Abstract
Abstract Despite a long period of post-crisis recovery, the COVID crisis caught the EU in a precarious state. The policy and institutional innovations during the financial crisis tempered the macroeconomic imbalances that had caused the crisis. Nevertheless, the EU was left with a strong trend of divergence in economic and social performance because of the lack of sufficiently strong reforms at EU and national levels. But the lessons of the previous crisis were learned. This time around, the EU-level policy and institutional innovations were decisive. The fiscal capacities of the hard-hit countries were strengthened quickly. Green and digital transformation will require a major new wave of innovation in the corporate sector in the EU. This, in turn, critically hinges on improving the quality of public and private institutions and advancing with the implementation of major reforms at the EU level, such as the digital single market or Capital Market Union. Implementing these reforms fully, and preventing later reversals is a key to stemming the trend of economic and social divergence, thus strengthening the coherence of the EU.
Highlights
A major crisis stress-tests a country, its economy and society
Unlike in the previous crisis, the fiscal stimulus goes to the countries that need it most as the allocation is developmental needs-based and the size of the fiscal stimulus that comes from the European Union (EU) budget is rather large in those countries, despite the fact that the scheme overall is modest relative to the area-wide GDP
The twin transitions, to turn green and digital, have the potential to form the core of a new narrative for the EU
Summary
A major crisis stress-tests a country, its economy and society. It accelerates some of the pre-existing trends and triggers new ones. The US Social Security emerged as a response to the Great Depression, which made the consequences of having no social security system painfully clear At that time, it was a major policy and institutional innovation at the federal level that significantly expanded the role and size of the federal state in the US. It remains to be seen whether these new policies will be fully implemented and sufficient to ensure prosperity and coherence in the Union in the longer run As this brief overview of the history of the European crisis response shows, for policy and institutional innovations to come about at the European level and for such reforms to take the EU in the right direction in a lasting manner, trust, good design, and consistent implementation are essential. The nature of the COVID crisis, the fact that the cause was a pandemic that had originated far away and hit all member states (MSs) of the EU, and that human lives were at stake, probably helped with maintaining trust among the MSs and vis-a-vis the European institutions.
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