Committee on Economic and Monetary Affairs (ECON)
#Sustainable future post-Corona: With 2 364.3 billion euros made available for Covid-19 economic relief, taking into account the different scenarios for economic recovery strategies, as well as the long term goals and priorities of the EU, should European Member States use the disruption caused to the economy by Covid-19 to restructure its economy in a more resilient, climate-friendly, and equitable way, and if so, how?
By: Joshua Kamer (NL) and Sarah Challoner (IE)
The topic at a glance
Due to the COVID-19 pandemic, the past year has changed not only Europe, but the world as a whole, in every way imaginable. The economy, as every other aspect of our lives, has been impacted drastically. The gross domestic product (GDP) of the European Union (EU) is projected to be impacted, on average, -6.44%. However it is important to note this can vary to great extents between different regions. In the second quarter of 2020 alone, 5.5 million jobs were lost in the EU labour market. This stands to greatly impact the population of Europe, with a predicted 5.9% decrease in disposable income for the average EU household if policies are not put in place to soften the economic blow of this pandemic. Not only is the EU now tasked with building the economy of Europe back up, it has been provided with a unique opportunity to reassemble it in a new and improved way.
To effectively mitigate the damage of the COVID-19 crisis, the European Council has adapted the Multiannual Financial Framework (MFF), their long-term financial budget, labelled as the recovery package that tackles the pandemic specifically. The MFF is split up into sections where €100 billion is dedicated for employees, ensuring they are not laid off immediately; €240 billion dedicated for governments, who can lend up to 2% of the GDP to spend on healthcare. The EU ought Member States to specifically focus on reducing deaths and infections hospitals’ ability to cope with a surge of infections and the capacity to test and quarantine new infections.
With millions of potential deaths to follow, the stakes have never been higher for the EU to act in solidarity with each other. Should and will all countries be helped equally? Should all Member States have a say in the spending of the package?
– Gross Domestic Product: the total value of goods and services produced in a country within a certain timeframe
– Bonds: small loans to countries or companies. The investor pays the loan, receives interest over a period of time (‘the maturity’), and at the end of that period the investor receives the initial loan back. The difference between a bond and a loan1 is that bonds are often given out at a fixed rate, which in turn means that the terms for bonds are not up for negotiation.
– Grant: a sum of money given by a government, company, organisation or other entity, that does not have to be paid back. In order to be received, often, receivers of grants often are required to meet certain conditions. Grants are often received in parts.
– Equitable Economy: essentially means that everyone is treated fairly and equally, and receives the specific resources and support that they require. An equitable economy is one that raises the living standard and opportunities for all, not just for a privileged few.
– COVID-19 package: refers to the sum of money reserved by the EU for supporting Member States in their handling of the COVID-19 crisis.
Measures already in place
NextGenerationEU (NGEU) is the European Commission’s economic recovery plan, created to help ease the impact of the pandemic on the economies of Member States, as well as working towards a “green, digital, social and more resilient EU.” The NGEU will be funded by the borrowing (buying of bonds) over the next 6 years. Bonds with maturities extending to 2058.
Multiannual Financial Framework (MFF) is theEU’s budget plan, which includes the NGEU and other expenditure. The long-term budget lasts from 2021 to 2027. The total recovery package will consist of €750 billion, of which €390 billion will be grants, and the other €360 billion will be loans in the form of bonds.
European Green Deal is an EU initiative that provides an action plan to create a more sustainable and circular economy2 within the EU, in keeping with the EU’s goal of achieving net-zero carbon emissions by 2050. The EU has identified the principles of the Green Deal as central to recovering the EU economy in a climate-friendly way.
Issues with the quality of the spending: terms and conditions
The president of the European Commission, Ursula von der Leyen, wants 30% of the combined NGEU and MFF to be devoted to climate action. However, several Member States, especially the Netherlands, want more control over the spending of the recovery package than the Commission. Dutch Prime Minister, Mark Rutte, even ensured that the package includes an “emergency brake”, meaning any Member State involved can object to another State’s usage of the money. This effectively grants veto rights to all Member States for the total recovery plan.
Hungary and Poland announced that they did not agree with the conditions of the NGEU and MFF, due to issues with the conditions of the loans and grants concerning the rule of law. Both countries had issues with the EU, where last April the European Court of Justice3 ruled that Hungary and Poland violated EU law by failing to fulfil their obligation to take in refugees. On the denial of the package by Poland and Hungary, German ambassador Michael Clauss warned that, if the financial package was not adopted quickly, the EU would face “serious crisis”. In September of this year, Poland and Hungary went as far as to say that they themselves wanted to set up a rule of law institute to keep check of all Member States regarding the rule of law, ensuring that they were fairly treated.
The European Parliament4 has already decided to sanction both countries on the grounds of article 7 of the Maastricht Treaty. This article grants power to the European Parliament to sanction a Member State when they do not comply with one of the core values of the EU, one of which is the rule of law.
Should the package of grants and loans be freely accessible to all Member States, or should the rule of law be a condition on which the package is contingent? The EU should consider what is currently more crucial: ensuring good short-term health care in the Member States, or ensuring long-term compliance of the Member States now that it has considerable leverage.
What is next?
The economy is already starting to take further steps towards finding a new commonplace . Industrial production rates within the EU are currently increasing and Member States along with the economies within them, will begin to open back up once they can, preventing further financial hardship. Therefore it is vital that efforts by the EU to use this opportunity to shape our newly-rebuilt economies into resilient, climate-friendly and equitable ones, come into play subsequently. Should Member States’ have a say in others’ spending of the recovery package? Is individual States’ sovereignty or Union-wide solidarity?
- Should the European Council make strict terms and conditions tied to the COVID-19 pandemic package?
- What should the EU’s priority be when it comes to the various aspects of economic recovery?
- What are the major issues that currently existed within the way Europe’s economy was structured?
- Having those issues in mind, what can the EU and its Member States do to tackle those issues and try to prevent them in the future?
Links for further research:
The Economy, Europa
Jobs and Economy During the Coronavirus Pandemic, European Commission
COVID-19: how to fix the economy,The Economist
Hungary and Poland block EU coronavirus recovery package, Politico
Why has COVID-19 hit different European Union economies so differently?, Bruegel
- A loan is a sum of money that is lent to another party in exchange for future repayment of the value over time, often plus interest. The terms of the loan are negotiated between the involved parties.
- Circular economy defines an economy which focuses on consumption of renewable resources. This system aims to minimize waste and pollution, keep materials in use and regenerate natural systems. This stands opposed to an economic model in which materials are extracted, produced, consumed and thrown out as waste.e
- The European Court of Justice is the highest court within the EU, and enforces EU law. The Court can hold the EU itself accountable, defines the application of EU law and answers questions concerning EU law from judges within Member States.
- The European Parliament supervises the work of the European Commission and other EU bodies. Moreover, it holds the legislative power to adopt or amend proposals for EU laws.