Intro

There have been multiple debates and public outcries about the European Union’s (EU) slow response in dealing with the COVID-19 pandemic. In parallel, discussions focused on the skirmishes between Italy and the Netherlands, echoed the lasting scars of the recent Eurozone crisis, and simplistically framed as the new divide between the North and the South. Whilst such conflicts tended to dominate the news, there were several initiatives taken by the European Union in order to address the immediate and medium- and long-term effects of the current global health crisis. Until the end of April 2020, the European Union sought to mobilise through its different instruments and mechanisms around € 1.5 trillion. This is a substantial amount of money mobilised, in less than two months, to address the economic and healthcare related pressure of the pandemic. In addition, Brussels has adopted an escape clause that allows countries to breach the 3% national budget deficit rule (set under the Stability and Growth Pact), and adopted other measures such as easing State Aid rules and offering more flexibility in the use EU Structural Funds. An overview of the financial resources available (by end of April 2020) at the EU level is provided. This is followed by a discussion on the problematic aspects around the development and use of the current rescue package. Several conclusions are drawn whilst also pointing to the next envisioned steps for recovery.

What EU funds have been mobilised so far and where do they go?

The Annex below provides an overview of the financial resources raised so far by the EU and expected to tackle the healthcare and economic effects of the pandemic. In making sense of these resources, several points can be raised. Firstly, there are several types of resources mobilised reflecting the different approaches and mandates of EU institutions. For instance, two monetary policy measures have been adopted by the European Central Bank (ECB) – the Pandemic emergency purchase programme (PEPP) and the Asset Purchase Programme (APP). These amounts (approx. € 870 billion) represent more than half of the € 1.5 trillion examined here. They seek to mitigate risks to the Eurozone area and can be accessed under the form of asset purchases and securities, available until the end of 2020. In addition to this, there are several loans and guarantees (approx. € 242 to 248 billion) that will be offered to Small and Medium Sized Enterprises (SMEs) and Mid-Cap companies. These are guaranteed by Member States and the EU budget and are managed and overseen primarily by the European Investment Bank. In addition, another € 240 billion represent the funds that Eurozone member states further commit to the European Stability Mechanism (ESM), whereas another € 100 billion form the Support to mitigate unemployment risks in an Emergency (SURE), an instrument framed as an intra-European expression of solidarity.

Secondly, the remainder of the funds (approx. € 70.5 billion) are actual resources from the common European budget. Therefore, only 5% of the envisaged financial support for fighting COVID-19 are truly supranational in character and managed by the European Commission together with the Member States. Most of these resources follow the logic of the existing frameworks and regulations especially those regarding the European Structural and Investment Funds. It is against this background that the European Commission adopted the Coronavirus Response Investment Initiative (CRII) and the CRII+ initiatives. The initiatives provide additional support by making it easier to access the current available and remaining Structural Funds (2014-20). Nevertheless, a scandal erupted on the distribution of the CRII funds (€ 37 billion) and of the remaining Structural Funds for 2014-2020 (€ 28 billion). Several analysts criticised the Commission for giving more money to Poland and Hungary than to the hard-hit Italy and Spain. Nevertheless, what these analysts failed to understand was that these funds adhered strictly to the Cohesion Policy development logic and its formulas for distribution and the existing available resources unspent by each country, in relation to what was originally established for the 2014-20 period.

Thirdly, in terms of distribution and as counter-argument to the criticisms on the distribution of CRII funds, it seems that most of the European rescue package adopted seems to focus on the Euro area members. This is partly warranted given the size and the overall significance of the economies of Germany, France, Italy and Spain for the EU as a whole. However, this may mean that non-Euro member states, particularly those from Central and Eastern Europe, might benefit less from the long-term distribution and European financial efforts against the effects of the coronavirus crisis.

Finally, based on the evidence gathered in the Annex below, it can be said that a substantial amount of the funds will be spent on healthcare and on economic recovery. In terms of who actually gets this money - national governments, banks and SMEs - seem to be among the biggest final beneficiaries. Of course, national governments will themselves finance the needs of health personnel and other workers affected by the pandemic. It also must be noted that most of the financial resources are yet to be operational or disbursed, with few exceptions such as the funding for the EU Civil Protection mechanism (rescEU) and the Emergency Support Instrument (ESI) (approx. € 3.1 billion). When compiling and describing the structure of these resources, several problematic issues have been identified.

Problematic aspects regarding the EU funds used against COVID-19

Brussels has faced considerable criticism on the timeliness of its response. This was in spite of its limited competences for coordinating public health crises. Equally, it could be argued that the EU has fallen victim to scapegoating and politicisation of the crisis coming from Member States. Despite all this, other critical points can be made about the rescue funds mobilised and the EU’s role in the process.

Primarily, European institutions and national governments have presented information about these financial resources in a highly fragmented and confusing manner. In other words, it is not simple to obtain a global and coherent overview about these resources. This tends to reflect the overall institutional and procedural complexity of the European Union, including potential inter-institutional clashes for power and legitimacy. At the same time, the debate on the recovery has been highly politicised in Member States. As much as the European Commission would have liked to be seen as a coordinator and manager of many of these funds, the European Council has mostly been in the limelight, reflecting its increasing institutional weight, since the Lisbon Treaty was enacted a decade ago. Furthermore, the technocratic approach adopted towards launching and disbursing these funds, described by unintelligible and sophisticated acronyms, overshadowed the need for more political empathy, and a much-needed language of solidarity throughout this period. Lastly, the EU legislative and policy process was rather slow and arguably ill equipped in responding to emergencies.

Secondly, the coronavirus triggered an unprecedented crisis for the EU. Not only did it bring back memories of the Eurozone struggles, but it also re-enacted the core-periphery divisions of the time, with framings of the “frugal” North and the “lazy” South re-emerging. At the same time, new East-West divisions seem to arise. Based on the distribution of the EU funds against COVID-19, it wrongly seemed that Central and Eastern European countries (CEECs) benefiting more from the immediate emergency funding, in particular the CRII funding of the EU Commission. As explained above these followed the logic of Structural Funds which accounts for the differences in distribution between countries. Nevertheless, on a medium- and long-term basis, the monetary policy of the European Central Bank (via the PEPP and APP instruments) will target economic revival mainly in the Euro area. This may prove highly disadvantageous for those CEECs that have not yet adhered to the Eurozone, and might lock-in current advances in terms of socio-economic convergence made so far by countries in the area. At the same time, this could provide more ammunition to the illiberal elites in CEECs that might increase further resentment towards the EU.

Thirdly, a highly financialised logic seems to be behind much of the current proposed aid. For instance, the Pan-European guarantee fund - loans for SMEs (€ 200 billion) and the Guarantees for SMEs and mid-cap support (€ 40 billion) are based on the logic of the increasingly influential financial instruments. Once again, this may be prove problematic given the existent debate between countries on the benefits of grants vs loans/guarantees. At the same time, the important role of the European Central Bank (ECB) and of the European Investment Bank (EIB) group in the rescue package may raise questions about the economic reasoning advanced by these institutions, as well as, how accountable they are vis-à-vis the European public. Moreover, many of the above presented funds do not really exist in physical terms. They are based on a logic of security and asset purchasing from Member States (by the ECB) and on the idea of trying to incentivise the banking and the private sector to support loans for the relief. This also follows the logic of a multiplier effect and it uncertain at this stage if these investments can actually be raised.

Lastly, questions remain about the institutional and administrative capacity of both European and national institutions in managing and quickly disbursing this funding for those in need. Indeed, the EU Commission has simplified and made rules more flexible for the current Multi-Annual Financial Framework (MFF) 2014-2020. Nevertheless, the administrative capacity of local level bodies and the coordination abilities of Brussels will be put to the test in the disbursement and absorption of many of the funds that make up this rescue package. The same administrative capacity issues might affect the implementation of the upcoming European budget / MFF 2021-2017 that is expected to double in size (approx. € 2-2.5 trillion).

Conclusions, next steps and open questions

At the latest European Council, on the 23^rd of April 2020, EU heads of state and government agreed on a new recovery plan. In the next few months, the Commission could incorporate parts of the current € 1.5 trillion rescue package in the post-2020 European budget. Therefore, the size of the European rescue package is still under development. Nevertheless, questions remain about the obstacles discussed above. For instance, using the EU budget as one of the main instruments to finance the fight against the economic and social impact of COVID-19, in the upcoming years, warrants a separate discussion, specifically on whether or not the logic and design of the MFF are fit for purpose.  

Overall, up to the end of April 2020, the EU managed to mobilise a significant amount of EU funds, a rescue attempt overshadowed by conflicts between European countries. However, design and presentation issues have marred the current EU rescue package. Both EU institutions and Member States faced several communication, financial and politico-administrative obstacles, often of their own making, when developing a financial aid package to tackle the crisis. In part, this might explain why so many members of the European public are still be sceptical or have a negative attitude towards the EU’s and its response towards the coronavirus crisis.

Annex

European Union funds mobilised against COVID-19 (end of April 2020) 

Sources: Author’s compilation based on:

European Council / Council of the EU - https://www.consilium.europa.eu/en/policies/covid-19-coronavirus-outbreak-and-the-eu-s-response/ (Accessed 29 April 2020)

European Commission – https://ec.europa.eu/regional_policy/en/newsroom/coronavirus-response/ (Accessed 29 April 2020)

European Central Bank sources (Accessed 29 April 2020) https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312~f857a21b6c.en.html (APP)

https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html (PEPP)

European Investment Bank - https://www.eib.org/en/press/all/2020-086-eib-group-will-rapidly-mobilise-eur-40-billion-to-fight-crisis-caused-by-covid-19 (Accessed 29 April 2020)

European Investment Fund - https://www.eif.org/what_we_do/covid-19-response/index.htm (Accessed 29 April 2020)

European Parliament - https://www.europarl.europa.eu/news/en/press-room/20200415IPR77111/covid-19-stepping-up-eu-s-response-to-alleviate-the-effects-of-the-crisis (Accessed 29 April 2020)