The Eurozone’s economy is slowing mainly as a result of political risks, Eurogroup President Mario Centeno told reporters on February 11, saying, “We know there is a temporary slowdown in our economies. We also know that most of the risks, as the Commission pointed out, are political, which is a call for us politicians to act.”

However, a wider discussion on how to move forward amid the crisis reopened, gravitating around the negotiations of the Eurozone’s budget. “.. We had a first dedicated exchange of views on the budgetary instrument for convergence and competitiveness,” Centeno said, adding that the key features of the budget will be negotiated by June.

The plan for a Eurozone budget is back on the table, with France championing a proper fiscal instrument while net contributors are seeking a modest fund that can be used for an EU-wide infrastructural investment.

A final agreement on the nature of the European Monetary Union (EMU) and its budget is unlikely to come before the European elections in May. However, the debate on the size, function, and sources of “the budget” may be at the heart of a political negotiation that goes well beyond May.

French President Emmanuel Macron sees the common pooling of money as playing a politically significant role in forging political cohesion. The Netherlands and Germany, the discussion about a common approach seem toxic as they are keen to avoid the impression that this would be an instrument for the redistribution of wealth from rich to poor members of the Eurozone.

Any decision will require a consensus, which under the present conditions is hard to achieve. In December, the Eurogroup decided that the new fund should foster “convergence and competitiveness,” a language that leaves all options open in terms of what it could be used for and how it will be funded.

Clearly, the Eurozone’s “budget” or “fund” cannot duplicate the work already covered by the European Commissions’ budget. A report by the Delors Institute recommends that the fund is dedicated to boosting productivity and helping “synchronise business cycles” across the Eurozone. Business cycle synchronisation could mean a variety of measures ranging from redistribution of infrastructural development.

Another question is how the budget will be funded with France championing a single corporate taxation revenue stream. This is a non-starter for countries whose economic model is largely founded on competitive tax regimes.

France is trying to broker an agreement that will combine fiscal consolidation with systemic intervention. This debate started in 2017 when the Eurozone was on a growth trajectory.  The threat of a new downturn for the economy makes the debate more difficult, but also more urgent.