EUSTT

How is the EU financially facing the corona-crisis?

The process of reaching an agreement that can change Europe’s path as a Union

Maria Delgado i Garcia, November 11. 2021

Economics – Social Sciences

With the outbreak of coronavirus in Europe, in March 2020, the European Union (EU) immediately took some actions to reallocate resources to face this multi-crisis. In the first weeks, the EU launched two packages of measures –the Coronavirus Response Investment Initiative (CRII) and the Coronavirus Response Investment Initiative Plus (CRII+)– to mobilize unspent resources from EU funds, reallocate part of the 2020 budget and be more flexible with the allocation of resources (European Commission, 2020a). All those were taken with the purpose of supporting the most needed policies: reinforcement of the healthcare system, development of research to find a treatment to the illness, and protection of jobs and businesses, extremely affected with the lockdown.

However, as days went by and the negative consequences of the pandemic were more visible, in May 2020 the European Commission (EC) presented an initial proposal for a Recovery Plan, which included a shift towards a more sustainable and competitive economic model (European Commission, 2020b). In an extraordinary meeting held in July 2020, the European Council, composed of the Heads of State or Prime Ministers of each member state, debated on the Commission’s first proposal. Among others, at this point, it included the “emergency clause”, which means that any member state could ask to stop the disbursement if it considers there are some program breaches (European Council, 2021). By November, the Council and the European Parliament reached a political agreement that added to the debate the conditionality of the rule of law in order to have access to the extraordinary funds. Finally, at its December meeting, the Council adopted the decisions that allowed EU institutions to finalize the procedures and put into practice the recovery packages (European Parliament, 2020).

After months of intensive negotiations, it came up with an unprecedented investment plan: the NextGenerationEU (NGEU). It includes a budget of €750 billion which will be transferred to the member states in the form of grants or loans that countries will have to allocate filling the following criteria: at least 37% to the European Green Deal and 20% to digitalization policies (European Commission, 2021b). Before receiving their respective amounts of money, member states must present to the European Commission their respective Recovery Plans in which they have to include the objectives of the recovery and a group of indicators to monitor the accomplishment of the goals (Darvas, 2020). Disbursement will be made progressively in the following years according to such goal achievement.

Despite all that, the most extraordinary thing about this recovery program is not its magnitude but the way in which resources will be obtained. For the first time, the European Commission will go to the markets to ask for funding, and will return the acquired debt through its own resources, which will be obtained through a series of taxes, such as the use of plastic or pollution, that are planned to enter into functioning by 2023 (European Commission, 2021a). T​his is only one of the possible implications of the program, as many economists have pointed out that the decision on their own resources could represent an important breakthrough in the fiscal integration of the Union. At this moment, the EU is an incomplete union because member states have a common monetary policy but it lacks a common fiscal policy. Therefore, the issuing of common debt by the EC has been seen as a possible integration fact, and some economists have named it as the EU’s Smithsonian moment, trying to emulate the creation of the United States fiscal union (Kaetsky, 2020).

It will still take some time to see the implications of the current situation for the future of the EU, but not so much to see the first investments in the member states.

Disclaimer: The views, information and opinions in the written publications are the authors’ own and do not necessarily reflect those shared by the Eutopia Student Think Tank (EUSTT) nor the EUTOPIA Alliance.

 

Darvas, Z. (2020). Next Generation EU payments across countries and years. Retrieved from: https://www.bruegel.org/2020/11/next-generation-eu-payments-across-countries-and-years/

European Commission. (2020a). Cohesion policy action against coronavirus. Retrieved from: https://ec.europa.eu/regional_policy/en/newsroom/coronavirus-response/

European Commission. (2020b). Europe's moment: Repair and prepare for the next generation. Retrieved from: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940

European Commission. (2020c). Recovery plan for Europe. Retrieved from: https://ec.europa.eu/info/strategy/recovery-plan-europe_en

European Commission. (2021a). NextGenerationEU. Retrieved from: https://ec.europa.eu/info/strategy/eu-budget/eu-borrower-investor-relations/nextgenerationeu_en 

European Commission. (2021b). A European Green Deal. Retrieved from: https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en 

European Council. (2021). A recovery plan for Europe. Retrieved from: https://www.consilium.europa.eu/en/policies/eu-recovery-plan/

European Parliament. (2020). Next Generation EU. A European instrument to counter the impact of the coronavirus pandemic. Retrieved from: https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/652000/EPRS_BRI%282020%29652000_EN.pdf 

Kaletsky, A. (2020). Europe’s Hamiltonian Moment. Project Syndicate. Retrieved from: https://www.project-syndicate.org/commentary/french-german-european-recovery-plan-proposal-by-anatole-kaletsky-2020-05?barrier=accesspaylog

Maria Delgado i Garcia

EUSTT Founder and Editor-in-Chief. She has studied a bachelor in Economics and a bachelor in Political Sciences at Universitat Pompeu Fabra. Currently studying a Master in Political Sciences at Uppsala University.