Merkel Urges EU to Rise to the Biggest Challenge in Its History

(Bloomberg) -- Chancellor Angela Merkel urged the European Union to forge a common path to confront what she called the biggest challenge in its history, calling on member states to reach agreement on an ambitious recovery plan this summer.

On her first trip outside Germany since Europe went into lockdown in March to contain the coronavirus, Merkel told EU lawmakers in Brussels that member states not only need to overcome the economic fallout but establish a united bloc outfitted for the future challenges of climate change and the digital economy.

“Europe will emerge stronger after the crisis if we strengthen the common spirit,” Merkel told the European Parliament Wednesday as Germany assumes the six-month rotating EU presidency. “Nobody makes it through this crisis alone. We are all vulnerable.”

The comments pile pressure on member states, including the Netherlands and Sweden, who have resisted the scale of a proposed 750 billion-euro ($845 billion) recovery fund financed from joint borrowing. Skeptical governments have questioned the unprecedented plan -- to be discussed at a summit on July 17 -- as too costly.

Compromise Needed

Merkel said an agreement must be reached soon, but doing so “will require a lot of compromise from all sides.” That implies movement from Germany, as the chancellor lauded the European Commission’s proposal for including an initial of 500 billion-euro plan put forward by Germany and France.

“The depth of the economic fallout calls on us to move quickly,” she said, adding that Germany is prepared to do its part -- and that more vulnerable regions of Europe must be shown solidarity. “We have no time to lose.”

Beyond the economic damage, the pandemic cut to the core of the EU, forcing the suspension of free movement, one of the its most cherished principles of the world’s largest trading bloc. Merkel noted her own history growing up in communist Eastern Germany in relaying the difficult decision to suspend personal rights.

Alongside the recovery fund, Europe is also wrestling with its next multi-year budget. The combination gives Brussels significant leverage to wield over member states, especially in countries like Hungary and Poland where democratic standards are eroding.

Ursula von der Leyen, the president of the commission and Merkel’s former defense minister, doubled down on the call for solidarity but noted that spending would come with strings attached.

“Investment is linked to reforms based on existing country-specific recommendations,” she said, speaking directly after Merkel. “Each and every member state has work to do. If we want to come out stronger from the crisis, we must all change for the better.”

Conte’s Warning

Italian Prime Minister Giuseppe Conte, who this week proposed a massive public investment program after his country was battered by the virus earlier this year, said the EU’s single market was at stake if the region’s leaders didn’t meet the challenge.

“Imagine what would it mean not to pursue a strong and coordinated European response -- the single market would be destroyed,” Conte said Wednesday in Madrid for talks with his Spanish counterpart, Pedro Sanchez.

As Merkel takes the reins in Europe, the long-time German leader has been blunt about the scope of Europe’s economic fallout and the need to tame the pandemic, even as the EU wrestles with geopolitical convulsions between an emerging Chinese superpower and a U.S. that’s retrenching under President Donald Trump.

Europe’s challenge from the coronavirus was laid bare this week, as the commission forecast an 8.7% contraction this year for the nations that share the euro, a full percentage point worse than previously predicted.

‘Greatest Test’

Risks remain “exceptionally high and mainly to the downside,” the EU’s executive arm said, with divergences between richer and poorer countries opening up even further than projected two months ago.

Alongside the wrangling over the recovery fund, Merkel bemoaned the lack of progress in talks with the U.K. over a deal over the future relationship between the two sides. She reiterated that the EU needed to prepare for the possibility that no Brexit agreement can be reached.

“The tasks ahead of us are enormous and will require a huge effort,” Merkel said.

©2020 Bloomberg L.P.