Even though the frugal five managed to reduce the initial proposal of direct grants from €500 billion to €390 billion within the recovery package comprising a total of €750 billion, fears of mutualizing liabilities eventually leading to a transfer union have entered the policy arena again. Notwithstanding the great success of striking such a difficult, costly, and controversial agreement, clearly the European Union did not experience its “Hamiltonian Moment.” In contrast to the popular view (especially in Germany) that Europe is moving towards an economic United Nations of Europe with complete fiscal integration and debt mutualization, the EU recovery fund mobilizes common resources to tackle a common threat: the pandemic that affects all member states. The fund is, however, a step towards a more cohesive European community. It creates an instrument that can address important structural changes such as digitalization and climate change.

More importantly, it signals Europe’s willingness to act decisively and in a comprehensive manner. The political concordance is furthermore going to positively backstop expectations of firms and consumers, stabilize financial markets, and hence significantly support the economic recovery process. Whereas pledged payments will only become effective in the following years and thus do not represent an immediate stimulus package to deal with the current economic recession, the fund builds up new European investment gunpowder supporting sustainable growth in the future.

Member states unanimously agreed on the necessity of common debt issuance for the EU recovery. The main debate rather touched upon concerns about the refinancing of mutualized debt. Namely, would recipients of the funding need to repay their debt individually, or should member states design common tools to refinance liabilities? In the former case, creditor countries would only benefit through lower interest rates and an initial grace period. Finally, member states agreed on refinancing the recovery fund mutually through future EU budgets, however, without mutualizing liabilities as would be the case in a transfer union. In contrast to far-reaching prejudices against countries such as Italy benefiting from a commonly refinanced recovery plan, it needs to be acknowledged that even Italy is a net payer to the EU budget with only slightly lower net payments than France in 2018. Hence, the country is going to actively participate in the recovery program’s funding—particularly as it seems highly uncertain that the European Union will come up with its own new revenue sources. Finally, a paradigm shift towards a transfer union—a familiar claim—has never been the goal. The agreed financing rules are appropriate and involve checks and balances: the funding will be issued in installments and controlled by the Commission and finance ministers of the member states. In fact, for the first time, criteria concerning the rule of law have been introduced. Hence, recipients of the funding will need to immerse themselves in the European political arena. Since 70 percent of the transfer payments are not directly related to the corona crisis, essentially a second EU budget is created that is financed by credit, not taxes. This reveals the main challenge: Will Europe develop enough discipline to employ the newly created funding for collaborative investment projects and create visible added value for Europe? The future for an investment union is paved. It’s up to the European Union to handle it with care.