Limited and conditioned: the EU’s first economic support package in response to the corona crisis

This paper offers a liberal intergovernmentalist (LI) explanation of the EU’s economic response to the corona crisis. More specifically, it assesses the creation of the EU’s first economic support package, which was endorsed by the European Council on 23 April 2020. The paper argues that the EU countries less affected by the corona virus and in a better fiscal position dominated the negotiations and shaped the institutional design of the support package. By contrast, the countries more badly hit by the virus and in a fiscally weaker position at various occasions had to compromise and to deviate from their original demands. The corona crisis has posed major economic challenges for the EU and its member states. After several months of curfew and border closing, member states have been facing a drastic decline in their economic output, rising costs for their social security and public health systems, and rising government debt. To mitigate the economic damages, the EU member states on 23 April adopted a first economic support package worth €540 billion. The package consists of a European support scheme for national short-time work programs, guarantees for European companies, and, most notably, favorable credit lines for crisis-hit member states by the European Stability Mechanism (ESM). Applying LI theory, this paper explains the EU’s economic response to the corona crisis in terms of the three steps of national preference formation, intergovernmental bargaining, and institutional choice. In light of the crisis’ magnitude, member states soon agreed that a common response was necessary. However, there were huge disagreements notably about the size and the institutional design of the economic support measures. Analyzing official EU documents, national government reports and press accounts, the paper argues that national preferences resulted from the different impact the corona virus had on EU member states and from their different fiscal position: While a group of particularly badly hit, fiscally shaky, and foremost Southern EU countries called for large and unconditioned economic support, preferably in the form of common Corona bonds totaling up to €1.5 trillion, fiscally more stable Northern EU countries insisted on more limited measures and the use of already existing EU institutions. Due to their larger financial resources, the fiscally more stable countries depended less on joint action and hence were in a better bargaining position. The EU’s eventual economic support package largely reflects the preferences of the fiscally more stable countries: It is quite limited in its scope, builds upon the existing ESM, and excludes the mutualization of government debt. Applying, testing, and partially revising LI theory, this paper explains the form and substance of the EU’s economic response to the corona crisis. Like in other more recent EU crises, LI once again proved to be a useful theoretical framework to assess major negotiations and outcomes in European integration. The paper could also be the starting point for consecutive studies on the EU’s second, potentially much larger economic support package, which currently is under discussion.