By Carlo Carraro, Otilia Dhand, Barry Eichengreen, Melinda Mills, Hélène Rey, André Sapir and Daniela Schwarzer
The COVID-19 pandemic devastated the European Union yet also spurred an unprecedented level of cooperation and joint decision making. The EU and its Member States rallied to meet the challenges of the global health threat with a jointly procured vaccine, a jointly funded economic recovery package and a jointly supported public borrowing programme. As a result, 2 years later the economy has begun to recover and the EU is ready to consider its next steps in crisis management and planning.
A triple transition of climate, digital and social change will dictate the EU’s overall strategy in coming years. Policymakers have an opportunity to set the Union on a path toward growth and prosperity, but if they are not careful they also could set the stage for entrenched inequality and disagreement. Continuing with longstanding policies also poses a danger, given the need for change to meet the challenges ahead.
The EU will have a chance to set a course along one of three main scenarios: Business as Usual, Fragmentation and Conflict, or a New Era. Under the first option, the EU does not adapt as needed to protect the environment or give its population the skills they need to survive in a digital world, and the EU falls further behind its international counterparts. In the second scenario, EU policies actively unravel the alliances and economic programmes that have taken so long to build, with corresponding threats to political and economic stability. But the EU also has a better option: pursuing policies that will lead to a New Era within the single market and around the world.
Finance will be key to carrying out the many transitional steps needed. They recommend measures to support development of public and private funding models. On the public side, the EU should make the most of the public borrowing capacity it has developed through the NextGenerationEU (NGEU) project, and it should adjust its fiscal rules to allow for prudential budgeting practices. On the private-sector side, the EU can spur investment by strengthening Banking Union, moving faster toward Capital Markets Union, and creating incentives to choose climate-friendly investments over legacy industries and technologies.
In this report, they explore the financial, political and environmental challenges ahead and put forward a series of recommendations to secure the best outcome for the EU in the future. They structure our recommendations in five areas: financing the triple transition; fair and effective taxation; moving towards a Health Union; strengthening Europe’s role in the world; and making the governance of the Union fit for purpose.