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

THE STATE OF THE EUROPEAN UNION 60 In both cases, the fiscal stimuli are very considerable. It is estimated that the total fiscal support provided by the United States is equivalent to between 20 and 25 per cent of GDP over the period 2020, 2021 and 2022 (Siklos et al., 2021). At the G7 Summit of 10 June 2021, President Von der Leyen announced that all the financial and fiscal support in the European Union in 2020, 2021 and 2022 was equivalent to 18 per cent of European GDP (Von der Leyen, 2021). This may seem surprising when we remember that the European Recovery Plan was estimated to be worth 5 per cent of annual European GDP for 2019. However, unlike the United States, the fiscal effort deriving from automatic stabilisers, health support and support for the economy has primarily been provided by Member states, who broadly speaking have more developed welfare and social protection systems than the United States. When comparing the fiscal response at a federal level between the United States and the European Union, it is also nec- essary to take into account the contribution of Member states and the additional measures implemented by the EU in its entirety. At the same time, when combining the federal and national spheres, there is a danger of double counting and the problem of the lack of consistent, up to date, aggregated information. Moreover, although Member states provide estimates of budgetary costs when they announce fiscal packages, these figures are generally subject to significant revisions due to lower than ex- pected uptake, for example, in the case of unused credit lines, guarantees that are not executed, etc. However, even taking account of these caveats, it is possible to offer a global estimate comparing the total value of the European response to covid-19 with that of the USA. Methodologically it is also important to differentiate between measures that increase public spending and reduce fiscal income, as these directly affect economic activity via fiscal multipliers (“above the line” measures) and measures such as loans and guarantees to banks and businesses (“below the line” measures), whose econom- ic impact depends on the level of uptake by recipients. For that reason, this analysis will focus on a comparison of measures that have a direct budgetary impact, even though the “below the line” measures, whose main pur- pose is to ensure liquidity, are also recorded. The fiscal response in Europe As an initial response to the pandemic, the Coronavi- rus Response Investment Initiative was created on 30 March 2020, and this was followed by the Coronavirus Response Investment Initiative Plus, which permitted the transfer of up to 37 billion euros of structural funds that were pre-funded but not executed. In addition, the Commission gave Member states access to 28 billion euros of structural funds from national contributions for the period 2014-2020 that had not yet been allocated to projects. In addition, up to 800 million euros were transferred from the EU Solidarity Fund to the hardest hit countries, along with 2.7 billion euros from reactivation of the emergency fund. In the same month, new flexibility rules were applied to the Stability and Growth Pact, so that extraordinary expenditure incurred in response to the pandemic would not be included when calculating the structural public deficit, along with state support to struggling companies. On 9 April, Ecofin approved three safety nets for workers, companies and Member states.The first involved creating a European reinsurance mechanism for national unemployment insurance (SURE), which can issue loans to member countries up to a total of 100 billion euros to cover expenses related to short-time working or tempo- rary unemployment schemes.The value of the guarantees for these loans is worth 25 billion euros in total. Sec- ondly, the European Investment Bank (EIB) established a pan-European guarantee fund worth a further 25 billion euros, which could provide up to 200 billion euros in loans for companies, especially European SMEs. The EIB had already agreed to mobilise another 40 billion euros in March 2020 to cover the short-term funding needs of SMEs. Finally, a new special ESM credit instrument