This time is different. Though we’ve heard that many times, this adagio applies particularly well when trying to understand the context of the EU response to the Covid-19 pandemic, especially in comparison with the financial crisis of 2009-10. The reason is threefold.
First, the nature of the economic shock differs from any experienced in the past (Gros 2020). The Covid-19 crisis was caused by a pandemic (public health shock) which hit all countries in the same way, and not by an internal build-up of imbalances, reckless creditors or reckless debtors. The demand and supply shocks that unfolded in the aftermath of the measures implemented to contain the pandemic led GDP to contract much more than in the previous recession and hit EU countries in a very unequal way
(Dauderstädt, this volume).
Second, the EU institutional framework differs from that of 2009, allowing the EU to rely on different policy tools. One prominent example is the response of the European Central Bank which, immediately after the outbreak of Covid-19, was in a position to start purchasing potentially unlimited amounts of sovereign bonds. Nevertheless, the incompleteness of the EMU architecture again showed its weaknesses. As put by Bénassy-Quéré and Weder di Mauro (2020), on the fiscal side the ‘European roof is not only leaking, it is missing altogether for the kind of shock that is unfolding’. The Eurozone still lacked a mechanism for automatic fiscal stabilisation and a common fiscal capacity to face asymmetric shocks. In addition, the buffers and firewalls put in place after the global financial crisis and the euro crisis were designed to fight a different sort of crisis, originating in the financial sector or in a country’s sovereign debt.
Third, the ideational framework is different. The chorus of scholars reacting to the outbreak of the pandemic in March 2020 was unanimous in calling on national governments to act fast and do whatever it takes to ‘keep the lights on’ until the recession was over (Baldwin and Weder Di Mauro 2020). This was reflected in national policymakers’ unanimity on the recipe to tackle the pandemic. Across countries, this revolved around four pillars: provide liquidity, support income and employment, protect the financial system and speed up economic recovery. A surprising consensus emerged among academic observers and policymakers on how the European Union (EU) could help protect lives, firms, workers, the Single Market, banks, national budgets and sovereign debt. More controversial – as expected – were the discussions on the funding options which included so-called Coronabonds, credit lines from the European Stability Mechanism (ESM), EU borrowing backed by contributions to the EU budget, and monetary policy.
This chapter is part of the publication Social policy in the European Union: state of play 2021 by the European Social Observatory in cooperation with the European Trade Union Institute (ETUI).