Sharing the fiscal burden of the crisis: A Pandemic Solidarity Instrument for the EU. Bertelsmann Stiftung Policy Paper April 2020.

Grund, Sebastian and Guttenberg, Lucas and Odendahl, Christian (2020) Sharing the fiscal burden of the crisis: A Pandemic Solidarity Instrument for the EU. Bertelsmann Stiftung Policy Paper April 2020. [Policy Paper]

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Abstract

The debate over how Europe should cope with the fiscal costs of the COVID-19 pan- demic is in full swing. Adversaries and opponents of “Coronabonds” seem suddenly back in the trenches of the euro crisis. Our proposal attempts to build a bridge bet- ween the two camps: We do not propose a full-on Eurobond or any mutualisation of existing debt, as this is not how we should overcome the unique challenges of this crisis. Instead, we propose a Pandemic Solidarity Instrument that is tailored speci- fically to this crisis. The EU does not need another layer of market-access insurance, as the European Central Bank and the European Stability Mechanism are already in place for this. What it needs is an instrument to share the costs of the crisis. The main problem the EU faces now is that some member states have entered this crisis in a much weaker economic position and with higher debt levels than others. At the same time, all countries have a vital interest in all other countries being able to spend as much as necessary to fight the economic fallout of the pandemic. To ensure that this happens, we need a burden sharing of the fiscal costs of this crisis. The Pandemic Solidarity Instrument delivers this burden sharing. It should be set up as an EU instrument: The EU would borrow 440 billion euros in the market, ba- cked by the EU budget and by guarantees of the member states. As this would be EU debt, it would not count as debt of individual member states. The bonds issued by the EU would have long maturities and could be refinanced in the market at the end of their terms; otherwise, they would be repaid once they come due according to the future state of economic strength of member states. The funds would be used for four purposes: • Grants to member states to partially cover health-related costs; • Guarantees to the European Investment Bank to provide liquidity to European companies; • Subsidies to member states so that they can fund short-time work schemes and short-term unemployment benefits; • Co-financing of national stimulus packages once confinement measures have been lifted. The Instrument would be based on Article 122 of the Treaty on the Functioning of the European Union. This article gives the EU wide discretion to act in emergency situations. In our legal analysis, we show how this article allows the EU to bor- row in this specific context and why our proposal does not conflict with the EU’s no-bailout clause.

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