Spillover Effects From Next Generation EU
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DOI: 10.1007/s10272-020-0923-z
Oliver Picek
Spillover Effects From Next Generation EU In July 2020, the European Commission announced its €750 billion package to revive the postpandemic European economy, Next Generation EU. The programme comprises a number of loans and grants that will be funded by taking out European debt. Although the rules on liability sharing for Next Generation EU prevent a significant mutualisation of the debt, European leaders have taken the long-recognised significant first step towards European financial and political unification that stands in stark contrast to the misguided austerity programmes during the European sovereign debt crisis. Next Generation EU is the European Commission’s €750 billion package to revive the European economy after COVID-19 that is funded by taking out European debt. In haggling over payments from the European Union, member states like to count and negotiate their net payments – the difference between what is paid into common budgets and received from them. This chauvinistic view leaves out the additional induced growth effects triggered by the package both at home (domestic multipliers) and abroad (spillover effects to other EU countries). By capturing a share of economic output from Southern and Eastern European member states that receive more grants, the economies of Northern and Western Europe grow by more than the respective portion of their contributions would suggest. The coordinated fiscal impulse ensures that every country receives a sizeable boost in economic output. Next Generation EU The European Commission’s Next Generation EU package includes €750 billion. Although rightly criticised as not large enough to address the gravity of the economic consequences of the virus, the instrument is nevertheless the first time in recent history that the EU will directly issue a significant form of mutual debt to redistribute and stabilise the economy. In order to finance the package, the European Commission will take out loans during the budget period 2021-2027 – in addition to the regular EU budget – and repay them with member states’ contributions to low interest payments (from 2021 onwards) and sizeable principal amounts (not before the © The Author(s) 2020. Open Access: This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (https://creativecommons.org/licenses/by/4.0/). Open Access funding provided by ZBW – Leibniz Information Centre for Economics.
Oliver Picek, Momentum Institut, Vienna, Austria.
ZBW – Leibniz Information Centre for Economics
next budget period starting in 2028, and no later than 2058). Some commentators have even called this Europe’s “Hamiltonian moment” reminiscent of the federalisation of American states’ debt in the 18th century. The largest and most economically significant part of the Next Generation EU package (€312.5 billion) will be paid out as grants to member states by the new European Recovery and Resilience Facility (RRF), a post-COVID-19 EU reconstruction programme. A smaller
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