Every Crisis Has Its Fiscal Policy: Explaining the EU’s Fiscal Policy Choices in the COVID-19 and the Security Crises

Fiscal integration has become a key instrument of crisis governance in the European Union (EU). It encompasses both the creation or expansion of EU-level fiscal capacities and the refinement of the EU’s rules and frameworks of fiscal regulation (Wasserfallen 2019). While multiple studies examine individual reform decisions, the academic debate falls short of a systematic understanding when national executives support deeper fiscal integration and how crises shape their choices among competing instruments. This paper carries out a comparative study of the EU’s fiscal integration during the COVID-19 pandemic and the security crisis following the full-fledged Russian invasion of Ukraine. While both crises prompted major reforms, the selected instruments differ regarding their orientation and institutional design. NextGenerationEU and SURE constitute supranational programmes requiring member states to request funding from the European Commission. By contrast, the EU’s “Readiness 2030” initiative primarily focusses on providing the member states with fiscal flexibility by activating the general escape clause within the Stability and Growth Pact. Only 150€ billion of the 850€ billion by which the Commission aims to increase the EU’s defence spending by 2030 are mobilised on the EU level through the Security Action for Europe (SAFE) regulation. To explain these divergent approaches, this paper employs an ideational perspective. It argues that the policy area to which government elites in the EU member states have attributed the crises shaped their beliefs about the appropriate role of EU institutions in facilitating intergovernmental coordination and implementing fiscal measures. While the EU is widely recognised the platform for managing economic crises, matters of security and defence are often handled in NATO or minilateral formats outside the EU’s institutional environment. Consequently, the COVID-19 crisis facilitated fiscal innovations at the supranational level whereas the security crisis largely reinforced national sovereignty on fiscal politics. Empirically, the study analyses the discourses regarding fiscal integration in response to the COVID-19 crisis and the Russian war in Ukraine among government elites in France, Germany and Italy. Drawing on a large corpus of public statements, newspaper articles and interviews, it investigates how government elites frame each crisis as well as the normative, political and strategic considerations they use to justify their preferences for specific fiscal instruments. This paper contributes to the literature on the EU’s fiscal integration. It elucidates the mechanisms through which different types of crises shape executive preferences and thereby the evolution of fiscal authority across the EU’s multilevel governance system.