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"In the EU, you Get Nothing for Nothing"

"In the EU, you Get Nothing for Nothing"

The topic was as hot as the temperatures on 15 July, when Brigid Laffan, Emeritus Professor at the European University Institute, gave her well-attended lecture on "Public Finance, Crises and EU Integration" in the framework of the Max Planck Hub Fiscal and Social State in Munich.

Prof. Brigid Laffan with Prof. Wolfgang Schön (left), Director at the Max Planck Institute for Tax Law and Public Finance, and Prof. Ulrich Becker, Director at the Max Planck Institute for Social Law and Social Policy.

Prof. Brigid Laffan traces the evolvement of the EU's Fiscal and Financial Capacity. A much-awarded expert in European integration, she drew a complete picture of the critical role that public finances played in the integration process of the EU and notably how the EU fiscal and financial capacity has increased from the early 1950s to date.

Prof. Laffan identified three critical junctures in this process, which she divided into four phases: The first juncture in phase 1 (19521991) was the establishment of a single market with the Single European Act adopted in 1986. This time of treaty-making was accompanied by big distributional bargains. As Prof. Laffan pointed out: "In the EU, you get nothing for nothing". The period was also marked by efforts to end a budgetary conflict that "was sapping the EU", with particularly the UK and the European Parliament constantly opposing the budget. Consequently, in 1988, the first multiannual financial framework was adopted and brought some stability to EU finances.

"The honeymoon period of the single currency", as Prof. Laffan put it, fell into the second phase (19922009), during which the Economic and Monetary was implemented. Already then, it must have been clear that deepened interdependence would bring vulnerability. Yet, this was not acknowledged, even though the 1988 Delors report warned that the economic union would face grave economic and political risks if sufficient consideration would not be given to regional imbalances.

The second critical juncture happened in phase 3 (20092019), "a decade of crisis", in which, fuelled by shortcomings of the banking system, the weaknesses in the design and architecture of the Eurozone became all too apparent. The Eurozone crisis sparked massive financial assistance programmes, all extra-budgetary solutions, notably the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM), which were replaced by the European Stability Mechanism (ESM).

The ESM, however, was not used at juncture 3: the COVID-19 pandemic. Instead, the heads of states endorsed the programme Next Generation EU (NGEU), of which the Recovery and Resilience Facility (RRF) is the centrepiece. With the latter, they had broken with the "borrowing taboo", as Prof. Laffan pointed out. In the face of the emergency, large-scale shared borrowing was now a policy option. However, if the evaluation of the RRF, which will be carried out after the Fund expires at the end of 2026, concludes that it was a less successful instrument, "it may discredit the fiscal integration".
More billions are currently invested by the EU in phase 4, which Prof. Laffan named "climate and war". The European Peace Facility alone comprises more than 17 billions for the years 20212027, again off-budget.

In sum, the succession of crises that beset the EU from 2009 onwards, particularly the Eurozone crisis, the pandemic and the war in Ukraine, generated an array of financial instruments and new funds. Public finance has become a critical part of the EU's crisis tool kit. Nevertheless, the role of public finance in integration remains heavily contested, as Member States seek to keep their sovereignty. However, they "have to confront the nature of deep interdependence", Prof. Laffan stated. In the end, "being a Member State means to submit to a collective enterprise".

 

 

 

July 2024