Europe.Decisions Compact Digital Conference – Discussion on EU Fiscal Policy

Europe is facing historic decisions. With a compact conference filled with high-level speakers, Table.Media, a Berlin-based digital news outlet, and the Jacques Delors Centre of the Hertie School hosted discussions on twelve topics that present EU leaders with difficult choices that will have a significant impact on the future of Europe.

The conference, Europe.Decisions featured 30 expert speakers on themes from security and resilience to governance and values – all condensed into just 150 minutes. The Bertelsmann Stiftung was one of 20 event partners supporting the conference.

A New Fiscal Policy Reality

In the section on governance, on the heels of a panel focused on the strengthening democracy in the European Union, Katharina Gnath (Senior Project Manager, Europe’s Economy, Bertelsmann Stiftung) and Nils Redeker (Deputy Director, Jacques Delors Centre of the Hertie School) dealt with another pillar of the EU’s framework: its ability to deliver fiscal support to members in times of crisis and to stabilize the EU’s economy.

Katharina Gnath and Nils Redeker outlined the fiscal policy challenges facing the European Union and discussed the new needs for the fiscal framework for not only the continuing COVID-19 recovery and rising energy prices but also for the vitally important green and digital transitions.

Nils Redeker began by reminding the audience that slowed economic growth in the EU, independent from Russia’s invasion of Ukraine, had already shrunk member states’ fiscal flexibility. On top of the continued economic recovery from the COVID-19 pandemic, rising energy prices and a higher cost of investment (which makes the massive investment needed for energy independence more difficult) present a new fiscal policy reality.

In this difficult context, Redeker argued, moving funds from one European instrument to another to address urgent needs makes sense in the short term but does not present an answer for the medium term. Additional funds are needed to soften the blow of rising energy prices through coordinated subsidies, Redeker said, since these increased costs are already manifesting in political conflicts, like the standoff with Hungary over the European Commission’s proposal for an embargo on Russian oil. Where these funds will come from, Redeker concluded, is yet unclear.

These challenges require investment, agreed Katharina Gnath, and while the EU has proven itself flexible and responsive with fiscal policy instruments in the wake of the COVID-19 pandemic and Russia’s invasion of Ukraine, the old rules are not necessarily helping the situation. If, in the context of two crises, the fiscal rules need to be suspended indefinitely, then, she argued, the framework no longer works.

Furthermore, Gnath said, the economic costs of Russia’s invasion of Ukraine have not even really hit us yet, not to mention the looming costs of the digital and green transitions. Facing these challenges, she concluded, will take more than bending and finessing current fiscal policy and continuing onward. That path does not safeguard EU and national budgets in the face of questions over which disbursements will be publicly and which privately financed and differentiating between national and EU responsibilities.