Reforms, investment and the EU Recovery Plan

Articol publicat pe portalul EURACTIV.

The EU member states are finally discussing an ambitious European Recovery Plan and the good news is that they already have the right tool at hand, writes Dragoș Pîslaru.

Dragoș Pîslaru is MEP Renew Europe / PLUS Party, EP Rapporteur (ECON) on the BICC governance and co-rapporteur on RISP.

Europe is facing the most complex and challenging crisis since the Second World War. The EU member states are finally discussing an ambitious European Recovery Plan and there is a faint glimmer of hope that we could rise from the economic ashes with reinforced societies and institutions. This is the moment for a major plan that can reaffirm our citizens’ faith in Europe and secure the prosperity of our continent for the future. A plan that requires adequate funding and the right tool to push for convergence and competitiveness through decisive reforms and well targeted investment. The good news is that we already have the right tool at hand.

Crisp recovery through RISP

The COVID-19 outbreak has set off a major economic downturn across Europe. While naysayers say the response of the EU was slow, it is undeniable that the balance has shifted and the Union is now doing more and more. The SURE programme, the EIB’s lending support for SMEs and the ESM targeted credit line all are clearly to be welcomed. Yet these are short term solutions.

Over the last months, amid the crisis, the European Parliament has kept on working to redefine a tool that was designed a couple of years ago to stimulate structural reforms, both inside and outside the euro area.

This tool is called the Reform and Investment Support Programme (RISP), and it is broadly agreed already as part of the next EU budget 2021-2027 within the Multiannual Financial Framework (MFF).

The revised Programme will consist in three components that address specific needs: the Budgetary Instrument for Convergence and Competitiveness (BICC), available for the euro-area member states; the Convergence and Reform Instrument (CRI), available for non-euro area member states; and Technical Support Instrument (TSI), a facility accessible to all EU member states.

There are at least five reasons for which it would just be normal to consider RISP as the ideal core of any European Recovery Plan:

  • It is easy to implement. Although it contains new instruments, the programme provides a natural alignment with the European Semester, adding no complexity or delay for the member states in submitting their proposals for funding.
  • It has no moral hazard consequences. As part of the EU budget which does not infer risk and debt mutualization, each member state can receive funds for investment and reform projects based on objective criteria and on a comprehensive allocation key.
  • It is inclusive. Unlike facilities such as the ESM credit line and European Central Bank’s asset purchases, the RISP is not limited to the euro area, but has instruments for all member states. The programme helps ensure that no EU country will be left behind in the future, targeting convergence within the euro-area, but also convergence for non-euro area member states by supporting their accession towards the euro-area.
  • It focuses on long-term, sustainable growth. The RISP prioritizes interventions to implement structural reforms, fosters investment and promotes economic resilience, cohesion and productivity, which this crisis has shown are essential to securing the long-term prosperity of the European Union. One is not too ambitious to imagine that, if ever hit by a future shock, member states with improved health systems, with digitized public administration, innovative educational tools and infrastructure that reaches vulnerable and isolated regions will be able to provide a more coordinated and effective response.
  • It ensures democratic accountability. The Parliament’s proposed governance allows for a better balance between the Council and the European Parliament, increasing the democratic legitimacy of the recovery effort. This addresses concerns that the crisis response proposed so far has been sidelining the Parliament, which was recently reinvigorated by its highest election turnout in decades.
    There are only a few steps left for this proposal to come to fruition. And more ambition needed for the instrument to be effective.

Funding: size does matter

A historic crisis requires a historic response. To make a difference for our citizens, the EU Recovery Plan will need to be very ambitious in both size and scope. The €25 bn initially foreseen for the RISP in the EU 2021-2027 MFF is a small fraction of what is truly needed. RISP could be essential in increasing the resilience of our health, social and economic systems, but only if equipped with proper funding.

Several financing options for the EU Recovery plan have been made available, but each has its own downside. Additional voluntary contributions from member states attract acrimonious debates over country differences in contributions and benefits. Issuing “coronabonds”, although well in the spirit of solidarity, bring fear of moral hazard and imply mutualisation of risks and losses. Sovereign bond-backed securities (SBBS), although eliminating this risk since led by the private sector, would be limited to the eurozone and constrained by the potential lack of investor appetite for junior tranches.

EU own-resources are the key. A combination that allows constant and stable EU own resources is possible. The option that avoids the thorny prospect of joint liability for debt, is a grant scheme financed by perpetual bonds, as proposed by two Renew Europe Members of the European Parliament colleagues and backed also by the Spanish government. Member states would pay additional contributions into the EU budget, which would be used to pay the interest on a bond that never expires. This could generate new EU own resources of over €1 trillion, which could make its way back to member states through the RISP, in light of its beefed-up role as an engine of recovery.

Better governance: the European Minister of Economy and Finance

All EU institutions should play their role in the governance of this tool. The democratic legitimacy of this euro-area instrument should be extended, with an active role of the European Parliament in approving the strategic orientations for the reforms and investments needed. But we can do much more than that.

Given the dire need for better coordination between institutions, it is high time to remember the proposal to establish a European Minister of Economy and Finance. How? By merging the positions of president of the Eurogroup, Chair of the Board of Governors of the European Stability Mechanism and the Commissioner for economic affairs. Putting all these hats together will dramatically improve both the capacity for a swift response and the accountability in front of EU citizens. An EU Minister managing the RISP and other economic policy tools will mean a rapid and better answer to all future crises.

This crisis has shown that, in times of difficulty, the Union can react. The EU Recovery Plan should demonstrate a strong, unified commitment to a full and rapid recovery for all members. Addressing risks effectively in the future requires taking ambitious steps in the present. This implies acknowledging the potential role of the Reform and Investment Support Programme (RISP), further equipping it with proper funding, solid legitimacy and better coordination, and then allowing it to foster our future renewal. Niccolo Machiavelli’s words are now more actual than ever: “Never waste the opportunity offered by a good crisis”.

Dragoș Pîslaru