With "Next Generation EU", the European Union has put together a 750 billion euro package to get Europe back on track economically during the Covid-19 pandemic. How this reconstruction plan works, where the money should go to and which signal effect the fund will have for the future formation of the EU were central aspects of the panel discussion on the first day of this year's Frankfurt Conference on Financial Market Policy, which, for the first time, is taking place completely online. In this first session, the experts emphasized that the financial sector in the current Corona crisis is proving to be more stable than in the global financial crisis of 2007/2008. Economic reconstruction in times of a pandemic must be tackled in Europe with solidarity and sustainability.
During the panel discussion, Marco Buti, Director-General of the EU Directorate-General for Economic and Financial Affairs, emphasized: Recovery and resilience were the core elements that "Next Generation EU" aimed at in the individual European countries. To be successful, the reconstruction plan as a whole would have to be adopted by the member states and implemented into credible national reform programs. "Solidarity reduces risks for each country," Buti said. The resources from the recovery fund should be used to foster transformation processes such as digitalization or renewable energies.
The Corona crisis also affects European banks
With regard to the financing aspect, Buti pointed out that Europe's banks are much stronger today than they were before the financial crisis. The level of non-performing loans has decreased considerably ever since. Nevertheless, the EU Commission had already considered presenting an action plan for non-performing loans. Marti Subrahmanyam sees this as a necessary step since the European banking sector is extremely fragile compared to its US counterpart. "The economies will take years to recover from the corona crisis, but the banks will take even longer," emphasized the SAFE fellow from the Stern School of Business at New York University. European banks had been hit much harder than anywhere in the world.
Jakob von Weizsäcker described the recovery fund as an appropriate response to the Corona crisis. According to the Chief Economist of the Federal Ministry of Finance, the current crisis differs from the financial crisis in three essential points. Firstly, the outbreak of Covid-19 was a natural disaster, not a systemic crisis. Secondly, the geopolitical structure in 2020 is much more complex than it was 13 years ago and, finally, fiscal policy instruments have gained enormously in importance under the given circumstances.
Solidarity is needed in Europe
"We have to go through this crisis by solidarity," said Weizsäcker. If "Next Generation EU" is well implemented in the EU member states, the fund could serve as a "blueprint for future crises". Although wrong incentives are always a danger in economically difficult times, moral hazard is not a defining feature of the Corona crisis. Rather, it had to be shown whether the momentum could not now be used in the long term to consider the establishment of a joint European Ministry of Finance.
The current debate on how to deal with the Corona crisis is again focusing on core political elements such as solidarity and responsibility. Values such as the rule-of-law-principle are shared equally by almost all EU states, noted Cornelia Woll, Professor of Political Science at Sciences Po Paris. The "Next Generation EU" differed substantially from the countermeasures implemented at the time during the sovereign debt crisis: the current reconstruction program is decentralized and less tied to conditionality. "This gives the member states more room for domestic preferences,” Woll said.
