The proposal between France and Germany for an EU investment fund has presented a common approach to tackling the economic fallout of Covid-19.

A variegated group of economies and fiscal habits, as well as cultures, the European Union (EU) was born out of great hope but with inherited problems. Countries in the bloc are split into two camps: a more frugal, fiscally responsible group and the highly indebted rest, with both sides growing increasingly resentful of each other.

Every crisis has the potential to bring into sharp relief deep-seated issues, as was painfully evident during the eurozone crisis a decade ago. Acute emergencies can pull at a thread that fast unravels a frail fabric – but they can also lead to the strengthening of that fabric, sealing loose ends.

The importance of the May 18 agreement between Germany and France, on a fiscal solution to the coronavirus pandemic, cannot be overstated. By jointly supporting the creation of a €500bn fund to invest directly in EU countries rather than lending to them, the bloc’s two largest economies have taken a big step towards a much-needed common policy.

An EU breakthrough

This is a breakthrough proposal that required Paris and Berlin to iron out their own differences over the approach. Based on the agreement, the EU would tap capital markets on behalf of the whole group.

Governments have created important packages to contend with the devastating consequences of Covid-19 (which The Banker has judiciously tracked in its coronavirus response map), but national solutions inevitably add to national debt burdens. 

Arguably even more important, the lack of a fiscal European solution would point to the bloc’s ineffectiveness in times of crisis, when it matters the most. 

It would be naive to assume that the Franco-German proposal will receive the necessary unanimous approval by all 27 EU member states either quickly or smoothly. But this is important progress. Europe’s ‘make or break’ moment now has a better chance of leading to the former, rather than the latter. And this is positive.

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