Brussels’ new plan to redistribute and lend money to tackle the coronavirus crisis, with loan amounts calculated based on the unemployment rate in member states, is one of two recent, ridiculous ideas now under discussion. The second one is the EU’s proposal to borrow money on the financial market, although, in reality, member states are the ones who will guarantee the loans. Why do I say this is ridiculous?
First, the southern part of Europe had quite high unemployment rates long before the pandemic began. It is foolish to follow the principle that if the south of Europe has high unemployment, it should receive relatively more money.
Second, money is not the problem. Brussels does not have to chase money. Any EU country will now get cheap money on the financial markets without problem. Even Italy can now borrow money at an interest rate of 0.37 percent for two years, or at an 0.87 percent interest rate for five years. The same goes for Greece.
As for the Czech Republic, it could borrow money at the interest rate of -0.13 percent for two years and 0.17 percent for five years.
If Brussels borrows money, for example, with an interest rate of 0 percent, then the amount of money saved by the member states most affected by the coronavirus pandemic, is marginal, given the difference in the amount of money they can get through available programs, and how much they need to cover their deficits. And it would not even pay off for most of them.
If the problem is not the availability of funds, then what is the real issue? The problem of southern European states is that long before the pandemic, they lost their entrepreneurial spirit, which cannot be bought with money. And the second problem is that Brussels dreams that one day, we will see an EU Ministry of Finance, issuing more bonds under the EU brand. Because the EU cannot currently finance its budget through debt, it circumvents this principle via these crisis programs.
At the beginning of the COVID-19 pandemic, Brussels reacted belatedly, so now, it needs to be seen as doing something to make up for it. That is why the EU is proposing silly ideas, which are convenient only for Brussels.
Title image: Aleš Michal (Czech National Bank)