THE STATE OF THE EUROPEAN UNION REPORT. Europe in a period of transition

THE STATE OF THE EUROPEAN UNION 50 in the light of the huge challenge posed by covid-19. Therefore, it quickly became clear that an unprecedented community-scale intervention was required. Let’s not forget that the previous crisis had expand- ed differences between the MS, even going so far as to threaten the existence of the Euro. In fact, before the pandemic arose, the economic situation in European countries differed greatly, and the impact of the pandem- ic has only exacerbated this. On the other hand, countries such as Italy or Spain, with economies highly dependent on tourism and business fabrics comprising many small businesses, suffered much greater drops in GDP in 2020 than Northern European countries. As previously mentioned, several MS were also dragged down by a series of weaknesses from the pre- vious crisis, such as accumulating higher levels of public debt, low productivity and competition, or chronic un- employment issues. This asymmetrical impact of the crisis and the afore- mentioned background issues raised a real risk that the gap between countries in the North and South might widen, with the threat that this poses for EU cohesion and even for the very integrity of the domestic market. One lesson learnt from the previous crisis showed that increased inequality between countries was mainly due to different funding conditions for the MS when tak- ing on debt. Let’s not forget the major difficulties faced by Greece, Portugal, Ireland, Cyprus or Spain during the sovereign debt crisis. In this respect, one of the most outstanding propos- als considered to solve this problem was to implement a “Eurobond” system that involved debt pooling to a certain degree among MS. However, opposition from the EU’s creditor countries remained strong. Declarations from Angela Merckel in the middle of the Euro-crisis were unequivocal on this matter: “not in my lifetime”. However, the unusual nature of the Covid-19 crisis that cannot be blamed on economic policy “mistakes” and the enormous spending required for countries to address health and economic emergencies managed to change Germany’s stance which, at the eleventh hour, turned out to be decisive to take a giant step in European construction.After several difficulties, a large public stim- ulus package was approved to reactivate and transform the member states’ economic model, the “NextGenera- tionEU” (NGEU) recovery programme. The first to revive the old debate on debt pooling was the Spanish government. On 19 April 2020, in its non-paper entitled “A recovery strategy”, Spain launched the idea of a new “Marshall Plan” concerning public investment for the EU as a whole. Germany quickly presented a joint proposal with France along the same line as suggested by Spain, which was used as the basis for the initiative that the Commis- sion subsequently presented. However, getting the NGEU approved in the Europe- an Council on 21 July was no bed of roses. After over- coming tough resistance from the frugal countries, it was possible to approve a temporary financing instrument, the NGEU, designed to mitigate the economic conse- quences of the Covid-19 crisis. The NGEU is going to represent the greatest mo- bilisation of resources in the history of European unity. It comprises an endowment of 750,000 million Euros, of which 390,000 will be in the form of subsidies and 360,000 will be loans awarded to the MS in very fa- vourable conditions. It will run between 2021 and 2023. The NGEU intends to maximise the pull effect of the investments with the intention that 3 private Euros will be mobilised for every public Euro provided. In short,the NGEUmakes it possible for the EU to finance, in unprecedented quantities, the necessary investments for national recovery plans put into practice by each MS. NGEU and European debt, a great advantage in the funding conditions for recovery The NGEU allows the Commission to capture money in the markets under very favourable conditions and assu- me highly significant levels of debt to finance common recovery-related expenses. Let’s not forget that European