Who Is Discriminated Most in the EU? An Analysis of the COVID-19 Compensation Fund

Alfred Greiner,Benjamin Owusu

doi:10.2139/ssrn.3795449

Abstract

The European Union has set up a fund in order to compensate countries for damages resulting from COVID-19 that hit the economies in an asymmetric way. We argue that payments should be based only on relative damages, expressed as losses relative to GDP, and any distribution mechanism implying that damages in the countries are treated differently is discriminatory. Hence, we compute the compensation payments if the resources of the fund are spent according to the relative loss in GDP. Finally, we compare the compensations relative to the losses in GDP, resulting from the application of that principle, with those obtained by distributing the funds as suggested by the Council of the European Union. Our results provide evidence of discrimination by the EU COVID-19 compensation package.

Highlights

The European Union (EU) has decided to set up a fund in order to compensate the economies of the EU for damages that resulted from the Covid-19 pandemic that hit the countries asymmetrically.1 According to the Council of the EU about 312 billion euros in prices of 2018 are to be distributed as compensation payments that need not be paid back
In this note we have shown how the compensation payments of the EU Covid-19 compensation fund are determined when they are distributed in accordance to the relative loss of GDP and we compared the outcome to that proposed by the Council of the EU
Our analysis has demonstrated that the financial package proposed by the Council of the EU to compensate countries in the union affected by the Covid-19 pandemic is largely discriminatory

Summary

Introduction

The European Union (EU) has decided to set up a fund in order to compensate the economies of the EU for damages that resulted from the Covid-19 pandemic that hit the countries asymmetrically. According to the Council of the EU about 312 billion euros in prices of 2018 are to be distributed as compensation payments that need not be paid back. In Greiner and Owusu (2020) it has been shown how these two sacrifice concepts can be resorted to in order to determine the compensation payments out of the Covid-19 compensation fund, where the GDP in the economies has been adjusted by a purchasing power price index There, both the same absolute and the same relative sacrifice principles have been used to determine the payments for compensation funds comprising 750 and 500 billion euros, respectively. The same absolute sacrifice principle, applied to a fund of 500 billion euros, implies that some countries do not get any compensation, but, have to pay to the fund since their per capita damage is lower than the same absolute loss per capita in the EU Another possibility to determine the compensation payments is to make them proportional to the relative losses in GDP caused by Covid-19, as suggested by Heinemann (2020).

Theoretical background

The Covid-19 compensation fund

Findings

Conclusion