MICHAEL HUTHER: Director, German Economic Institute.

In a negotiation marathon, the EU member states unanimously passed the largest budget and financial package in the Union's history. For the first time, the European community pledged to take up common debt by issuing bonds to finance their EU recovery plan. Even though the frugal five managed to reduce the initial proposal of direct grants from [euro]500 billion to [euro]390 billion within the recovery package comprising a total of [euro]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...