FES BRIEFING THE EUROPEAN RECOVERY FUND: A SOLUTION TO UNITE EUROPE Andrea Boitani, Roberto Tamborini, Francesco Saraceno May 2020 BEYOND THE»COMPETITION UNION«? The EU was caught unprepared by the disaster of the Covid-19 pandemic. Less because it was unexpected – everyone is in the same boat – than because the EU, and the Economic and Monetary Union(EMU) in particular, has never developed eco­nomic policy tools at Community and supranational level at a scale and in nature sufficient to cope with a systemic crisis. Quite the opposite, this has turned out to be one of the great­est sticking points of those defending the current framework: a area of free exchange reinforced by certain primarily reg­ulatory supranational institutions within which sovereign(ist) states assert their economic policy prerogatives to the utmost and in mutual competition. The global changes that have emerged in the twenty-first century, and the threats linked to them, however, have made such a»competition union« frag­ile, unstable and unsustainable. The pandemic may further exacerbate these weaknesses. public debts as far as possible, and the second – prospective – goal is to deploy Community-level public finance instruments, without which it will be impossible to prevent the increasingly marked divergence between member states. After some harsh, inconclusive and low profile disagreements this approach did find its way, however precariously, onto the agenda of the European Council meeting of 23 April. This en­dorsed both the EC emergency package, noted above, and a proposal presented by France(with the backing of Italy, Spain, Portugal, Ireland, Belgium and, in due course, others) to set up a European Recovery Fund(ERF), grafted onto a reinforced EC budget and comprising funds raised on the financial markets. The Commission was tasked with setting out a legal and op­erational framework for these measures, which may amount to as much as 1500 billion euros, and on which member states will be able to draw in order to shore up and relaunch their economies. It will be discussed again in May, although the fund is unlikely to be operational before 2021. Despite this, the inertia of the status quo has once again demonstrated its stubbornness. The emergency injection of 540 billion euros proposed by the European Commission and, for EMU countries, the suspension of public spending limita­tions and the strengthening of»unconventional« monetary tools set out by the ECB, are a welcome improvement on the errors of the 2009–2012 crisis. The scale of the EU budgetary response, however, has remained largely a matter of individual countries’ spending capacity in deference to Bundesbank pres­ident Jens Weidman’s conviction that»the priority is to give aid. But an extension of shared liability would modify the na­ture of monetary union«(interview with la Repubblica – Affari & Finanza, 20 April 2020). FROM DISCORD TO A MORE AMBITIOUS APPROACH The political green light for the ERF dispels speculation con­cerning whether it will go ahead and shifts the focus to how. Many aspects remain to be worked out and there are still many hurdles to be cleared. Political constraints in many coun­tries(including Italy) will frustrate any wild flights of fancy on the subject of European budgets and shared jurisdiction. Nev­ertheless, the ERF could herald, however feebly, a paradigm change. To bring this about it must be designed in such a way as to be able to neutralise potentially irreparable fractures be­tween governments that favour the creation of a new Com­munity instrument of this sort and those that oppose it. A recent proposal that two of us published under the auspices of the FES Italy 1 is along similar lines. It is also very similar to the non-paper presented by Spanish Prime Minister Sanchez. Its advantage over the Spanish government’s proposal is that by keeping spending at the central level it would circumvent political objections to fiscal transfers. The idea is simple and, technical issues apart, resembles that of a cooperative fund. It is clear that a more ambitious approach is needed, target­ing two key objectives. The first – contingent – objective is to limit uncontrolled and uncoordinated growth in national 1. Boitani, Andrea; Tamborini, Roberto;»Eurobonds and European Citi­zenship«; FES Italy, Briefing, April 2020, http://library.fes.de/pdf-files/ bueros/rom/16779.pdf 1