EU Money Is Misallocated and Comes Too Late

Today, the European Council will discuss the proposals by the European Commission regarding the EU financial framework and the coronavirus recovery plan, Next Generation EU. The Commission proposed a 750-billion-euro recovery fund based on European bonds to help Member States weather the recession triggered by the coronavirus. What is at issue in the Council is not so much the size of the package as its allocation among the Member States and aid instruments. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at ZEW Mannheim, comments on this matter:

“There are key aspects in the European Commission’s proposed recovery plan that need to be revised. The currently planned distribution of funds corresponds too little with how EU Member States are affected by the recession. Besides Southern Europe, countries in Eastern Europe, which are likely to experience a much milder recession than the rest of the EU, are expected to benefit very strongly from the planned recovery fund. This contradicts any reasonable idea of solidarity-based insurance against a severe asymmetric shock. What is more, both the funds to support the energy transition as well as agricultural aid payments are to be further increased, although there is no discernible connection to the COVID-19 pandemic. It seems that, with its plans, the Commission is taking advantage of the coronavirus crisis to cover up old distributive conflicts with new money that was previously not available. However, the biggest shortcoming of the plans so far is that three-quarters of EU funds would not be available until after 2022. There is no doubt that a joint European response is important now. According to the current plans, however, the money not only comes much too late but is also being misallocated.”