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EU Recovery Fund: An Opportunity for Change

 |  April 30, 2020

Massimo Motta & Martin Peitz (Vox EU)

The EU has been criticized for not reacting quickly enough to the COVID-19 crisis and for providing neither a vision nor instruments to deal with its economic impact. Short term emergency funding has so far been mostly provided through aid programmes by the individual member states.

However, on 23 April 2020, the European Council agreed in principle on a “Roadmap to Recovery” and on establishing a new fund with the volume of more than €1 trillion to help overcome the severe economic crisis that the EU – as well as most of the world – has entered. The European Commission has been asked to develop a proposal for how to use this recovery fund. We see a unique opportunity to develop a truly European programme that  helps restructure the EU economy. The recovery fund may be instrumental for the economy to recover, but this requires new directions and bold restructuring instead of preserving the old economic landscape.

We see this funding proposal as complementary to other proposals aimed at reducing short-term pain and massive immediate firm closures, especially in those countries hit hard by the crisis and in a poor fiscal position (see, in particular, Bénassy-Quéré et al. 2020a, Grund et al. 2020, Lamadrid and Buendía 2020). The general argument why governments should intervene and avoid massive firm closures is laid out in Didier et al. (2020). Boot et al. (2020) make a proposal for how the EU can channel funding to firms in distress because of the COVID-19 crisis. Here, we focus on the purpose of the recovery fund that goes beyond the short term…