03 May 2024

IMF's Georgieva: An EU Budget for a Global Europe

July 2020 will go down in history as a time of profound European cohesion... , leaders came together to craft a powerful European response to Covid...Basically, NGEU represented a major expansion of the EU budget, financed by common borrowing, with disbursements running until the end of 2026.

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Let me go to Part II.

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The European Union. Twenty-seven sovereign states in a marriage like no other. A vast body of shared law. A commitment to democracy. A clear separation of power into national competences and central competences. Four freedoms—the freedom of movement of goods, services, people, capital. A single market that, no matter how imperfect, actually works, helping bring ever-greater prosperity to almost 450 million people. Convergence. A union of hope.

Four further things to note:

• One, Europe is a trading power. Relative to GDP, the EU exports and imports a lot. More trade openness than the United States. In some EU countries, much more. As such, one can get knocked around by events abroad. To handle this, Europe needs to be strong.
• Two, much of Europe's strength derives from its cohesion. Since the Schumann Declaration of May 1950 proposing the European Coal and Steel Community, 22 countries have been welcomed into the union. Today, 20 EU member states share a common currency. After the dollar, the euro is the world's Number Two reserve currency. Not bad for only 25 years!
• Three, the EU budget sits at the heart of European cohesion. For decades, the Multiannual Financial Framework—the MFF—has channeled a steady supply of fuel into Europe’s convergence engine. I think of the structural and cohesion funds and all the good they have done for "the country I know best.” And for the rest.
• Four, when we think of fiscal policy, we cannot forget that the EU is not one country. No, unlike the other two superpowers, the EU has 27 national debt stocks. There is no mandate to build a “United States of Europe.” That is the democratic will of the people.

Nonetheless, in the early months of 2020, as a new virus hit us with no regard for borders, something new was born.

I refer, of course, to Next Generation EU.

If you ask me, July 2020 will go down in history as a time of profound European cohesion. Finding a solution that could reasonably be deemed consistent with the Treaties, leaders came together to craft a powerful European response to a common and grave problem.

Basically, NGEU represented a major expansion of the EU budget, financed by common borrowing, with disbursements running until the end of 2026.

This was unprecedented. Up to 800 billion euros in bond-financed EU support to national budgets. Not only to recover from the pandemic, but to help finance digitalization and the Green Deal and help incentivize much-needed structural reforms to lift potential growth. To send a deliberate signal of solidarity, including solidarity with the tourist economies of Southern Europe so hard-hit by the pandemic, as well as the less-wealthy member states.

To show financial markets that the EU stands together as one. Remember, just the announcement of NGEU had a powerful calming effect on financial markets. The top credit rating. Debt management. A risk-management framework. A Chief Risk Officer—in fact, I see her here today!

On the expenditure side, I am delighted that NGEU has taken forward lessons from the times when I was responsible for the EU budget. Back then, we introduced a framework for a Budget Focused on Results, to add coherence in three areas:

• What to spend on—a focus on areas where the EU budget could have maximum added value. Cross-border infrastructure and humanitarian aid, to mention just two.
• How to spend—not just grants, but private sector co-investment.
• How to communicate—transforming the EU budget from something boring into something with a story.

I am very happy to see that many aspects of the Budget-for-Results strategy live on. NGEU has built on it by taking a direct performance-based approach, where disbursements to national budgets are made entirely based on actual milestones and targets achieved. X number of new wind turbines. Y number of new solar farms. Z number of new internet connections. And, perhaps most importantly of all, difficult but necessary structural reforms, incentivized by real money. And it is working. Lessons learned, lessons implemented.

So far so good....

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