29 November, 2023 | Andrea Capati
COVID-19 and the reordering of EU fiscal governance
On 25 March 2020, in a letter to the President of the European Council following the outbreak of COVID-19, nine government leaders of the European Union (EU) acknowledged that ‘we are facing an external shock, for which no country bears responsibility, but whose negative consequences are endured by all’ – adding ‘we are collectively accountable for an effective and united European response’. As such, the pandemic crisis constituted a formidable ‘window of opportunity’ for institutional change in EU economic governance and the EU’s fiscal framework.
The REGROUP research paper ‘The COVID-19 pandemic and the reordering of EU fiscal governance’ aims to assess the mode of EU fiscal governance that prevailed in the EU’s response to the COVID-19 pandemic. To do so, it examines the role of the European Council in the policy-making process for the establishment of two innovative instruments with fiscal implications for the EU: the Recovery and Resilience Facility (RRF) and the general regime of conditionality (GRC) for the protection of the Union’s budget, both adopted through the ordinary legislative procedure (OLP) of the supranational system.
To explain the increasing decision-making role of the European Council under supranational policymaking in the EU’s fiscal response to the COVID-19 pandemic, the paper combines theoretical insights from the ‘new intergovernmentalism’ (NI) and the ‘emergency politics’ (EP) literatures. On the one hand, NI has sought to theorise the relative centrality of the EU’s intergovernmental method in pushing forward European integration, albeit neglecting the impact of crises, and the uncertain institutional dynamics these might engender, on the integration process itself. On the other, EP has focused on the role of intergovernmental executive institutions (i.e., the European Council) during emergency circumstances, but has mostly overlooked the institutional constraints that come with each decision-making system depending on the policy area under stress. Offering a synthesis of the two theories, the paper sheds light on the governance of European fiscal integration during the COVID-19 pandemic.
The European Council as a quasi-legislator
Examining the EU’s fiscal response to the pandemic crisis, the paper shows that, in addition to its usual strategic agenda setting functions, the European Council was able to exercise quasi-legislative decision-making powers beyond the letter of the Treaties. In particular, following the Commission’s legislative proposal for the establishment of the RRF and the GRC, the European Council brought supranational policymaking into the framework of consensual intergovernmental bargaining. Members of the European Council thus gathered behind closed doors and, acting on the basis of consensus and deliberation, secured a series of political compromises at the highest political level on the specific content of the RRF and GRC. In the published Conclusions to their meetings, they made amendments to the Commission’s original proposal that constituted a sort of red line for subsequent legislative negotiations between the Council and the European Parliament. While formally retaining their decision-making powers under the OLP, the latter were thus limited by the European Council’s leading role and acted more like implementing bodies rather than actual decision-makers.
As a consequence of such an unconventional role on the part of the European Council in supranational policymaking, decisions taken under the OLP in emergency times have increasingly followed a deliberative logic and been the result of unanimity rather than majority voting, as the Treaties would prescribe. Overall, this is quite a remarkable deviation from supranational policymaking in normal times. It implies that, under emergency circumstances, the European Council is able to essentially apply the decision-making role it exercises within the realm of the intergovernmental governance system – where no legislation is adopted – and turn itself into a veritable decision-making body in supranational law-making, where top-level political leaders are expected to carry out only informal agenda setting functions and are excluded from the exercise of legislative powers.
Further comparative research on crisis responses within the EU is needed to establish whether this governance mode is temporary or permanent in nature, and whether it applies beyond the scope of fiscal integration. This would involve examining how different crises, such as economic downturns, security threats, or environmental challenges, shape policymaking dynamics between supranational and intergovernmental approaches, with the potential to uncover patterns of crisis response strategies and their implications for European integration. In addition, as the European Council emerged as a leading decision-making institution in the supranational system during the COVID-19 pandemic, future research should explore the effects of that development on inter-institutional accountability, transparency, and democratic legitimacy.
This article highlights some of the findings in the REGROUP paper “The Covid-19 pandemic and the reordering of EU fiscal governance“.