EU Fiscal Regulation from Eurozone to Covid-19: Making up for Past Mistakes?

The new fiscal regulation of the Covid-19 crisis constitutes a great leap forward for the EU, which seems to turn the page on Eurozone fiscal regulation. The rules of the Stability and Growth Pact (SGP) were suspended, the EU took on significant temporary EU level debt for the purposes of redistributive solidarity, the European Semester became a tool for industrial strategy, and the ECB increased its expansionary monetary policy even further. Moreover, the negative politicization of prevalent during the Eurozone crisis shifted to more positive politicization during the pandemic, with institutional contestation among Council, Commission, and European Parliament replaced by greater cooperation—despite momentary lapses. The question for today is: Will this last? Will the SGP be reformed prior to the lapsing of the suspension of its rules? Will the temporary mutual risk sharing lead to a permanent fund? Will the Commission’s role in the European Semester continue as industrial strategy promoter, or revert to enforcer of the rules? Will the more positive politicization among EU institutional actors continue, perhaps accompanied by a shift to greater emphasis on the community method for fiscal governance, with great EP involvement? And in this context, will the mutually reinforcing interaction of a more active Commission and more assertive Council be joined by a more empowered EP? It is too early to know the answers to these questions. But this paper seeks to tease out potential answers by contrasting the EU’s fiscal regulation of the Eurozone crisis with that of the Covid-19 crisis. The paper will conclude by pointing to potential obstacles and stumbling blocks to building on the Covid-19 response, and then propose regulatory requisites for a more sustainable and equitable EU fiscal regulation.