Is Europe’s stimulus spending out of control? One way forward is to patch up trade relations with China

Name: EU ‘deplores’ China’s decision to enact national security law for Hong Kong
Uploaded: 2020-07-27T14:15:17.000Z
Duration: 55 s
Description: EU ‘deplores’ China’s decision to enact national security law for Hong Kong

The amount of money earmarked for European recovery is huge, with scant regard for the consequences

Both the European Union and China need more bilateral trade to stand any hope of a stronger recovery this year, but concessions and compromise will be needed

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European Council president Charles Michel takes part in a virtual summit with Chinese Premier Li Keqiang from Brussels on June 22. Photo: EPA-EFE

David Brown

Published: 10:15pm, 27 Jul 2020Updated: 6:15am, 28 Jul 2020

Europe might think the coronavirus crisis is abating but the problems are still piling up for the EU. Global markets were hailing last week’s European Union agreement on a new €750 billion (US$878 billion) coronavirus recovery fund, financed by joint bonds, as a historic step towards closer integration and the emergence of Europe as a new superstate.

But it was really another case of the classic European fudge and desperate last-minute wrangling and, already, political cracks are beginning to appear.

Fiscally frugal EU nations like the Netherlands, Austria, Denmark and Sweden are griping about the burgeoning cost of reflation and the Dutch are complaining that they will end up as the ATM for Europe. Meanwhile, there seems little accord on how resources will be shared among the weaker member nations.

If it’s a question of spreading the jam very thinly, then the door is left wide open for future bailouts to bolster Europe’s tottering economy down the line.

The worry is that Brussels’ stimulus spending is running out of control. The amount of money earmarked for European recovery is huge, with scant regard for the consequences. Much of Europe is steeped in recession, inflation is close to zero and the coronavirus crisis is far from over. Economic demand remains dead in the water and the big issue is who will pick up the bill for reflation.

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EU ‘deplores’ China’s decision to enact national security law for Hong Kong

Down the road, it means bigger budget deficits, higher taxes and more bond-buying scheduled under the European Central Bank’s quantitative easing, or QE, scheme to pump more money into the economy.