the European Union, because its primacy cannot always be interpreted without restrictions. But of course they generally accept the primacy of the EU Court of Justice, they just want a better functioning of the EU Court of Justice. According to him, by the way, they received praise from the wrong places for his decision, referring to the cheers of the Polish Prime Minister, who said that the German court had made one of the most important decisions in the history of the EU.

Apparently the above three developments have nothing to do (close) with each other, but Merkel in the Bundestag also said on Wednesday about the recovery fund that:

The stronger the European response, the more secure the ECB will be in doing its job. Clearly there is a connection between the two.

This is how Merkel described her plans.

Monday Reuters leaked from the CDU leaders meeting that if the ECB gives any explanation for its program, Merkel sees the huge legal and political chaos caused by the German Constitutional Court as solvable (The decision also required that the German government and parliament hold the ECB accountable.) To do this, the government must also behave prudently and responsibly, respecting the court’s decision. He said it was understandable that the European Commission had threatened the Germans with a procedure because EU law was primary and that if the Bundesbank was prohibited from buying bonds, it would be prohibited from its Eurosystem obligation that the Commission could legally enter into contracts) . . However, according to the report, Merkel finds it problematic that the German decision has provoked positive reactions from some Member States (see the Poles).

On Tuesday The news agency had already leaked what Merkel had said at the CDU / CSU faction meeting: EU Member States must receive aid, because it is not good for anyone if only the German economy is strong, and that is why it has agreed (!) with the leader of the alliance of the political group that the German state will have to pay more to the EU programs and that the Bundestag will participate in the process of spending more money.

Wednesday In her Bundestag speech, Merkel was already talking about

The decision of the German Constitutional Court threatens the very existence of the euro, but it wants the euro to remain and even remain strong and to do so wisely, respecting the court’s decision.

In his words, after all. The German court ruling drives integration of European economic policy, which is needed more, not less, anyway, and Germany is ready for closer integration. He also said that it should not be taboo to amend the EU Treaty if we want to overcome the challenges.

Furthermore, even warned, we must never forget what Jacques Delors said before the introduction of the euro:

We also need political union, monetary union alone will not suffice.

Our materials on the subject in the last days:

This is the link

Therefore, by making it clear to Merkel that there is a link between the difficult problem facing the ECB and the basis for recovering from the coronavirus crisis, the following arises:

• Germany uses the coercion resulting from the court decision and the delicate situation surrounding the allocation of resources for the recovery fund to: seeks to move towards closer European integration the euro area or even the EU as a whole.
• It is probably not a coincidence that, after the German court ruling published on May 5, the European Commission did not publish its proposal on May 6 for the Recovery Fund and the EU budget for 2021-2027, but asked for time to develop it further. It is possible that in this work also deep down, the two old allies Merkel and von der Leyen agree.
• As the southern Member States, which are most economically affected by the viral crisis due to their weight in tourism (see below), are heavily indebted, The German government is also ready to provide EU financing solutions to distribute grants to the neediest of the recovery fund. This will not increase (as much) the debt ratio of people in difficulties, so the euro will not be compromised either., but as this solution indicates greater European solidarity, greater integration and closer coordination of economic policies.
• Tighter integration implies closer coordination of fiscal policies and if such a plan is finally put together (If they are larger, the “stingy” Member States in a better budgetary position are willing to pay more in joint EU programs so that more subsidies can be distributed through the joint issuance of European Commission bonds) , then it would remove the burden from the ECB. Therefore, the central bank would not have to buy government bonds from peripheral countries at such a rate to keep their yields low and, therefore, indirectly, help them finance their debt (which apparently disturbs the German Constitutional Court, for example).
• It is even conceivable that The ECB closes now criticized the PSPP asset purchase program in 3 months by the German Constitutional Court (If neither the ECB nor the Bundesbank respond to the German court, the Bundesbank will not be able to participate in the program anyway, which would lead to the collapse of the entire PSPP, and this could be avoided by stopping it.) In this case, only the ECB would keep the PEPP program launched the other day due to the coronavirus crisis, or launch some new program. Currently, the PSPP only represents approx. trimester.

The key to cutting the Gordian knot is really what Merkel said:

If we spend more vigorously through the EU recovery fund, we will not only alleviate the crisis in distressed Member States, but we will also remove the burden on the ECB, thus avoiding the risks of a German court ruling.

In short, after the loosening of monetary policy that has been exaggerated so far, Europe would be on the road to further easing of fiscal policy. The figure below shows how different the continent is for him in this:

What would a recovery tool look like to cut a Gordian knot?

On Wednesday, Ursula von der Leyen in the European Parliament outlined the framework for a long-term recovery facility, purportedly worth € 1.5 billion:

• This would be a program beyond the EU Framework Budget (MFF), in the short term, the sharpest recovery period (1-3 years) and even as early as this fall, it would be possible to make payments to him in a “hard way”.
• It is clearly for the Member States with the greatest problems, most affected by the viral crisis. (He also referred to the Spanish and Italians by name), but, of course, officially all EU members can receive funds.
• According to Von der Leyen, this solution is “An answer (ed. Ed.) That reflects our common values, protects the rule of law through a separate mechanism“(!).
• The European Commission would issue bonds on the capital market and distribute the profits. Depending on the level of need of the Member States through the EU programs, there would also be a grant in the form of grants (!). (The maximum commitment and payment limits are set for each year in the 2014-2020 EU budget; if this year’s maximum commitment limit rises from around 1.2% of the combined GNI of the Member States to For example 2%, the Commission will be entitled to Member States being ultimately responsible for the bond issue, but if someone receives a non-refundable fund, someone else must pay it. If they skip the joint budget payment, also Income and guarantees do. These are also controversial points, but according to Merkel, they are the largest taxpayers and the modification of the basic contract is not taboo for them).
• There will be three pillars of the tool and the largest part. the first pillar It will explain what von der Leyen said, “We are prepared to finance key public investments and reforms in line with European priorities: achieving a climate neutral, digital and resilient Europe.” This pillar will be implemented within the framework of the European Semester (!) And all Member States, including Hungary, will be able to benefit from it, but “it will focus on those parts of the Union that have been most affected by the crisis and where resilience is most necessary. “The Commission proposes to replenish the cohesion resources, that is, this will be” greater than the normal cohesion amount “of the MFP.” The supplement will be distributed according to the severity of the economic and social effects of the crisis, “said von der Leyen.
• The second pillar It will help mobilize private investment in key sectors and technologies, reinforced by InvestEU programs, the successor to the Juncker Plan (small amounts of EU money will be used for companies through a guarantee system). Under the pillar, a new strategic investment instrument will be created that “promotes investments in key value chains that are essential to our resilience and future strategic autonomy – like the pharmaceutical industry.” They are also creating a new solvency instrument that, as the name implies, would help good but now weakened companies (because, for example, an endangered state cannot benefit from state aid rules).
• The third pillar It aims to draw the most immediate lessons from the crisis: they will strengthen rescEU programs and the European horizon and create a new health program.

Threats to the Hungarian government

As Bruxinfo pointed out during the upcoming recovery fund, Hungary appears to be three main sources of danger, now in light of the above, they have been further strengthened or supplemented, such as:

• Due to the significant drop in community GNI caused by the coronavirus crisis the MFP budget pie that can be distributed in the 2021-2027 cycle is shrinkingThus, for example, cohesion and important agricultural resources for Hungary may also decrease even more than previously calculated (in real terms, around 25-27% and 20%, respectively).
• In addition to the cohesion funds in the MFF, there will be a separate “envelope” for cohesion support (non-reimbursable) to be paid with the recovery instrument, but for Hungary to also receive: it must also make a greater contribution, although it is clear that we and the countries of Central and Eastern Europe will not be the main beneficiaries; (from the money for the 2014-2020 cycle until now). Given that there are still predictions in the country that the economy will grow 2-3% this year, that does not help support why we need that money. In Hungarian: In addition to lowering the cohesion cake, the Hungarian government must contribute more money to the EU recovery instrument in a way that is not our focus. In addition, if, in addition to loans, non-repayable subsidies are also distributed to Italians and Spanish, for example, we will have to pay part of the bill.
• Mr von der Leyen had clearly promised MEPs that the recovery instrument and the MFP new budget revenue is also associatedas already proposed in 2018 (since then they have failed, but the carbon tax, common consolidated corporate tax and other directions have emerged.) The most common income would be associated with a closer integration of economic policy, as Merkel also pointed out, and this clearly means that if there is a common market and, in principle, a level playing field, Why is 9% Hungarian? and why the corporate tax rate in western countries is much higher. It is no coincidence that a regional expert has begun to worry about the economic policy model based on the fiscal policy of Hungary and other countries in the region.
• As noted above, the first pillar of the Recovery Instrument is open to all Member States, but is subject to the rules of the European Semester, and the President of the Commission has indicated in particular that a new status mechanism is also planned. straight. There is a strong suspicion that participation in the program (fundraising) will be linked to meeting a new set of conditions for the rule of law., which may pose challenges for the Hungarian and Polish governments, which are already subject to the Article 7 rule of law procedure. Meanwhile, in the EP plenary session on Thursday, several MEPs called for payments to be stopped and conditioned to the rule of law, while these days two people were brought in to issue opinions on Facebook posts.

The fact that the decision of the German Constitutional Court on the ECB and the recovery fund that is already forming due to the viral crisis are apparently linked is generally a bad rather than a positive sign for the Hungarian government. According to Merkel, the strongest EU member state is ready for closer integration of economic policy in exchange for paying more resources to others. This may even lead to a change in the model based on tax competition. Meanwhile, Hungary should make a greater contribution to the recovery instrument, while access to its first pillar public investment resources may also be subject to the rule of law.

Cover image source: Sean Gallup / Getty Images