When Germany took over the presidency of the Council of the European Union from Croatia, the rest of the EU Member States welcomed it with a kind of relief. After the first wave of the COVID-19 pandemic in the spring of 2020, Europe found itself on the brink of a deep economic crisis. The EU capacities were occupied with other burning issues: post-COVID economic recovery, negotiations of the next Multiannual Financial Framework (MFF), the climate crisis, the ongoing Brexit negotiations, and the need for a new pact on migration. Germany’s takeover was seen as good luck during a European misfortune, as the country well known for its negotiation skills and experienced diplomats is also the EU’s economic powerhouse.
Economic recovery: What is beneficial for Germany is beneficial for Czechia
The chaotic waves of unilateral measures adopted by the Member States during the pandemic’s spring wave proved the vulnerability of the EU. However, the Member States also realised that no single country can overcome the crisis alone. More solidarity and cooperation are needed, not only to keep European integration functional, but also pragmatically, in order not to weaken the common market. German politicians are fully aware their country cannot prosper without the prosperity of all of Europe – which is crucially important also for Czechia, whose export-focused economy is strongly linked to the German one.
Czechia, therefore, expects the German presidency to successfully complete the negotiations on the 2021-2027 MFF and Recovery Fund as soon as possible and to find a way out of the current deadlock.
Although Czech Prime Minister Babiš was one of the most vocal opponents of the Recovery Fund’s allocation criteria, he has managed to push through all his demands, partially thanks to his negotiations with Merkel. In the end she supported even the strongest Czech requirement - to change the originally proposed allocation criteria so they would not rely solely on figures of past unemployment but would take more into account the real effects of COVID-19 on economies. Within the MFF, Babiš succeeded in enforcing his requirement to maintain the current level of funding for the cohesion funds and managed to negotiate 101,6 billion CZK (cca 3,8 billion EUR) more than originally expected. Czechia therefore awaits the final negotiation results necessary to start drawing funds with much anticipation.
To keep Czech trade competitive and growing, four other pillars of support are needed, as stated by Czech Minister of Industry and Trade Havlíček – employment support, loan guarantees, investment support, and ensuring that science, research and innovation get sufficient funding. To implement these measures, European funds could provide important support as well. However, some of the proposed funds (e.g., for research and innovation) were significantly downsized at the July European Council summit. Although negotiations between the German presidency and the European Parliament increased those funds again slightly, the result was criticised as unambitious.
Rule of law – Czechia does not support the position of its Visegrad partners
One of the most closely watched parts of the budgetary negotiations remains the principle of linking the rule of law to drawing from the European budget – over which Poland and Hungary are currently blocking the entire EU agreement on the historic 1.82 trillion EUR budget and coronavirus recovery package.
So far, the presidency has not managed to get out of this conundrum - on the one hand, it is criticized by the European Parliament for not being strict enough and for softening the original Commission proposal, while on the other hand two states are blocking the budget negotiations and blackmailing the entire Union over them.
To a certain extent, this deadlock results from the July summit, where EU leaders agreed on the rule of law mechanism very vaguely. The finalisation and concretisation of the agreement was left in the hands of the German presidency. After reaching an agreement with the European Parliament on a more specific German compromise, the representative of the presidency seemed confident that he had sufficient support for this proposal. However, Hungary and Poland blocked the entire carefully-negotiated budget over that provision a few days later. Chancellor Merkel even tries to persuade Victor Orbán and Mateusz Morawiecki personally, but the result remains unclear.
Despite the strong political relevance of this topic to the future direction of the European Union and also to the trust of EU citizens in the European project, Czechia does not hold a strong position on it. According to the Kantar survey from autumn 2020, Czechs are even the least likely in the EU to support the rule of law mechanism. Prague was satisfied with its achievements during the July summit and did not follow the position of its other Visegrad partners. This is an important moment to remember – although the Visegrad countries are often perceived as a monolithic group, their cooperation and mutual support is pragmatic and varies from topic to topic. Czechia could use this position and its strong partnership with Germany to provide Germany with a V4 perspective - and vice versa.
Climate policy as a chance for European industry
A swift breaking of this deadlock and the reaching of an agreement on the MFF and the Recovery Fund is essential not only for the recovery of the European economy, but also for tackling the climate crisis. Germany announced that it intends to actively promote a rapid shift to an environmentally-responsible economy and that the EU budget should be a key element of such transition. Czechia expects – and loudly requires – a greater increase in funding to support its carbon transformation. Particularly for the Czech coal regions, it is also important to successfully finish the Just Transition Fund (JTF) negotiations, even though the fund’s size has been cut during the negotiation process.
Although at least 30 % of both the MFF and the Recovery Fund should be used for tackling the climate crisis, it is not yet clear how this will be guaranteed and whether the states will not misuse these funds for other purposes. For example, the first Czech recovery plan presented to the European Commission in October was heavily criticised, not just by the opposition, but also by members of Babiš’ own Government. The document can be seen as an attempt to use European “green” money for even greater investment into the construction of infrastructure for personal vehicles, since as a priority in this area it indicates "completion of the core network of highways, roads, railways (including high-speed) and waterways by 2030", without a clear emphasis on strategic quality improvements in transport.
Digitalisation – a future opportunity for the Czech Republic
Chancellor Merkel has repeatedly mentioned a greener European industry as a source of the continent's future prosperity. The German effort in this field goes hand in hand with their greater emphasis on the digital economy and innovation. The German economy is based on energy-intensive industries, just like the Czech one. However, Berlin is actively looking for new, progressive ways to solve this challenge. For example, the German Government adopted a hydrogen strategy and is looking for ways to help its industry with decarbonisation or with reducing transport emissions. Such promotion of modernisation and progressive approaches could be an inspiration for Czechia as well.
In addition to the emphasis on innovation, another priority of the German presidency is digitalization of the economy and society. The EU even plans to invest 20% of the Next Generation EU's budget into this. Nevertheless, digitalization also has numerous negative socio-economic impacts (job losses, the growing power of digital platforms, impacts on individuals, and various gender-based impacts of digitization). The German presidency, as well as the Commission and the upcoming presidencies, should not ignore this and should present viable, concrete plans for how to tackle these emerging challenges.
For Czechia, the emphasis on digitalization opens up a big opportunity. The Czech Government has taken a long-term interest in this topic and has an ambition to become a leader in the field of artificial intelligence. The EU’s digital single market is one of the Government's priorities, and it also plans to further support research and development in this area to build a European Centre of Excellence for Artificial Intelligence, or a Centre for Digital Innovation. However, as the Czech economy currently depends on manufacturing to a large extent, it will need support with its transition to the digital economy and with approaching the related socio-economic challenges. Cooperation with the European Commission will be crucial for Prague on all of these topics, as well as harmonizing Czech priorities with the upcoming presidencies.
COVID-19: A driver of European integration?
Despite high expectations from the German presidency, many of the most burning European issues – e.g., reaching agreement on the next EU budget or a realistic path to EU carbon neutrality in 2050 – remain unsolved, and the negotiators have less and less time to reach those agreements by the end of this year.
However, the German presidency has succeeded in managing and improving the common European response to the COVID-19 crisis, which illustrates a significant change in the EU Member States’ attitudes towards cooperation. At the instigation of Chancellor Merkel, EU leaders have, for example, begun to meet regularly via video conferences to coordinate common measures, a strong shift away from the springtime’s chaotic approach. The Member States are now willing to make compromises that would not have been possible before because every state can imagine the consequences of a failure to agree.
In the spring, for example, Babiš criticised Italy, the EU and Germany for not coping with the pandemic, but the autumn developments made him change his opinion and cooperate with other states in a more constructive way. When the Czech authorities feared the collapse of the country's health system, Germany promised to treat some of their COVID patients and provided Czechia with 100 ventilators. This was reported widely by the Czech media, and the view of Germany has transformed accordingly. It is now seen as a stable, reliable partner helping its neighbours in a time of crisis.
The principles of the German approach to coping with COVID-19 established by Chancellor Merkel even before the presidency – strong cooperation, unity, and mutual solidarity – paved the way for closer European cooperation. As a result, the EU can also become a strong global player promoting the principles of multilateral cooperation. Czechia should keep its eyes open and take advantage of the opportunities the German presidency is helping to enforce.