The EU’s response to the COVID-19-induced economic crisis has been aggressive, but not without criticism. This column, part of the Vox debate on euro area reform, summarises some of the shortcomings of the way in which the EU’s Next Generation programme may play out, and suggests short- and longer-term considerations that need to be made in order to ensure that the programme strengthens the Union in the long run.

Written by Päivi Leino-Sandberg, Vesa Vihriälä 31 May 2021, VoxEU

The EU has responded forcefully to the economic crisis brought about by COVID-19. The ECB’s aggressive easing and exceptional national fiscal stimulus measures have been complemented by unprecedented action at the EU level, thereby providing extensive support to vulnerable member states and broadening fiscal space.

Exigent circumstances justify exigent measures. But while responding strongly and effectively to the imminent risk of something resembling the euro crisis, the COVID-19 measures risk leaving the EU more vulnerable in the longer run. While explained as exceptional and temporary, they transform the EU into an incomplete fiscal union, which is fragile in the face of future shocks. These measures need to be balanced with strengthened market discipline and – ultimately – backed up by clear divisions of competence, unambiguous assignment of responsibility, and efficient decision-making structures.

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