The agreement at the European Council summit on a €750 billion package to deal with the Covid-19 economic crisis and a new seven-year budget is, first of all, a relief. Whether it is a step towards economic integration or a once-off move to deal with an extraordinary crisis will be long debated. But it was vital that agreement was reached , even if it took a fractious, long and difficult summit to do so .
To date, the EU- level economic response to the economic risks posed by Covid-19 has been left almost entirely in the hands of the European Central Bank (ECB), which has engaged in a massive monetary stimulus. It was essential that this be accompanied by budgetary measures . Now this will happen.
True, the scale of the response was reduced in the negotiations, as a group of Northern EU countries – the so-called Frugal Four, comprising Austria, Denmark, the Netherlands and Sweden – objected. But a substantial package was still agreed and will be funded by commonly guaranteed borrowings. This is an unprecedented step, appropriate to address an unprecedented crisis.
The package will provide some budgetary support to the countries worst affected in southern Europe. It is an important message of political solidarity. Combined with the ECB actions, it is a credible package of support, albeit that none of us know how this crisis will play out in the months ahead. Europe's economy is crucially reliant on its success in virus control and, in time, perhaps, the availability of a vaccine or better treatments.
Ireland will receive an initial allocation of around €1.3 billion from the main new recovery fund in 2021 and 2022 – and more in 2023 under a new allocation mechanism. This is a modest enough figure, but the addition of a further sum – as yet unspecified – from a new €5 billion fund to support countries hit by Brexit improves Ireland's take. The country may also apply for support from other new funding sources.
As a richer member state, Ireland is likely in the long term to face higher EU budget contributions to help repay the borrowings , though there is significant uncertainty about how this will work out. Much will depend on whether new revenue-raising measures are agreed at EU level to help with repayments.
The deal was important to Ireland because of its reliance on EU export markets and and on confidence and stability in the euro zone. The budget package will lessen any nervousness about EU infighting or the future of ECB support – vital factors for Ireland.
It is certainly a landmark agreement for the EU. It is possible to argue both that it points to more economic integration and also highlights the difficulties of achieving it. Many questions lie ahead for Europe and for Ireland. Enough, for now, that this deal was done.