Opinion

Without good governance, the EU borrowing mechanism to boost the recovery could fail

The European Union recovery fund could greatly increase the stability of the bloc and its monetary union. But the fund needs clearer objectives, sustainable growth criteria and close monitoring so that spending achieves its goals and is free of corruption. In finalising the fund, the EU should take the time to design a strong governance mechanism.

By: Date: September 15, 2020 Topic: European Macroeconomics & Governance

This opinion piece has previously been published in El Pais, Il Sole and Rezpospolita, LeMonde and FAZ.

El País logo

logo of Il Sole 24 Ore Italian newspaper

Le Monde logo

In late July, the European Council created the European Union recovery fund, a major new policy instrument that could substantially increase the stability of the EU and its monetary union, and under which the bloc will for the first time borrow and pay out large sums as grants. But the Council deal lacks a clear strategy to ensure the money boosts inclusive, sustainable growth and avoids corruption. This gap must be plugged, because the recovery fund will be delegitimised if wasted. The ongoing negotiations between the European Parliament, the Commission and the Council (the trialogue) provide an opportunity for improvement and should focus on three crucial points.

First, the goal needs to be more clearly stated: providing a boost to Europe’s sustainable growth potential. The current focus on speedy disbursement suggests policymakers still hope the EU funds can play a countercyclical role, but this will not work. The Council wants to commit 70% of the main instrument, the recovery and resilience fund (RRF), in 2021-2022, but only a quarter of disbursements are planned for these two years. All EU countries can go to the markets to borrow and it is national budgets that can and should be used to support economies reeling under the immediate effects of the pandemic. EU funds, meanwhile, should be part of a medium-term strategy clearly focussed on quality spending. This will provide some protection against the permanent damage to Europe’s growth potential COVID-19 is likely to leave in its wake. The EU funds should thus be about medium-term growth objectives and not countercyclical fiscal policy.

The second question then is how to achieve quality spending that would boost sustainable growth. The European Council conclusions from July include some vague statements about linking EU funds to the European Semester, the EU’s annual process to steer member states towards inclusive and sustainable growth and digital transformation. But the European Semester has proven to be a rather ineffective bureaucratic process that EU countries too often disregard.

It is easy to see how such a bureaucratic process will trigger a bottom-up approach driven by special interests in EU countries. in which spending plans are labelled, as requested by the European Commission, “green, social and digital.” Plans will be sent to Brussels and result in large pay-outs with little benefits. While the design of the recovery fund, with its predominant focus on the RRF, puts national governments in charge, clear conditions are still crucial for sustainable growth goals to be achieved. A recent study proposes the use of recovery funds for major structural reforms, such as in the education system, public administration efficiency and climate goals. The new EU funding is a unique opportunity to provide the ‘carrot’ for genuine structural reforms.

Quality spending requires good governance. The third issue is therefore monitoring so that spending achieves its goals and is free of corruption. Unfortunately, EU funding has a mixed record of avoiding corruption. Meanwhile, academic work has confirmed that the vast amounts of common agricultural policy funds do not achieve Europe’s green goals despite repeated claims to the opposite. The current governance of EU funds can be regarded as unsuitable for achieving stated political goals.

The European Parliament rightly insists on a strong say. A better ‘red-card’ procedure to stop pay-outs in case money does not achieve the political ambitions is needed. The currently proposed process foresees the Commission asking for opinions from the Economic and Financial Committee, a group of top finance ministry officials, on whether political targets of the funds have been achieved. The committee shall strive for consensus but if one or more countries disagrees, the matter will be referred to the European Council. But state secretaries discussing a Commission report will not provide the accountability necessary for the EU’s biggest borrowing programme. Even members of the European Council will not challenge their peers unless there are blatant breaches of agreements.

Instead of intergovernmental debate, real political accountability is needed to avoid corruption and the failure to achieve the EU’s political ambitions of green and inclusive growth. This political accountability should also ensure that the interests of the EU as a whole are considered. The European Parliament should therefore insist on receiving regular and detailed reports from the Commission and should hold hearings with the involved Commissioner to bring about transparency and public accountability. Moreover, the Parliament should entrust the European Court of Auditors and the European corruption watchdog OLAF with constant monitoring of the spending.

Negotiators should take the time to design a strong governance mechanism. Europe cannot afford to waste its resources


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Blog Post

COVID-19 has widened the income gap in Europe

Workers with low-educational levels suffered far worse than others in terms of COVID-19 related job losses during the first half of 2020 in the EU. Jobs for tertiary-educated workers even increased. Thus, the pandemic has increased income inequality, reinforcing the case for inclusive development.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 3, 2020
Read article More on this topic More by this author
 

Opinion

How to minimise the impact of the coronavirus on the economy

COVID-19 is a global killer. Austerity needs to succumb.

By: Rebecca Christie Topic: Global Economics & Governance Date: December 2, 2020
Read about event More on this topic
 

Upcoming Event

Dec
8
14:00

Innovative approaches to monitoring the risks and impact of COVID-19

What new innovative tools can we use to measure real-time economic and social risk?

Speakers: Zsolt Darvas, Jaime Garcia, Nicola Villa and Georg Zachmann Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event Download PDF More on this topic
 

Upcoming Event

Dec
15-16
11:30

India-EU Partnership: Vistas for the New Decade

Serving and retired government officials, representatives of the private sector, media and institutions/academia come together to review the of India-EU relations and point to a promising direction for the future.

Speakers: Yamini Aiyar, Suman Bery, Navroz K Dubash, Ignacio Garcia Bercero, Alicia García-Herrero, Rajat Kathuria, Gautam Mukhopadhaya, Ananth Padmanabhan, Georgios Petropoulos, André Sapir, Shyam Saran, Simone Tagliapietra and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic
 

Blog Post

The scarring effect of COVID-19: youth unemployment in Europe

Even before the pandemic, youth unemployment in the European Union was three times higher than among the over-55s. COVID-19 threatens to undo the last decade of progress: policymakers must act to avoid Europe’s youth suffering the scarring effect.

By: Monika Grzegorczyk and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 28, 2020
Read article More on this topic More by this author
 

Opinion

Grading the big pandemic test

COVID-19 almost one year on, it is time to assess who passed the test, and who failed.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: November 27, 2020
Read article More on this topic
 

Blog Post

Europe is losing competitiveness in global value chains while China surges

The European Union owes much of its economic weight to its regional value chain and integration into the global value chain. But the EU’s global value chain role is shrinking, and while EU trade integration with China is increasing, it is mainly to China’s benefit, undermining the EU’s external competitiveness.

By: Alicia García-Herrero and David Martínez Turégano Topic: Global Economics & Governance Date: November 27, 2020
Read article More by this author
 

Podcast

Podcast

Steering the boat towards an unknown destination

Shocks pass, but change remains a constant. We need to start focusing on permanent changes in the economy and how to adapt to them.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Global Economics & Governance Date: November 25, 2020
Read article Download PDF More by this author
 

Parliamentary Testimony

European Parliament

Euro area accession countries in the context of the pandemic

Testimony before the European Parliament on the subject of euro area accession.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 19, 2020
Read article Download PDF More on this topic
 

External Publication

The evolution of European economic institutions during the COVID-19 crisis

This article discusses how the European institutions reacted and evolved during the early stages of the COVID-19 crisis in the first half of 2020.

By: Antoine Camous and Grégory Claeys Topic: European Macroeconomics & Governance Date: November 19, 2020
Read article More on this topic More by this author
 

Opinion

COVID-19 could leave another generation of young people on the scrapheap

It is time that the highest political level focuses on the risk of a lost generation.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 12, 2020
Read article Download PDF
 

External Publication

European Parliament

Monetary policy in the time of COVID-19, or how uncertainty is here to stay

The COVID-19 crisis has compounded the uncertainty that has come to characterise the European economy. We explore how this uncertainty manifests itself in terms of ECB decision-making and the long-run challenges the ECB faces.

By: Maria Demertzis and Marta Domínguez-Jiménez Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: November 12, 2020
Load more posts