European leaders debate the establishment of a “European Recovery Fund” (ERF). The ERF shall help the European economy to restart growth after the COVID-19 pandemic-related recession that is currently unfolding. Early national and European fiscal measures of anti-crisis policy have been focused on helping companies and employees to get throughthe immediate lockdown phase. The ERF targets at the second crisis phase that begins once the lockdowns are over.
The rationale of an ERF rests on assumptions that are rarely made explicit. It assumes that EU spending can create an added value compared to national spending packages. Moreover, the ERF presupposes that Member States themselves are unwilling or unable to provide the necessary financial means to support their economies’ quick turnaround after the crisis. In this context, the dire fiscal situation of some highly-indebted countries is one of the most pressing arguments in favor of an ERF. Countries that might find it increasingly difficult to finance additional crisis measures on their own could hope to
get relief from an ERF. This expertise sheds light on the realistic magnitude of such a relief. It provides simulations on the spending and refinancing side of an ERF. It also assesses to which extent a European debt instrument with joint and several liability (“Corona bonds”) would modify the distributive effects of an ERF. The simulation quantifies the gross and net burden for each single EU Member State from an ERF with a financial volume of 1.5 trillion EUR, which corresponds to the current magnitude in the political debate.
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