The past few months have been good ones for Brexiteers; the UK finally ‘left’ the EU but the biggest boost to Brexit sentiment has come from the EU’s sluggish vaccine procurement and rollout. It has given Johnson ammo for the isolated Isle mantra and not for the first time, the EU’s existence has come under fire. Its response - Next Generation EU (NGEU).

Next Generation EU in itself is largely unexpected for Europhilic politics: a €750bn plan to bounce Europe back from the pandemic and beyond with grants, loans and investment. Whilst small by Biden’s standards, it marks a deviation from the EU’s crisis management of the past. However, and perhaps more importantly, it forms part of the wider answer to the Eurozone’s stability and future.

Current critics of the euro on the continent see the pandemic as a chance to leap into the unknown and escape the monetary union. Others see NGEU as the first major step towards the euro’s burgeoning, accelerated by the crisis on our hands. Does a Europhile, like myself, have reason to believe the euro will not only survive, but thrive?

To understand why NGEU is so revolutionary, one only has to look as far as Germany. Whether Europeans like it or not, Germany is the EU’s puppet master but a notorious sceptic of Keynesian policy (ie. Big Government in times of crisis) and a proponent of the schwarze Null (zero government budget deficit). This has led the EU to force austerity onto nations such as Greece when they needed financial aid for their debt in the wake of the financial crisis. Spain and Ireland are among other nations to have undergone mass budget restructuring in the past to be eligible for European Stability Mechanism (ESM) emergency loans; something which can incur unnecessary sacrifice for the affected country.

Some may argue that Germany’s influence only spreads so far – after all, the European Central Bank (ECB) eventually undertook Quantitative Easing (QE) to handle the Euro crisis a decade ago and has since continued asset purchases. This appears to provoke moral hazard which the Germans are so wary of in the first place. However, European QE accounted for only 3.5% of the Eurozone’s GDP, compared to the Bank of England’s program which equated to 26.3% of the UK’s GDP. The gaping difference in large part can probably be attributed to Merkel and her compatriots’ big spending reservations.

Yet Germany’s response to Coronavirus has been anything but reserved - €139.6bn deficit in 2020 from an “as much support as possible” approach by its Finance Minister. This symbolises a change in economic thinking in the German government and consequently it seems, for Europe. It was Merkel herself who proposed an huge EU-wide aid package with her French counterpart, Macron. This goes against all former concerns that Germany would grow thin from debt bearing of her Eurozone neighbours, as they recovered. This is even more shocking coming from an EU commission president, Ursula von der Leyen, who was serving Merkel in her Bundestag cabinet just a few years ago.

So NGEU is a revolutionary change for Germany and the EU, but it is also forward looking: finance ministries have to demonstrate in their recovery plans to spend 37% of the loans and grants received on climate objectives and 20% on digital initiatives. It therefore sees sustainability and technological innovation as a solution to the crisis, not as an afterthought (like Biden). This will strengthen Europe’s energy independence and continue to set them apart when it comes to tackling climate change.

However, it is not the only promising economic policy for the Eurozone. The program SURE, designed to mitigate unemployment risks in an emergency, has received outstanding reception amongst investors during the pandemic. The bonds were over 8 and 12 times oversubscribed respectively, which once again enabled the European Commission to obtain very good pricing conditions. The 7-year bond was priced at a negative yield of -0.497%. This means that for every €105 that Member States get, they pay back €100 when the bond matures.

Eurobonds are evidently climbing from strength to strength. The European Investment Bank is no exception to this, having recently committed 1 trillion euros of investments to climate action and environmental sustainability in the next decade. This makes it the largest multilateral investment bank in the world.

Throughout everything, it’s important to recognise the youth of the euro (initiated in 1999). In its infancy, it struggled to cope with the Euro crisis, but as with all good children, it has learnt. The ECB has extended its mandate, the ESM is becoming a reliable loan source during emergencies and recently, it became the much needed back stop for the Single Resolution Fund to support banks facing default. The EU’s high credit rating has helped these mechanisms expand and develop and this surely needs to be capitalised upon in the future. Above all, the euro needs to continue to learn and NGEU forms one of the greatest lessons of all for it in the coming years.

But where is the Eurozone ultimately headed?

Optimists might say a fiscal union. This was a suggestion pointed out by many economists in the wake of the financial crisis and would indeed be the final key to stabilising the existing monetary union, and the systems in place for that already highlighted. The pessimists would cite Germany in opposition to such a proposal but as much as Germany might see NGEU as a one off policy for it to bail out other countries, the tides are turning thanks to it.

Likewise, Macron has always favoured greater European togetherness, not to mention Italy and Greece need it to fix their economic problems. The European Deposit Insurance Scheme (EDIS), set to fully begin in 2024, will show how European fiscal unity could look if it came to bigger insurance schemes. Ultimately, If NGEU proves successful, the eurozone could become a much more stable and equitable union both in the short term and long term as further fiscal policy changes are implemented to strengthen it.

German economist and former president of the Bundesbank Karl Otto Pöhl wrote in 1988: “In order to create a European currency, the governments and parliaments of Europe would have to be prepared to transfer sovereign rights to a supranational institution”.

Germany and the EU are finally showing the first major signs of accepting this fate in its truest sense. It’s exciting. It’s promising. It’s a shame it’s taken a world pandemic to realise this, but above all, it’s a disappointment that the UK won’t be there to enjoy it.

Elliot Wood