The European Union and the Coronavirus: What Did It Learn from the Great Recession?

Abstract

After one of the longest meetings of the European Union (EU) since 2000, the prime ministers, presidents, and chancellors of the 27 member states finally concluded their milestone agreement on July 21, 2020. They settled on a new EU budget of 1.1 trillion euros; the Multiannual Financial Framework; and, most critically, a historic consensus on creating the Next-Generation EU (NGEU) fund, with 750 billion euros in supplemental funding, to fight the new coronavirus and its impact. The context for this meeting included many major challenges. The novel coronavirus pandemic had hit Europe in the early months of 2020, and while its effects in the future were uncertain, it was clear that it would continue to cause significant fiscal deficits. The memory of the Great Recession that started in the United States and severely hit the EU, including especially the drastic measures taken in Greece's recovery, was fresh. And in 2015, an influx of refugees, especially from the Syrian civil war, had resulted in conflict among EU members and a rise in political leaders critical of European integration.Students consider why this 2020 fiscal agreement was a historic move and how lessons learned from the Great Recession, especially Greece's sovereign debt crisis, influenced it. Students assess the impact of the coronavirus crisis and compare and contrast it with previous crises.

Excerpt

UVA-GEM-0181

Aug. 15, 2022

The European Union and the Coronavirus:

What Did It Learn from the Great Recession?

It had been one of the longest meetings of the European Union (EU) since 2000. It had taken the prime ministers, presidents, and chancellors of the 27 member states multiple attempts, many dinners, and lots of negotiations in bilateral and smaller multilateral fora to conclude their milestone agreement on July 21, 2020. They had settled on a new EU budget of EUR1.1trillion (USD1.3 trillion), the Multiannual Financial Framework, and, most critically, a historic consensus on creating the Next-Generation EU (NGEU) fund, with EUR750billion in supplemental funding, to fight the new coronavirus and its impact. (For reference, the 2019 combined GDP of the 27 EU members was EUR14trillion, and of the 19 eurozone countries, EUR12 trillion.) The agreement for supplemental funding built on an early initiative by Germany's chancellor, Angela Merkel, and France's president, Emmanuel Macron, that had been endorsed and modified by Ursula von der Leyen, the (German) president of the European Commission and Merkel's former minister of defense. The success of the multilateral plan was not assured from the outset, even though there were many reasons why the EU had to act decisively. The “frugal four,” Austria, Denmark, the Netherlands, and Sweden—joined at the last minute by Finland—had initially opposed its most contentious part, the EUR390billion that would be distributed to member states not as loans but as grants. The NGEU would be funded by borrowing over six years, with bonds issued at maturities extending to 2058.

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