Fiscal Policy and State Aids

Abstract

Chapter 4, entitled “Fiscal Policy and State Aids”, of the book with the title “Covid-19 and Capitalism - Success and Failure of the Legal Methods for Dealing with a Pandemic”, aims at mapping the financial support to which governments, in a number of Western jurisdictions, in particular the EU and the US, have turned in response to the crisis caused by the Covid-19 pandemic. Methodologically, this was done primarily by relying on the information made available by the relevant policy institutions, in particular the EU and the US Congress, and to which extensive reference has been made, supplemented by the opinions on this subject expressed by various leading academic researchers, besides journalists. These have been referred to in each case under the express acknowledgment that the institutions and authors thus cited have, in many cases, been the original authors of the relevant, thus cited positions and opinions. This exercise has been deemed necessary by the author with a view to evaluating the impact of the public support policy pursued in the period 2020 to H1 2021, as characterized by its neoliberal policy design, whereby this policy has also been checked against the author’s own research findings in several of his earlier works (to which reference has been made each time). It thus appears that, once again in the history of the past half century, the above-mentioned governments have tried to combat the crisis created by Covid-19 mainly by means of the classic neoliberal recipes, including subsidies and other massive support to the business sector which could be granted because the countries involved themselves engaged in massive debt financing on the financial markets. This chapter also demonstrates the fundamental weakness of said neoliberal aid policies, in particular that they fight the malady with remedies that are essentially the same as the causes of the malady, which has led to an ever-greater reliance on public and private debt throughout the Western world. By way of conclusion, this chapter closes with the question whether there is not a need for an alternative approach to money creation, in the main order of countries, but also of the private sector, in line with proposals already made by the author in his earlier work. For this, reference is also made to Chap. 11 of the present book “Covid-19 and Capitalism”.

4.1 General

The outbreak of the Covid-19 pandemic posed the most severe global public health crisis in more than a century, which in turn triggered a severe economic crisis. (Cf. Chap. 1.)

Already in Chap. 2, we explained how the EU, the EU Member States, and the United States lost precious time—more or less 6 weeks—between the first signs of Covid-19’s presence on their territory, and the firing up to start taking measures. But by then, it was too late: Covid-19 was so widely distributed that there was not much else to do than go into full lockdown.

Moreover, the EU, the EU Member States, and the United States were completely unprepared for a coronavirus-related pandemic. E.g., in none of these jurisdictions was there protection or testing equipment available, which implied that it was impossible to pursue an elimination policy, based on active testing, detection and contact tracing, coupled with the immediate wearing of masks by the entire population, such as in, e.g., Taiwan. (Cf. Sect. 2.4.2.4.1.)

As a result, most EU countries and the United States had to go into lockdown sometime between early and mid-March 2020, be it in many cases with great reluctance from both governments and heads of government, as well as from a large part of an unwilling population. (Cf. Sects. 2.3, 2.4 and 2.5.)

With these lockdowns however, the economies of these countries largely came to a standstill, for which neoliberal economies are by no means prepared. There was, moreover, little willingness to maintain lockdowns for a long time, which in turn caused neoliberal countries to suffer interrupted periods of mitigation and botched reopening—with all its disastrous consequences, notably hundreds of thousands of deaths (cf. Chap. 2.).

As a result, the Western world was soon in two crises, namely (1) a health crisis due to the Covid-19 pandemic itself, and (2) an economic crisis—which would even degenerate into a true recession—due to the poor policy reactions to the health crisis.

In turn, this prompted the Western world to provide massive (financial) support measures, initially to the corporate world, but by and by to the general population as well.

According to estimates by the EU Commission, fiscal response to the Covid-19 pandemic on a global scale amounted to about EUR 6 trillion of direct budget support for the year 2020 (which was almost 7.5% of global GDP). Most of this support came from the G20 countries and was reported to be more than double the amount of similar support that had been provided in response to the 2008 global financial crisis and its aftermath. This budget support was believed to have mitigated the impact of the Covid-19 pandemic at both the levels of production and consumption, while at the same time having resulted in an increase in public deficits and public debt.¹

Global public debt was estimated to have reached 98% of global GDP by the end of 2020. This figure was up from 84% of GDP based on projections that had been made with regard to 2020, just before the outbreak of the Covid-19 pandemic. To put some figures (and the underlying scale of values) in perspective: additional spending in the health care sector in response of Covid-19 had in 2020 come near to EUR 800 billion, while direct budgetary support to both households and enterprises amounted to almost EUR 5 trillion.² The latter especially concerned liquidity support measures to both enterprises and households, such as risk capital injections, loans, (financial) asset purchases, debt assumptions, and guarantees, to the tune of about EUR 5 trillion (about 6% of global GDP).³ According to the EU Commission, a possible future impact of these contingent liabilities on public debt and deficit was still (at least in part) dependent on the extent to which these amounts and guarantees would be effectively drawn upon by the private sector, as well as on the extent to which they would be invoked or recalled.⁴ The European Commission, furthermore, underlined some other elements for evaluating member country’s specific fiscal responses, such as: a sufficient access to affordable financing (e.g., on the financial markets⁵), the size of the welfare state, as well as the available policy space. E.g., countries with wider safety nets could extend existing measures and rely more on automatic stabilisers already in place when deploying their policy response. By contrast, countries with more limited safety nets, had to resort to a more discretionary fiscal response. E.g., already during Q1 2020, the United States managed to pass budget measures amounting to almost 17% of GDP, containing liquidity support amounting to 2.4% of GDP, while an additional USD 1.9 trillion package (of about 10% of the GDP) was debated upon—and eventually approved—in the US Congress.⁶ (Cf., furthermore, Sect. 4.4.) In a context of a far more constrained monetary policy, Japan still managed to resort to a relatively large budget stance: around 15.5% of GDP in direct budget support, containing more than 28% of GDP in liquidity support. In 2020, China was reported to have provided budget support of about 41% of its GDP, containing liquidity support of more than 1% of its GDP. With regard to the United Kingdom, budget support and liquidity support each amounted to more than 16% of GDP.⁷

It was, finally, also perceived that the relative share of health sector measures reflected both the epidemiological situation, as well as the pre-existing conditions in the health sector, with total public spending on health for 2020 ranging from 0.1% of GDP in China, to over 5% of GDP in the United Kingdom.⁸

We shall look more closely at some of these fiscal support actions in this chapter.

4.2 Fiscal Policy and State Aids in the EU, the Euro Area and Their Respective Member States

4.2.1 Introduction

Soon after the Covid-19 pandemic broke out on their territory (cf. Sects. 2.3 and 2.4.), EU Member States were faced with the dual challenge of (1) on one side, addressing the public health emergency caused by Covid-19 itself, and (2) on the other side, supporting their economies that had been severely damaged by both the Covid-19 pandemic and the public health measures deployed to combat it. The quick response governments resorted to may be due to the fact that the economies of many EU countries were already, or still, overloaded before the Covid-19 pandemic struck, especially in the wake of the financial crisis of 2008 and its aftermath.⁹

In general, among the early Covid-19 fiscal measures that were resorted to for supporting the economy, governments around the world very quickly intervened (1) to delay repayment of consumer loans and credit card payments, (2) to guarantee bank loans to small businesses, and (3) to pump virtually unlimited liquidity into their domestic business sectors.¹⁰

Each of these early measures, as well as their more profound variants that would follow throughout the rest of 2020, were based on the assumption that businesses and households would, eventually, be obliged and able to repay these loans, which, according to Blakely, would in its own turn raise a new concern that if the world would be heading for a new depression, with borrowers again unable to meet their repayment obligations, that all the new loans in the world would be unable to make a difference.¹¹

Within the EU (and/or the euro area), the strong policy response at both the national and EU level was aimed at mitigating the impact of the crisis on Europe’s socioeconomic fabric. However, the economic downturn, the emergency budgetary support for dealing with it, and the monetary support measures (that we already dealt with in the Chap. 3.), would at the same time contribute to a sharp increase in public deficits and public debt.¹² (Cf., already Sect. 3.5.)

By April 2021, EU Member States were expected to submit their so-called “Stability and Convergence Programmes” in which they set out their medium-term budgetary policy. In the months after, following the entry into force of the “Regulation on the Recovery and Resilience Facility” (cf. Sect. 4.2.3.3.1.), EU Member States were additionally required to submit their “Recovery and Resilience Plans”, the implementation of which, in many cases, had again to be accompanied by a sizeable EU-funded fiscal stimulus.¹³

In order to inform and prepare the Member States for what lay ahead, the EU Commission, moreover, published an informative “communication” on 3 March 2021, which provided broad guidance to the EU Member States on the conduct of fiscal policy in light of the EU regulation in the period ahead.¹⁴ However, at the time of this communication, the situation with regard to Covid-19 was still very uncertain, albeit some of the challenges that the EU economies would be facing when they would slowly start to recover from the Covid-19 pandemic, were getting clear. To address these expected challenges, the EU Commission considered that a coordinated and consistent policy response was necessary, based on two pillars: (1) credible medium-term fiscal policy strategies in order to support the economic recovery, and (2) ensuring fiscal sustainability in line with the EU fiscal policy framework.¹⁵

To reach to this point of restoring fiscal policy, the EU/Eurozone and its respective Member States had already come a long way in compromising on how the fiscal rules would have applied “in normal times”, implying that throughout 2020 and the first months of 2021, fiscal policy has far from been in line with the EU’s usual approach on fiscal policy matters.

We shall try to look at these in more detail in the following sections.

4.2.2 Background of the EU Fiscal Support Policy

4.2.2.1 Initial Covid-19 Response by the EU-Authorities

Given its profound impact on public health and on the economic situation throughout the EU, the Covid-19 pandemic had already by early March 2020 required a massive and coordinated fiscal and monetary policy response from both EU institutions and the EU national governments. The objectives of these measures were twofold: (1) to save lives and, (2) to mitigate the immediate negative effects on the economies of the EU Member States. The underlying policy was that both the EU Member States and the EU institutions themselves would commit to both unrestricted spending (= “spend as much as necessary to deal with the Covid-19 crisis”), and unconditional (re)financing (= “provide the EU Member States with all necessary liquidity in order to fight the pandemic”).¹⁶

However, from the 1990s onwards, fiscal policymaking in the EU does not allow anymore for such a public policy. Instead, fiscal policy had, already soon after the creation of the euro, been significantly constrained by a variety of EU measures, notably the “Stability and Growth Pact” (SGP), the “Fiscal Compact”, as well as by a wide variety of national and sub-national fiscal frameworks. In order to address the unprecedented Covid-19 crisis, some of the built-in escape clauses of these fiscal rules had to be activated, while some fiscal rules for which such escape clauses did not exist, even had to be temporarily suspended.

Already on 13 March 2020, the EU Commission published its strategy for responding with the socio-economic impact of what was initially referred to as “a sanitary crisis”.¹⁷

The EU Commission thereby clearly explained that it would do anything within its power and resort to any of the tools at its disposal in order to mitigate the negative effects of the Covid-19 pandemic, in particular:¹⁸

• (1) By ensuring a necessary supply to the European health systems, based on a respect for the integrity of the principles governing the internal market and for the production and distribution chains of value.

• (2) By supporting people, so that income and jobs would not get affected by Covid-19 in a disproportionate manner and would not suffer from permanent effects of the Covid-19 crisis.

• (3) By supporting businesses, especially by ensuring that the liquidity of the European financial sector (or, phrased differently: “(private) credit”) would continue to support the economy.

• (4) And by enabling Member States to take decisive and coordinated action, using the full flexibility of the EU framework on “state aids” and on “the stability and growth pact”.

In its response of 13 March 2020, the EU still considered that the main budgetary resources for dealing with the Covid-19 pandemic would come from national state budgets of the EU Member States themselves. The underlying EU policy at the time was still that EU Member States would be able to design fiscal support measures in accordance with existing EU rules (e.g., by resorting to measures that are usual deployed in crisis situations, such as wage subsidies, suspending payment obligations and time schedules with regard to corporate and value added taxes or social contributions, as well as by providing financial support to the direct benefit of consumers, such as providing means for the repayment of cancelled services or tickets that would otherwise not have been reimbursed by the operators or service providers concerned). The EU Commission also pointed to the fact that EU state aid rules amply allowed EU Member States for assisting companies facing liquidity shortage, or in need of other urgent rescue measures. The EU, e.g., referred to Article 107(2)(b) TFEU that allows Member States to compensate enterprises for damage directly caused by exceptional circumstances, especially also in sectors which felt an immediate negative impact of Covid-19, such as aviation and tourism.¹⁹

The EU Commission at the time also stated its readiness to propose to the EU Council to activate the so-called “general escape clause” of the Stability and Growth Pact, in case this would be necessary for providing more general support for budgetary policies. As we shall explain further in Sect. 4.2.2, this clause, when activated, allows the EU Commission, in cooperation with the EU Council, to suspend budgetary adjustment rules and policies issued or recommended by the EU Council “in the event of a severe economic downturn in the euro area or in the EU as a whole”.²⁰

By means of a further early Covid-19 response measure, the EU Commission also announced its “Coronavirus Response Investment Initiative”, aimed at mobilising EUR 37 billion to address the Covid-19 crisis. In addition, the EU Commission proposed to extend the scope of the “EU Solidarity Fund”, so that this Fund would include a public health crisis as a trigger for its mobilisation, if necessary, to the benefit of the most affected Member States. However, illustrative of the extent to which the EU Commission was still in the process of downsizing the extent of the Covid-19 crisis at the time, it was envisaged that a mere EUR 800 million would be sufficient for this purpose.²¹

This EU communication of 13 March 2020 was soon to be followed by a number of more specific measures, including measures with regard to the availability of stocks and supplies of personal protective equipment (on 15 March 2020)²² and with regard to health-related border management (on 16 March 2020).²³ Following the actions taken by the EU Commission, on 16 March 2020 the Eurogroup, furthermore, adopted a declaration on the economic response to the Covid-19 outbreak. Further coordinated action by the EU Member States was, moreover, announced to be debated at a video conference at the level of the members of the European Council of 27 March 2020.²⁴

By the end of March 2020, most EU European countries had taken measures to restrict traffic to/from their territory, while many had also resorted to restrictions on traffic within their national borders as well.²⁵

However, in light of the policy approach that left financial support to the Member States themselves, the EU was increasingly criticised for its own lack of financial support to the EU Member States, as opposed to the well-publicised aid that had been occurring in third countries, at the time notably China and Russia, and soon after even The United States. As a result, the policy debate shifted to the question how far the EU could go in deploying own support measures when a global health crisis emerged, and to the question whether a concerted effort was feasible in order to provide effective and timely support to Member States.²⁶

Still focusing on adjusting its legal framework rather than on providing support itself, on 19 March 2020, the EU Commission decided to adopt a “Temporary Framework” with as aim the relaxation of state aid rules with regard to national support measures for dealing with the Covid-19 pandemic.²⁷ On the next day, still looking for measures to ease down on its legal framework for dealing with national support measures, the European Commission issued an assessment in which it dealt with the matter how to activate the general escape clause of the Stability and Growth Pact (SGP)²⁸ (cf. Sect. 4.2.2.).

On 24 March 2020, the Eurogroup debated initiating a “preventive credit line” under the European Stability Mechanism (ESM) framework and from which the Member States could draw support for dealing with the Covid-19 pandemic. Some Member States and analysts even increasingly started pleading for resorting to so-called “coronabonds”, a series of joint bonds which would be issued by the EU itself for raising money on the capital markets in order to revive the EU economy amid the global health crisis that was caused by Covid-19. However, by late March 2020, this proposal still met severe objections by a group of fiscally conservative EU member countries, led by The Netherlands.²⁹

As countries across Europe had to take stronger containment measures for dealing with Covid-19, some analysts and commentators started wondering how such containment measures related to notions such as civil liberties and democracy. On 1 April 2020 a group of EU Member States (notably Belgium, Bulgaria, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, The Netherlands, Portugal, Romania, Spain and Sweden) even adopted a formal declaration in which they expressed their concern about the risk of Covid-19 containment measures violating the rule of law, the basic principles prevailing in democratic societies, as well as fundamental human rights.³⁰

On 2 April 2020, the European Commission adopted a new set of measures for dealing with the economic consequences of the Covid-19 outbreak. At the request of the European Council, the Eurogroup convened by means on a video conference on 7 April 2020 for purposes of debating about and agreeing upon support measures for dealing with the economic impact of the Covid-19 pandemic. As a result of this meeting, on 9 April 2020, the Eurozone finance ministers eventually reached an agreement on a policy report which contained several such proposals. However, the issue of joint debt coronabonds still remained a major source of tension between two factions, namely a group of EU member countries wanting such support and a second, more conservative group of EU member countries objecting to it. This led to another meeting by video conference which took place on 23 April 2020 and during which it was decided to endorse an “immediate economic response” to the crisis. This resulted in instructing the EU Commission to come up with a proposal for establishing a so-called “European Recovery Fund”.³¹

4.2.2.2 Measures Regarding the Stability and Growth Pact: Activation of the General Escape Clause

Since its introduction in 1997, the so-called “Stability and Growth Pact” (SGP) has put both legal limitations and pressure on national budgetary policymaking at the level of the EU Member States. These are accomplished through a set of budgetary rules and through deploying an institutional framework for monitoring compliance with these rules.³²

The EU’s fiscal framework has, since then, mostly, been enshrined in the “Stability and Growth Pact” (or, abbreviated, “SGP”). This SGP mainly aims at ensuring fiscal discipline, based upon two main requirements:

• (1) First, Member States have to avoid both “excessive government deficits” and “excessive government debt”. These criteria are measured against reference values of 3% and 60% of Member States’ GDP respectively.³³

• (2) Second, under the so-called “preventive arm” of the SGP, Member States have to comply with medium-term budgetary objectives. Country-specific budgetary targets may be set with a view of ensuring the sustainability of public finances, and of allowing the use of automatic stabilisers for measuring that the deficit thresholds prescribed by the European Treaty are not to be breached.³⁴

As the EU fell increasingly (and even more than before) into the clutches of economic neoliberalism during and in the aftermath of the 2008 financial crisis, the application of the SGP became even stricter, leaving less and less room for resorting to policies that had earlier in history (especially in the period from the 1950s until the 1970s) made the creation of welfare states possible. In the following chapters of this book, we shall take a closer look at the consequences of this for, e.g., health care (cf. Chap. 5) and care for the elderly (cf. Chap. 6). Efforts to constrain public budgets got even worse in the aftermath of the financial crisis of 2008. With regard to some EU member countries (such as Italy and Spain), these efforts were especially intensified in the years 2011 and 2012 and, according to the EU Commission, resulted in “a significant improvement” of the public finances of both the EU and the euro area. However, due to the size of the challenge that had been posed by the financial crisis of 2008 and its aftermath, and notwithstanding these severe austerity efforts, several EU Member States would still continue to show public deficits above the 3% of GDP reference value.³⁵

Perhaps realizing that its fiscal policy was too severe, in 2011, the so-called “six-pack”³⁶ reforms to the SGP were introduced. An escape clause to the SGP was hereby introduced in order to make it possible that EU Member States would temporarily depart from the existing fiscal rules, as especially laid down in the SGP, in response to “unusual events” outside the Member States’ control. For this clause to be validly used, it was required that such an unusual event should have a major impact on public finances in a single EU Member State or, following a more general, spectacular economic downturn, on public finances of all EU Member States.³⁷

With regard to the “preventive part” of the general escape clause, Articles 5(1) and 9(1) of Regulation (EC) No 1466/97 state that:

in periods of severe economic downturn for the euro area or the Union as a whole, Member States may be allowed temporarily to depart from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term.

As regards the “corrective part” of the general escape clause, Articles 3(5) and 5(2) stipulate that when a severe economic downturn for the euro area or the EU as a whole occurs, the EU Council may also decide, upon recommendation from the European Commission, to resort to a revised budgetary path.³⁸

The activation of the general escape clause of the SGP in response to the outbreak of the Covid-19 pandemic, specifically at the end of March 2020, would allow EU Member States to deviate from the budgetary obligations that normally apply³⁹ and which, if continued, would have made an adequate response to the Covid-19 outbreak virtually impossible.⁴⁰

According to Eisl, said clauses left sufficient room for flexibility to cope with the exceptional situation created by the Covid-19 virus within the context of the existing fiscal frameworks in the EU. This author considered it of vital importance to activate the built-in escape clause(s) in order to allow for decisive and coordinated fiscal action, that had moreover to be backed by a sufficiently supportive ECB. Wherever feasible, a flexible interpretation of debt repayment requirements and consolidation pathways was to be considered. Where the existing fiscal frameworks did not contain escape clauses, or where institutional or other rules risked political skirmishes, Eisl recommended suspending them at least temporarily and revising them in the medium term to allow appropriate fiscal policymaking for when another exogenous shock were to hit the EU. In the opinion of Eisl, if the Covid-19 crisis presented any opportunity at all, it was to use the exceptional fiscal remedies for dealing with an exceptional situation and for steering the economy on a more sustainable economic and environmental path, in line with the European Commission’s ambitions of the “European Green Deal”.⁴¹

Already by the end of March 2020, the perseverance of the Covid-19 outbreak led the EU Commission and the EU Council to assume that a severe economic downturn for the euro area and the EU as a whole was occurring and to take into consideration that the requirements for the activation of the general escape clause of the SGP were met.⁴² On 20 March 2020, the EU Commission, thus, formally proposed this activation of the SGP general escape clause as part of its further strategy for dealing with the Covid-19 pandemic in a swift, forceful and coordinated manner. In its announcement, the EU Commission added that the activation of the SGP general escape clause, once it would be endorsed by the EU Council, would allow EU Member States to take measures to adequately deal with the Covid-19 crisis.⁴³

At the time the EU Commission proposed activating the general escape clause of the SGP in response to the Covid-19 crisis, the clause had not been activated since it had been added to the SGP in 2011. However, by the end of March 2020, the Covid-19 pandemic was deemed to have such a “major negative impact” on the European and global economy, that its activation was required. In its already above quoted communication of 13 March 2020, the EU Commission presented an economic scenario based on a scenario analysis which demonstrated that the real GDP in the EU could shrink by 1% in 2020. The communication of 13 March 2020 also indicated that even worse scenarios, resulting into a larger impact of the Covid-19 pandemic, were not be excluded. Furthermore, it was estimated at the time that the fall in economic activity in 2020 could be similar to the contraction in 2009, which had been the worst year of the financial crisis (while the impact of Covid-19 would soon prove to be much more severe). Another factor taken into account was the fact that, by the end of March 2020, EU Member States would be faced with the rising costs of effectively controlling the Covid-19 pandemic and supporting citizens and businesses affected by the crisis.⁴⁴ The EU Commission also pointed out that financial support measures, such as those urgently needed to (1) contain the Covid-19 pandemic, (2) provide resources to the healthcare-sector for responding to the Covid-19 pandemic at a medical level, (3) ensure liquidity support to enterprises and specific economic sectors in order to allow these to survive, and (4) safeguard employment and incomes of affected employees and independent workers, would have to be considered as “one-off budgetary” expenditures, and thus not subject to the normally applying EU budget regulation requirements.⁴⁵

Resorting to the general escape clause was, therefore, intended to assist EU Member States in their fight against Covid-19, especially by enabling them to conduct budgetary policies that would enable deploying all measures needed to adequately tackle the Covid-19 crisis, while at the same time still complying with the rules-based framework of the SGP.⁴⁶

On the basis of the above considerations and in view of the expected severe economic downturn that the Covid-19 crisis was likely to create, the European Commission reached the conclusion that the conditions for activating the general escape clause of the SGP were met, and invited the EU Council to endorse this conclusion.⁴⁷

By July 2020, the European Budget Council (EFB) stated in a report that no review date and no conditions for an exit from the escape clause had yet been indicated, but that they should be discussed and agreed as soon as possible.⁴⁸

However, to the extent that the activation of the general escape clause did not put the procedures of the SGP as such on hold, the EU Commission continued to conduct the annual budgetary surveillance cycle in parallel.⁴⁹ (Cf. Sect. 4.3.)

4.2.2.3 Further Fiscal Policy Considerations About the Impact of Covid-19 on the Economic Situation

4.2.2.3.1 Economic Impact and Outlook of the Covid-19 Pandemic in the EU and the Euro Area

In both the EU and the euro area, economic activity had fluctuated sharply due to the dynamics of the Covid-19 pandemic, as well as due to the rigour of the Covid-19 response measures the EU Member States had resorted to.

According to a December 2020 IMF surveillance report, euro area real GDP contracted by 3.5% in Q1 2020 as lockdowns began in late February 2020, and by 12% during Q2 2020 as mobility within and between the EU Member States declined significantly. This contraction was mainly due to a declining private consumption, as consumer confidence deteriorated, households resorted more to precautionary savings, and spending on non-essential goods and services dropped drastically. The sharp fall in gross fixed capital formation and lower net exports—both reflecting the collapse in world trade—was also reported as putting a brake on economic growth. At that time, flash estimates already available with regard to Q3 2020 pointed to a rising economic activity growth of almost 13% (q/q) as control measures were relaxed (which, however, would soon afterwards be responsible for the huge “second wave” of the Covid-19 pandemic, which mainly affected European countries; cf. Sects. 2.3 and 2.4.). Despite this strong recovery (albeit “at huge non-economic costs”, allegedly a neoliberal euphemism for referring to a huge numbers of deaths), overall production for the year 2020 remained 4.5% below pre-pandemic levels, with the impact of the Covid-19 crisis varying widely from country to country, partly due to differences in economic structure and lockdown snares.⁵⁰

According to Partington, in the spring of 2020, global financial markets were thrown into turmoil when the Covid-19 pandemic brought western capitalism to its knees. The FTSE 100 experienced its worst day since Black Monday in 1987. On Wall Street, the Dow Jones fell faster than during the Wall Street crash of 1929. Globally, central banks cut interest rates to near zero, besides pumping billions into the financial system by using quantitative easing to restore confidence in the economy and to stabilise the situation. (Cf., furthermore, Chap. 3.) Since then, and notwithstanding this overall detrimental impact of the Covid-19 pandemic on the global economy, there have also been several large enterprises that rose to new record heights. E.g., the shares of major US technology companies rose as the Covid-19 pandemic spurred more activity online, boosting the fortunes of the world’s richest billionaires. However, the FTSE 100 remained about 1000 points below its pre-crisis peak.⁵¹

Again according to the above referred to December 2020 IMF report, despite the historic economic contraction that Covid-19 has caused, the unemployment rate in the EU rose only slightly, a fact that has been attributed to the widespread use of job retention schemes which EU member countries resorted to (as we shall point out in some more detail in Chap. 7.). This widespread use of short time working programmes not only provided employees and workers with income support for reduced working time, but has proven similarly effective for avoiding massive employee resignation, in this manner at the same time maintaining the link between employers and employees. According to the IMF, these combined measures were particularly effective for facilitating an unprecedented adjustment in the number of hours worked, without the accompanying destruction of jobs. As a result, in the course of 2020, the unemployment rate in the euro area was reported to have risen by only one percentage point to 8.4% (= figure of October 2020, seasonally adjusted). By comparison, around the same time, unemployment in the United States rose by about 3.5 percentage points in the course of the Covid-19 pandemic.⁵²

In light of the extreme second wave of the Covid-19 pandemic—which was believed to have been triggered by an excessive and premature loosening of Covid-19 measures during and after the summer of 2020 (cf. Sects. 2.3 and 2.4.), but which in its own turn made it necessary to reintroduce even more severe measures as of late-October 2020—already by December 2020, high-frequency indicators started suggesting that the economic recovery that had started to take momentum in Q3 2020 (and that had been the most important reason for abandoning the Covid-19 containment measures too soon), already was losing momentum in Q4 2020. The latter implied that after some months of modest expansion, the composite PMI again became contractionary as of November 2020. This has, amongst others, especially been attributed to a declining activity in service providing, amid increasing Covid-19 contamination cases and Covid-19 related deaths, and the need for once again having to resort to more severe Covid-19 containment measures. By contrast, manufacturing was reported to have continued to expand, albeit at a slower pace than in normal circumstances. With retail sales rebounding to above pre-Covid-19 crisis levels, mobility indicators, by contrast, again showed a decrease because of new and stricter lockdowns. Overall, economic sentiment indicators were reported to remain weak for the rest of 2020, with consumer confidence again deteriorating during the months of October and November 2020.⁵³

The euro area slipped back into recession in Q1 2021, as a too slow vaccination campaign (cf. Sect. 9.4.3.) and tighter restrictions to contain the third wave of the Covid-19 pandemic (cf. Sect. 2.4.3.) further damaged the economies of the EU region. According to Eurostat figures, between January and March 2021, GDP in the 19 euro area economies again contracted by 0.6% compared to Q4 2020.⁵⁴ Compared to Q1 2020, seasonally adjusted GDP declined by 1.8% for the euro area, and by 1.7% for the EU as a whole, after having fallen by 4.9% for the euro area, and by 4.6% for the EU as a whole in Q4 2020.⁵⁵ All of this implied that by April 2021, the euro area was in a technical recession, defined as two consecutive quarters—namely Q4 2020, and Q1 2021—of economic contraction, already for the second time since the start of the Covid-19 pandemic, a phenomenon that is referred to as a “double dip recession”. On 1 May 2021, when it was announced that the EU had slipped back into recession, the United Kingdom had itself not yet reported its GDP for Q1 2021; UK GDP was reported to have contracted in January 2021, but to have increased in February 2021. With regard to Q1 2021, the United States had recorded an increase of 1.6%, while China had posted economic growth of 0.6%.⁵⁶

When looking at the situation of individual countries, in Q1 2021, three of the euro area’s largest eurozone economies had contracted. The biggest decline came from Germany, which reported contraction amounting to 1.7%, while Spain reported a decline of 0.5%, and Italy’s GDP was reported to have fallen 0.4%. There were, by contrast, also euro area countries that reported slightly better figures. With regard to Q1 2021, France reported economic growth of 0.4% which was attributed to the fact that the country had managed to postpone a new lockdown until the end of March 2021, although by then a new increase of Covid-19 contamination cases left President Emmanuel Macron little other choice than to finally intervene. (Cf. Sect. 2.4.2.3.4.) The EU as a whole of 27 countries was also reported to slip into recession in Q1 2021, with GDP falling by 0.4%, following a similar 0.5% contraction in Q4 2020.⁵⁷ Of the remaining EU Member States for which data was available with regard to Q1 2021, Portugal (−3.3%) recorded the largest fall in comparison to the previous quarter, followed by Latvia (−2.6%) and Germany (−1.7%), while Lithuania (+1.8%) and Sweden (+1.1%) recorded the largest increases. Year-on-year growth rates were negative for all EU countries except France (+1.5%) and Lithuania (+1.0%).⁵⁸

However, economists expected that the eurozone would rebound during Q2 2021, as the number of Covid vaccinations finally started increasing, while the exceptional EUR 750 million rescue package, known under the name “NextGenerationEU”, was also expected to help address the immediate socio-economic damage caused by the Covid-19 pandemic.⁵⁹

In its “Report on Public Finances in EMU 2020”,⁶⁰ the EU Commission detailed some of the economic consequences of the economic crisis caused by the Covid-19 pandemic, which it said was “unique in its severity”.⁶¹ According to a Commission forecast of early 2021, the eurozone GDP was believed to have contracted by a total of 6.8% in 2020, before it would start recovering by an estimated 3.8% in 2021 and 2022. This implied that it would probably take until mid-2022 for the output in the euro area economy to return to pre-Covid-19 pandemic levels. Moreover, the severity of the recession in 2020, and the speed of predicted recovery in 2021 and 2022, were expected to differ significantly across Member States.⁶²

4.2.2.3.2 Early Expectations of Implementing the Next Generation EU Programme

In March 2021, one year after the Covid-19 pandemic had started to be acknowledged by the EU and the EU Member States and had, since then, been severely affecting both the EU and global economy, the EU and its Member States were still completely in the grip of said pandemic.⁶³

The start of the second wave of the Covid-19 pandemic during Q3 2020, as well as the emergence of more contagious variants of the Covid-19 virus, worsened the epidemiological situation caused by Covid-19 even more. This would force EU Member States to reintroduce or strengthen containment measures, which would in its own turn affect economic activity even more.⁶⁴

The end of December 2020 and the beginning of 2021 brought “some light at the end of the tunnel”. Several factors caused this changing situation: (1) There was, much faster than expected, the development and the start of production of Covid-19 vaccines already in the autumn of 2020. (2) This was soon followed by the launch of mass Covid-19 vaccination campaigns in all EU Member States. These factors were believed to have improved prospects and to have raised hopes of a rapid return to “normalcy”. (3) Furthermore, at the EU level, an agreement was finally reached on the “Multiannual Financial Framework and the Next Generation EU”, which was expected to bring a major economic recovery (cf., furthermore, Sect. 4.2.3.3.). (4) Moreover, the so-called RRF (cf. Sect. 4.2.3.3.1.) had finally entered into force and was intended to assist EU Member States on their way to a sustainable socio-economic recovery.⁶⁵

Still, the initial enthusiasm caused by these four factors, was tempered. This was, mainly due to the fact that European economic activity kept contracting in Q4 2020, with survey indicators suggesting that economic activity would come under further pressure in early 2021. Although it was, furthermore, assumed that progress in vaccinating EU Member States’ most vulnerable populations would gradually facilitate the resumption of economic activity, this recovery was expected to progress unevenly across EU member countries. A variety of elements was hereby believed to be at play, such as: (1) Differences with the expected speed of economic recovery because of differences in the severity of the Covid-19 pandemic between EU member countries, (2) differences with regard both the severeness and duration of control measures, (3) differences in reliance on tourism and leisure activities, (4) the overall resilience of a Member State’s economy, and (5) the extent and timeliness of policy responses. As a result of these in some cases huge differences between EU member countries, some of these were expected to already see the distance to their pre-crisis economic production level decrease as early as the end of 2021, while other member countries were not even expected to reach that level of economic recovery by the end of 2022.⁶⁶

The European Commission itself warned that these projections were still subject to considerable uncertainty and increased risks. These uncertainties and risks were mainly related to uncertainties about the further evolution of the Covid-19 pandemic and the expected success—or continued failure—of the vaccination campaigns in the EU Member States: In a more positive scenario, the vaccination process could lead to a more rapid relaxation of containment measures and thus to an earlier and stronger economic recovery as well. On the negative side, e.g. due to emergence of variants of the Covid-19 virus, the Covid-19 pandemic could prove to be even more persistent or severe in future years. One of the biggest concerns at the time was that new and more infectious variants of the Covid-19 virus would delay the lifting of containment measures or, worse, would prove resistant to the Covid-19 vaccines already developed (cf. Chap. 9.). There was especially a huge concern that this would delay the expected economic recovery even further, which would in turn risk damaging the fabric of the economies and societies of EU Member States, that were already severely affected by the ongoing economic crisis, even more. Some specific elements of concern were that there would be more bankruptcies, an increase of long-term unemployment, and/or an increase of already huge societal inequalities.⁶⁷

Against this background of uncertainties, it was hoped that an ambitious and rapid implementation of the “Next Generation EU programme”, including the RRF, would boost recovery of the EU economy.⁶⁸

Meanwhile, the deterioration of the economies of the EU Member States’ countries during Q4 2020, i.e., in the aftermath of the “second wave” of the Covid-19 pandemic, and during early 2021, which would eventually lead to the “third wave” of the Covid-19 pandemic (cf., furthermore, Sect. 2.5.6.), had already prompted EU Member States to extend economic and financial emergency measures and/or to provide additional budgetary support. At the same time, the risk for increasing sovereign debt was kept at a historical low level, partly due to a combination of decisive EU, ECB and EU Member State action. From the part of the EU, there was a close coordination of policy responses and a strongly supportive policy stance on both the fiscal (e.g., the continued deactivation of the general escape clause to the SGP) and on the monetary side (e.g., by maintaining near-to-zero interest rates, and by maintaining resort to QE and similar programs). It was also assumed that budget support could not be prematurely ended, as it was feared that a deviation from the commitment to maintain fiscal sustainability and/or monetary support in the medium term, e.g., in order to change financial market perceptions, could have disastrous consequences.⁶⁹

It was against this backdrop that, from March-April 2021, the EU authorities began to consider how to activate the various recovery measures they had put in place during 2020. What is striking is that, although on the surface, concern for non-economic interests seems to have been starting to play a more significant role in EU policy, on closer examination, the 2020 recovery plans still largely reverted to the classically tried and tested neo-liberal fiscal and monetary recipes. As our further examination of these recovery plans (cf. Sect. 4.2.3.) will demonstrate, all of these support plans and measures were based on the classic, neoliberal logic whereby the government has to finance its activities—including combating the worst crises imaginable—such as earlier the 2008 recession, and now the Covid-19 crisis—by, once again, bowing to the financial markets, or through raising (or announcing) new taxes.⁷⁰ The latter two methods are, therefore, interwoven in the recovery plans drawn up by the EU in 2020. More specifically, the EU authorities announced that, in the years to come, they would even themselves have to borrow immense sums from the financial markets, and then repay them over several more years, thus creating yet another intergenerational injustice.

4.2.3 Instalment of Specific EU Measures Allowing for Covid-19 Support

4.2.3.1 General Overview of the EU Support and Recovery Plans and Measures

By March 2020, the EU took a first step to support countries financially by providing more flexibility in the use of EU funds to combat the Covid-19 pandemic (leading to the “Coronavirus Response Investment Initiative Plus”; cf. Sect. 4.2.3.2.1.), by, as explained above (cf. Sect. 4.2.2.2.), activating the general escape clause in the SGP’s budget rules and by temporarily easing down on the rules with regard to state aid to enterprises.⁷¹ This would soon be followed, in May 2020, by a basket of further financing support measures amounting to more than 4% of EU-27 GDP. The EU then quickly moved to implement some of its more profound support measures, by, e.g., already approving EUR 87 billion in loans from the shortly before introduced European instrument for temporary “Support to mitigate Unemployment Risks in an Emergency” (abbreviated “SURE”), which was created to support countries’ short time working schemes (cf. Sect. 4.2.3.2.). Finally, in July 2020, the European Council reached what has been described as a “historic agreement” on a EUR 750 billion “Next Generation EU” (NGEU) financial support package. Once enacted into law, this package was to distribute grants and loans to EU member countries in the years to come, in order to help accelerate economic recovery from the Covid-19 crisis.⁷²

In the meantime, as has already been addressed in some more detail in the previous Chap. 3, the ECB itself was also in the process of responding to the Covid-19 crisis by easing conditions on monetary support, as well as by deploying a monetary policy that was aimed at ensuring monetary transmission to the real economy. As the severity of the Covid-19 crisis gradually became more apparent, the ECB adopted a series of measures aimed at supporting overall confidence in the financial system, as well as at preventing what was referred to as “a negative feedback loop between the financial system and the real economy”. These measures included: (1) an increase in the already existing APP-program with an additional EUR 120 billion in the course of 2020, as well as (2) the introduction of a new “pandemic emergency purchase programme” (PEPP) that was granted an initial working envelope of EUR 750 billion. Almost half of this latter envelope would already have to be used up during the first 3 months of the Covid-19 pandemic. Given its widespread use, the PEPP programme was soon expanded with another EUR 1.35 trillion, while the minimum expected horizon for net purchases was extended by 6 months to mid-2021. The flexible design of the PEPP, which allowed for the purchase of government bonds with shorter maturities and lower credit rating than under the more classical APP programme, was thereby deemed of vital importance for stabilizing the financial markets, while at the same time allowing for a significant easing of the monetary policy approach. As addressed before as well (cf. Chap. 3.), the ECB also decided to ease the requirements with regard to collateral, and to provide substantial additional liquidity to the financial sector through both targeted and untargeted refinancing operations (especially LTROs).

Together with the significant expansion of asset purchases (under the APP and the PEPP), this contributed to a strong expansion of the ECB’s balance sheet, comparable to that of central banks of other major advanced economies (such as the US Federal Reserve).⁷³

In turn, the banking supervision part of ECB policy provided commercial banks with significant capital and liquidity support which allowed them to enhance their ability to absorb losses, while at the same time ensuring that they remained able to continue to lend to a variety of market participants. E.g., as early as March 2020, it was announced that commercial banks could use up their capital conservation buffers and to temporarily operate below the capital level required by the “Pillar 2” guidelines and the liquidity coverage ratio. The prudential authorities, furthermore, granted temporary flexibility with regard to the classification and provisioning of loans backed by government assistance. These temporary prudential and bank supervision measures, flanked by an appropriate easing of countercyclical capital buffer requirements, resulted in a significant reduction of commercial banks’ capital requirements.⁷⁴ However, the measures came at the same time accompanied with significant capital conservation measures, such as restrictions on dividend payments and on the purchase of own shares. Together, these measures were aimed at stimulating bank lending.⁷⁵

During 2020, the EU/Euro area and their respective Member States resorted to a wide variety of still further measures for minimising the impact of the Covid-19 pandemic on the economy, and for easing the conditions for the adoption of fiscal response measures. The most important of these have been:⁷⁶

• (1) Already on 23 April 2020, EU leaders took the decision to work towards the creation of an “EU recovery fund” to mitigate the economic effects of the Covid-19 crisis. Through this, EU leadership instructed the EU Commission to come up with a workable proposal as a matter of urgency which would also elaborate upon the relationship between the to-be-established recovery fund and its implications for the EU’s long-term budget.

  This proposal, named “A Recovery Plan for Europe”, was ultimately presented by the EU Commission on 27 May 2020. As part of this recovery plan, on 21 July 2020, EU leadership agreed on a EUR 750 billion recovery package under the denomination “Next Generation EU”. The recovery package then went through the applicable legislative steps with the aim of having it ready by early 2021.

• (2) In addition to this recovery package, EU leaders agreed on a further EUR 1074.3 billion long-term budget for the EU for the period 2021–2027. The budget was intended to support, among other things, investment in the so-called “digital” and “green” transition and resilience. Together with the EUR 540 billion of funds already made available for the three safety nets (for employees, for enterprises, and for Member States), the total EU recovery package amounted to EUR 2364.3 billion.

• (3) On 10 November 2020, the European Parliament and the EU Council reached a provisional agreement on the support package. The EU Council that took place on 10–11 December 2020 addressed some further concerns that had been raised by the provisional agreement, thus paving the way for the final adoption of the recovery package. This resulted in the ultimate adoption of the recovery package by means of the Council Regulation (EU, Euratom) 2020/2093.

• (4) The regulation establishing the “Recovery and Resilience Facility” (RRF) was then adopted by the EU Council on 11 February 2021. This RRF formed the heart of the “Next Generation EU” package and was specifically intended to provide EUR 672.5 billion to EU Member States to help them cope with the economic and social consequences of the Covid-19 pandemic.

In the following sections, we shall elaborate on the main elements of these fiscal recovery measures.

4.2.3.2 Safety Nets for Workers, Enterprises, and Member States

4.2.3.2.1 Early Covid-19 Initiatives

Through the “Corona Response Investment Initiative” (CRII) that was already adopted on 30 March 2020,⁷⁷ and the “Corona Response Investment Initiative Plus” (CRII+)⁷⁸ that was adopted on 23 April 2020, the EU very rapidly mobilised EUR 37.8 billion of unallocated cohesion and solidarity funds for dealing with the Covid-19 outbreak. It concerned funds that could be easily reallocated, in a flexible manner, to healthcare spending, support for short-time working schemes (STW), and support measures for small and medium-sized enterprises, particularly in the most severely affected European regions.⁷⁹

In the course of 2020, the EU Commission made several more proposals to strengthen the programmes already in place, so that they could play their full role in making the EU more resilient for addressing the challenges posed by the Covid-19 pandemic and its impact. These included: (1) Horizon Europe; (2) the Neighbourhood, Development and International Cooperation Instrument (NDICI); (3) the Humanitarian Aid Instrument; (4) the Digital Europe Programme; (5) the Connecting Europe Facility; (6) the Common Agricultural Policy; (7) the Instrument for Pre-Accession Assistance (IPA), etc.⁸⁰

Apart from these individual programmes, the Covid-19 crisis also underlined how important it was for the EU to be able to react quickly and flexibly in order to provide a coordinated European response. In order to reach this goal, being able to base the European approach on a flexible EU budget was considered of vital importance. It was precisely for this reason that the European Commission made a number of further proposals to increase the flexibility of the EU budget and to ameliorate its emergency instruments with regard to the period 2021–2027.⁸¹

In junction with the national policy responses of the EU Member States, the EU also responded to the employment and social emergencies caused by the Covid-19 pandemic through means of a so-called “multi-layered initiative” in support of workers and enterprises in its Member States:

• The ECB and the European Investment Bank (abbreviated “EIB”) made substantial efforts for avoiding a pro-cyclical tightening of financing conditions for both the public and private sectors, as well as for avoiding liquidity shortages and credit squeezes. In particular, after an initial pledge of EUR 40 billion in support for European enterprises at the beginning of the Covid-19 crisis, the EIB Group set up a EUR 25 billion guarantee fund to increase its support by a further EUR 200 billion. This guarantee fund targeted small and medium-sized enterprises. (Cf. Sect. 3.2.3.)

• The EC amended several of its regulations to provide more flexibility for particularly affected sectors (such as airlines) or EU Member States. As has already been explained before, this included suspending state aid rules, as well as the activation of the SGP general escape clause in order to allow EU member countries to deviate from agreed upon budgetary requirements (cf. Sect. 4.2.2.).

• …

However, the most important programmes for addressing the Covid-19 crisis in the longer term have been those specifically designed for this purpose, which we shall examine in more detail in the following Sects. 4.2.3.2.2–4.2.3.3.

4.2.3.2.2 Support to Mitigate Unemployment Risks in an Emergency (SURE)

4.2.3.2.2.1 Establishment of SURE

As soon as it became clear that Covid-19 would not disappear quickly, EU Member States agreed to set up SURE (short for: “Support to Mitigate Unemployment Risks in an Emergency”). SURE was especially created as a temporary lending instrument for helping finance short-time work (STW) schemes (besides similar measures to support self-employment across the EU). The instrument was to be backed by EUR 25 billion in pooled guarantees originating from EU Member States, which would then be paid into an EU budget on a voluntary basis. These pooled guarantees would enable the EU to borrow up to EUR 100 billion on the financial markets, and then lend these resources to the EU Member States on favourable terms.⁸²

The initiative was part of the EU’s so-called early Covid-19 response. The EU Commission already proposed SURE on 2 April 2020. The Member States, meeting within the EU Council, adopted the regulation establishing SURE on 19 May 2020 (cf. Council Regulation (EU) 2020/672).⁸³ The regulation already entered into force on 20 May 2020.⁸⁴

The preamble to the Council Regulation itself, considered, among other things:

(5) That exceptional situation, which is beyond the control of the Member States and which has immobilised a substantial part of their labour force, has led to a sudden and severe increase in public expenditure by the Member States on short-time work schemes for employees and similar measures, in particular for the self-employed, as well as expenditure on some health-related measures, in particular in the workplace. In order to maintain the strong focus of the instrument provided for in this Regulation and thereby its effectiveness, health-related measures for the purpose of that instrument may consist of those aiming at reducing occupational hazards and ensuring the protection of workers and the self-employed in the workplace, and, where appropriate, some other health-related measures. It is necessary to facilitate efforts by the Member States to address the sudden and severe increase in public expenditure until the COVID-19 outbreak and its impact on their labour force are under control.

(6) The creation of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) (the ‘Instrument’) following the COVID-19 outbreak should enable the Union to respond to the crisis in the labour market in a coordinated, rapid and effective manner and in a spirit of solidarity among Member States, thereby alleviating the impact on employment for individuals and the most affected economic sectors and mitigating the direct effects of this exceptional situation on public expenditure by the Member States.

(…)

(8) In order to provide the affected Member States with sufficient financial means under favourable terms to enable them to deal with the impact of the COVID-19 outbreak on their labour market, the Union’s borrowing and lending operations under the Instrument should be sufficiently large. The financial assistance granted by the Union in the form of loans should therefore be financed by recourse to international capital markets.

The initiative was later, on 24 August 2020, explained to the press by EU Commission chairwoman Ursula von der Leyden in the following way:⁸⁵

We must do everything in our power to preserve jobs and livelihoods. Today marks an important step in this regard: just four months after I proposed its creation, the Commission is proposing to provide EUR 81.4 billion under the SURE instrument to help protect jobs and workers affected by the coronavirus pandemic across the EU. SURE is a clear symbol of solidarity in the face of an unprecedented crisis. Europe is committed to protecting citizens.

The temporary “Support to mitigate Unemployment Risks in an Emergency” (SURE) was, in addition, intended to be made available to EU Member States which had to mobilise significant financial resources for combatting the negative socioeconomic consequences of the Covid-19 outbreak on their territory.⁸⁶ In Article 1(1) of Council Regulation (EU) 2020/672, the scope of SURE was thereto defined as addressing the consequences of the outbreak of Covid-19, with special regard to its socioeconomic impact.

SURE was thereby authorised to provide financial assistance of up to EUR 100 billion in the form of EU loans to affected EU Member States for coping with sudden increases in public expenditure in order to preserve jobs. SURE was at the same time indicated as a crucial part of the EU’s comprehensive strategy to protect citizens and to mitigate the extremely negative socio-economic impact of the Covid-19 pandemic.⁸⁷

More specifically, the SURE instrument was intended to act as a second line of defence supporting short-time working schemes, complementing similar measures. The overall intent of the instrument was thus to help EU Member States in protecting jobs, and, through this, workers and the self-employed, against the risks of unemployment and income loss due to Covid-19.⁸⁸ In this manner, the Commission also saw SURE as a further tangible expression of EU solidarity, with Member States agreeing to support each other, through the intermediary of the EU, for providing additional financial resources where needed in the form of loans.⁸⁹

4.2.3.2.2.2 Overview of SURE Support by March 2021

By 16 March 2021, the European Commission had already made proposals for a total of EUR 90.6 billion in financial assistance to 19 EU Member States. Of these, the EU Council had already formulated approval decisions with regard to EUR 90.3 billion benefiting 18 different EU Member States. On said date of 16 March 2021, the EU Council’s approval for a further proposed EUR 230 million benefiting Estonia was expected in the weeks to follow.⁹⁰ Total SURE financial support then reached EUR 90.6 billion.⁹¹

Moreover, by said date of 16 March 2021, EUR 62.5 billion of SURE support had already been paid out to 16 EU Member States. After that date, other EU Member States could still submit additional requests for obtaining financial support under SURE, which at that time had a total firepower of up to EUR 100 billion.⁹² Table 4.1 gives a more detailed overview of the SURE support as of 16 March 2021.

Table 4.1 Overview of SURE support as of 16 March 2021 [Source: European Council – Council of the European Union (2021) and European Commission (2021a)]

4.2.3.2.2.3 Legal Aspects of SURE

Financial assistance under SURE takes the form of loans granted by the EU to individual EU Member States on favourable terms.⁹³ These loans are intended to help EU Member States in coping with sudden increases in public expenditure because of efforts to maintain employment in the context of the Covid-19 pandemic crisis. More specifically, said loans are intended to make it possible for EU Member States to cover the costs directly linked to the financing of so-called national short-time working schemes, besides similar measures adopted in response to the Covid-19 pandemic, in particular for the benefit of the self-employed. Additionally, SURE can also be resorted to in order to finance certain health measures, particularly with regard to the workplace, deployed for ensuring a safe return to normal economic functioning.⁹⁴

More in particularly, according to Article 6(1) of Council Regulation (EU) No 2020/672, financial assistance under SURE is to be made available by means of implementing an EU Council decision that is adopted on the basis of a proposal from the European Commission. Before submitting such a proposal to the EU Council, the European Commission must first have consulted the EU Member State concerned, without delay, for purposes of verifying the existence of a sudden and serious increase in actual and, where appropriate, planned public expenditure directly linked to short-time working schemes and similar measures, as well as, where appropriate, to relevant health-related measures in the EU Member State requesting financial assistance and linked to the exceptional event caused by the Covid-19 outbreak. The EU Member State concerned must, moreover, have provided the necessary evidence to the European Commission. In addition, the EU Commission has to verify that the prudential rules laid down in Article 9 of Council Regulation (EU) 2020/672 have been respected.⁹⁵

The implementing decision of the EU Council itself should mention:⁹⁶

• (a) The amount of the loan, the maximum average maturity, the pricing formula, the maximum number of instalments, the availability period, as well as other detailed rules necessary for the granting of the financial assistance.

• (b) An assessment of compliance by the EU Member State with the conditions laid down in Article 3 of Council Regulation (EU) 2020/672.

• (c) A description of national systems of working time reduction, or similar measures and, where appropriate, of relevant health-related measures, which may be funded by means of the loan granted.

Article 11(1) of Council Regulation (EU) 2020/672, furthermore, allowed EU Member States to contribute to the SURE instrument even more by providing counter-guarantees against the risk borne by the EU. Such additional contributions were to be made in the form of irrevocable, unconditional and callable guarantees.⁹⁷

When adopting a positive implementing decision, the Council of the EU should take into account the existing and anticipated needs of the requesting EU Member State, as well as the requests for financial assistance under Council Regulation (EU) 2020/672 that other EU Member States have already submitted or will submit, with an aim of applying the principles of equal treatment, solidarity, proportionality and transparency.⁹⁸

In order to finance the SURE mechanism, the European Commission was, as explained above, authorised to issue so-called “social bonds” under what has been referred to as the “Social Bond Framework” (or, in full: “the EU SURE Social Bond Framework”, hereafter also referred to as “the Framework”). The aim of this Social Bond Framework is to assure investors in these bonds that the funds mobilised under the mechanism will serve a genuine social purpose.⁹⁹

In order to reach these goals, the Framework was designed around and intended to meet the four core components of the International Capital Market Association (in short: ICMA)’s so-called “SBP”. The EU, in other words, wanted to issue social bonds under the SURE instrument as a so-called “ESG” (with the abbreviation ESG referring to “Environment, Social, and Governance”) debt instrument that would make it possible for the investment community to direct their investments for addressing some of the social needs of EU Member States affected by the Covid-19 pandemic crisis. This approach was at the same time intended to support the further development of the social bond market itself. The issuing of social bonds by the EU under the SURE initiative was especially aimed at meeting the transparency requirements with regard to the “use of proceeds”, while at the same time encouraging the measurement of the social impact of the underlying financed public expenditures.¹⁰⁰

Eligible social expenditures were at the same intended to contribute to some of the United Nations Sustainable Development Goals (in short: “SDGs”). In particular, SDGs number 3 (“Good health and well-being”) and number 8 (“Decent work and economic growth”) had been part of the focus of the SURE instrument from the beginning of the initiative.¹⁰¹

By 10 March 2021, the EU Commission had already issued EUR 62.5 billion in such social bonds. This had happened in five rounds under the EU-SURE instrument. The issuances consisted of social bonds with maturities of 5, 10 and 15 years. It moreover appeared that there was very high investor interest in these highly rated public instruments, as a result of which an oversubscription resulted in favourable bond pricing conditions.¹⁰²

By 27 October 2020, the EU SURE social bonds were listed on the Luxembourg Stock Exchange. The bonds were also on display at the Luxembourg Green Exchange, the largest platform in the world dedicated exclusively to sustainable securities.¹⁰³ On that date, the EUR 17 billion social bond issue was the first ever social bond issued by the EU Commission. The issue consisted of two tranches: a EUR 10 billion tranche, with a maturity of 10 years, and a EUR 7 billion tranche, with a maturity of 20 years. The bond issuance was oversubscribed 13 times, with demand exceeding EUR 233 billion, which in the opinion of the European Commission reflected the huge support from the investment community for such social bonds designed to secure jobs and combat rising unemployment in the EU countries as a result of the Covid-19 pandemic and the ensuing economic crisis.¹⁰⁴

4.2.3.2.2.4 The Example of Belgium

Belgium received a positive EU Council implementing decision on 17 September 2020, for an amount of maximum EUR 7,803,380,000 (under a loan having a maximum average maturity of 15 years).¹⁰⁵

Belgium had requested financial assistance from the EU on 7 August 2020, planning to complement its national efforts in addressing the Covid-19 outbreak and respond to the socio-economic consequences of the Covid-19 outbreak for workers and the self-employed. The EU Council had taken into consideration that the Covid-19 outbreak and the extraordinary measures implemented by Belgium to contain the outbreak and its socio-economic and health-related impact, were expected to have a dramatic impact on public finances. According to the EU Commission’s 2020 Spring forecast, Belgium was expected to have a general government deficit and debt of 8.9% and 113.8% of gross domestic product (GDP) respectively by the end of 2020. According to the EU Commission’s 2020 Summer interim forecast, Belgium’s GDP was projected to decrease by 8.8% in 2021. A further factor that the EU Council took into consideration was that the Covid-19 outbreak had immobilized a substantial part of the labour force in Belgium. This had led to a sudden and severe increase in public expenditure to maintain the temporary unemployment scheme (“chômage temporaire/tijdelijke werkloosheid”), the Covid-19 replacement income for the self-employed (the Covid-19 bridging right), the Covid-19 parental leave, and a number of regional and community income support schemes, and in support of public health measures.¹⁰⁶

4.2.3.3 A Recovery Plan for Europe

4.2.3.3.1 Decision-Making Steps

Already on 2 May 2018, the EU Commission had presented its proposal for a at the time forthcoming, new long-term EU budget. This contained a proposal for a new framework that was soon after followed by legislative proposals with regard to 37 sectoral programmes (in the fields of, e.g., cohesion, agriculture, Erasmus, Horizon Europe, etc.). Between 2018 and early-2020, the EU Commission then worked closely with the rotating presidencies of the EU Council, as well as with the European Parliament in order to advance the negotiations.¹⁰⁷

In response to the unprecedented crisis caused by the Covid-19 virus, on 27 May 2020, the EU Commission rekindled its earlier proposal for a new temporary recovery instrument which was called “NextGenerationEU”. This was initially based on a budget of EUR 750 billion, which was to be raised on the financial markets. The proposal was, furthermore, accompanied by targeted reinforcements to the EU’s long-term budget for 2021–2027.¹⁰⁸

The recovery plan was finally established through the following further decision-making steps:

• (1) On 21 July 2020, the EU Heads of State or Government reached a political agreement on the new recovery package.¹⁰⁹

• (2) On 10 November 2020, the European Parliament and the Council of the EU reached an agreement in principle with regard to the recovery package.¹¹⁰

• (3) The EU Member States, meeting in the EU Council on 10 December 2020, formally agreed at EU Council level to finalise the adoption of both the MFF regulation (with the abbreviation “MFF” referring to “Multiannual Financial Framework” and pointing to the budgetary component of the recovery plan), and the “Own Resources Decision”, pointing to the possibility to gather new financial means on the financial markets.¹¹¹

• (4) On 17 December 2020, the EU Council decided on the next EU long-term budget for the period 2021–2027. This also came down to the final step in the adoption process. This step was taken after a vote in the European Parliament that took place on 16 December 2020, which had endorsed the MFF regulation by a significant majority. With this EU Council decision, all conditions were met for the next multiannual financial framework (abbreviated as “MFF”) for the period 2021–2027 to enter into force on 1 January 2021. As a result, EUR 1.074 trillion (in 2018 prices) would become available for those eligible for receiving such EU funding over the next 7 years.¹¹²

• (5) On 18 December 2020, the European Parliament and the EU Council reached an agreement on the “Recovery and Resilience Facility” which was to be the main instrument for implementing “NextGenerationEU”.¹¹³

4.2.3.3.2 Two Main Parts of the Recovery Plan for Europe

In order to mobilise the necessary investments within the framework of the European Recovery Plan, the EU Commission proposed a two-pronged response:¹¹⁴

• (1) The “Next Generation EU”-component itself that was set up as a new EUR 750 billion recovery instrument that was intended to boost the EU budget with new funding raised by the EU itself on financial markets for the period 2021–2024.

  As explained in the previous sections, this recovery plan was first adopted by the EU Member States in July 2020. In accordance with this plan, the EU Commission would be allowed to borrow EUR 750 billion on the financial markets, repayable over a (very) long period of time, based on future EU budgets. The EUR 750 billion were then to be channelled through EU programmes in order to (1) support the EU Member States with investments and reforms, (2) encourage private investments and (3) strengthen EU programmes in the field of health and civil protection.¹¹⁵

• (2) A strengthened long-term EU budget for the period 2021–2027 (for an amount of 1100 billion).

The expanded long-term budget, together with the additional financial means that the EU was able to gather through “NextGenerationEU”, created the largest stimulus package ever funded out of EU budgets. While the NextGenerationEU-component was to be considered as a temporary instrument to stimulate economic recovery from Covid-19, the new long-term budget was touted as a budget “fit not only for today’s realities, but also for tomorrow’s uncertainties”.¹¹⁶ The two components considered together implied that a total of EUR 1.8 trillion was made available to rebuild a “greener”, “more digital” and “more resilient” Europe after Covid-19.¹¹⁷

The new and reinforced EU’s long-term budget itself was to be financed from the usual sources of income, such as: (1) customs duties; (2) EU Member States’ contributions based on value added tax (VAT), and (3) contributions based on gross national income (GNI). In addition, from 1 January 2021, a new national contribution on non-recycled plastic packaging waste, was introduced as an additional source of revenue for the EU budget. As explained, in order to finance Covid-19 recovery, the EU would under the NextGenerationEU-component of the package, also borrow on the financial markets at more favourable rates than EU Member States would have available, in order to then redistribute the amounts raised among the EU Member States and over the EU recovery programmes. On a technical-legal level, in order to allow the EU Commission to start borrowing on the financial markets, all EU Member States had to ratify the “new Own Resources Decision” in accordance with their national, constitutional requirements.¹¹⁸

Table 4.2 gives an overview of the components of the Multiannual Financial Framework 2021–2027 (by indicating the total allocations per heading).

Table 4.2 Multiannual Financial Framework 2021–2027 total allocations per heading [Source: European Commission (2020g)]

To achieve the objectives of the Recovery Plan for Europe, the EU Commission then deployed a range of policy instruments.¹¹⁹ More specifically, the NextGenerationEU-component was announced to be rolled out across three pillars, which are outlined below in Table 4.3.¹²⁰

Table 4.3 Overview of the three pillars of NextGenerationEU [Source: Agentschap Innoveren & Ondernemen (2020)]

The means assembled through NextGenerationEU were to be channelled through various instruments under the abovementioned three pillars, (initially) for the budgets shown in Table 4.4.¹²¹ The amounts in Table 4.4 were agreed in paragraph A14. of the Conclusions of the Special meeting of the European Council (that took place on 17, 18, 19, 20 and 21 July 2020).

Table 4.4 Budgets of the NextGenerationEU Programmes [Source: European Council (2020a, b, c), p. 5; European Commission (2020g)]

4.2.3.3.3 Three Pillars of NextGenerationEU

4.2.3.3.3.1 Pillar I: Recovery Support

4.2.3.3.3.1.1 Overview

Under “Pillar I. Supporting Member States to recover, repair and emerge stronger from the crisis” of NextGenerationEU, three (groups of) instruments were to be mobilised, namely:¹²²

• (1) The “European Recovery and Resilience Facility”, embedded in the European semester.

• (2) REACT-EU—The “Recovery Assistance for Cohesion and for the Territories of Europe”.

• (3) Supporting the green transition to a climate-neutral economy with resources gathered through the “Next Generation EU”.

4.2.3.3.3.1.2 Recovery and Resilience Facility (RRF)

In its “Annual Sustainable Growth Strategy” for 2021, the European Commission set out its (forward) guidance for implementing the so-called “Recovery and Resilience Facility” (RRF).

The RRF¹²³ was intended as the linchpin of the NextGenerationEU-plan, with EUR 672.5 billion in loans and grants raised for supporting reforms and investments set up by EU Member States. The aim of the RRF was to mitigate the socio-economic consequences of the Covid-19 pandemic, while at the same time making European economies and societies more sustainable, resilient and prepared to meet the challenges and opportunities of the green and digital transition that was continuing at the same time. Under the RRF, EU Member States that were working on their recovery and resilience plans would have access to the funds the EU managed to raise on the financial markets under NextGenerationEU.¹²⁴

Article 4(1) of Regulation 2021/241 defined the general objective of the RRF as follows:

to promote the Union’s economic, social and territorial cohesion by improving the resilience, crisis preparedness, adjustment capacity and growth potential of the Member States, by mitigating the social and economic impact of that crisis, in particular on women, by contributing to the implementation of the European Pillar of Social Rights, by supporting the green transition, by contributing to the achievement of the Union’s 2030 climate targets set out in point (11) of Article 2 of Regulation (EU) 2018/1999 and by complying with the objective of EU climate neutrality by 2050 and of the digital transition, thereby contributing to the upward economic and social convergence, restoring and promoting sustainable growth and the integration of the economies of the Union, fostering high quality employment creation, and contributing to the strategic autonomy of the Union alongside an open economy and generating European added value.

The RRF would be funded through “grants and loans” for the implementation of the EU Member States’ national recovery and resilience plans, which were to be drawn up in line with the objectives of the “European Semester”. These national recovery and resilience plans, moreover, had to contribute to the green and digital transition, as well as to reinforcing the resilience of national economies. EU Member States were thereto expected to submit draft recovery and resilience plans by 15 October 2020. As mentioned above, the budget for the RRF amounted to EUR 672.5 billion, of which EUR 312.5 billion in grants (as regulated by Article 6(1)(a) of Regulation 2021/241) and EUR 360 billion in loans (as regulated by Article 6(1)(b) of Regulation 2021/241).

The RRF would, furthermore, be steered by the “Recovery and Resilience Task Force”, which would work closely with the Directorate-General for Economic and Financial Affairs. This Recovery and Resilience Task Force (abbreviated as “RECOVER”) was eventually established on 16 August 2020 within the Secretariat-General of the EU Commission. RECOVER was made responsible for steering the implementation of the RRF, as well as for coordinating the European Semester. RECOVER would hereby report directly to EU Commission President Ursula von der Leyen. As announced, RECOVER has been working in close cooperation with the EU Commission’s Directorate-General for Economic and Financial Affairs on the following matters:¹²⁵

• (1) The coordination of the support to EU Member States in the preparation of their recovery and resilience plans.

• (2) Working together with EU Member States in order to ensure that the Member States’ notified recovery and resilience plans would meet the legal requirements, as well as achieving the goals of the dual green and digital transition and of economic recovery.

• (3) The preparation of the necessary implementing decisions for the approval of the recovery and resilience plans.

• (4) Assessing EU Member States’ progress in implementing the recovery and resilience plans and in analysing the regular reports provided for in the legislation.

• (5) The Coordination of the European Semester during this period.¹²⁶

Table 4.5 gives an overview of the maximum grant allocations under the Recovery and Resilience Facility.

Table 4.5 Recovery and resilience facility: maximum grant allocations [Source: https://ec.europa.eu/info/sites/info/files/about_the_european_commission/eu_budget/recovery_and_resilience_facility_.pdf (consulted on April 4, 2021)]

The RRF was effectively established by Regulation (EU) 2021/241. The “Facility” was specifically designed to support EU Member States’ efforts to raise their economic recovery and growth potential through both structural reforms and investment, while at the same time also being aimed to contribute to the green and digital transition. The mechanism would provide EUR 312.5 billion in non-refundable aid, and up to EUR 360 billion in loans to EU Member States. It would, thereby, especially target the economies most affected by the economic consequences of the Covid-19 pandemic. The facility was, furthermore, intended to help reduce the risk of disparities in socio-economic conditions within both the euro area and the EU. The huge overall size of the RRF-facility was made possible by an unprecedented shift in the direction of EU debt issuance, whereby it was the EU itself that would solicit the financial markets. The success rate of this approach was expected to depend equally on the quality of spending, as on the ability of EU Member States to implement their recovery, growth and transition plans in practice. The latter aspect was believed to be dependent on if effective structures for absorbing the substantial and frontloaded EU funding could be set up. Also deemed important by the Commission was that there would be a sufficient degree of coherence between the Member States’ medium-term budgetary planning and their investments and reforms under the RRF.¹²⁷

According to the EU Commission, the significant recovery and growth impact of the NextGenerationEU immediately became apparent from first model-based simulations. From this, it was assumed that the EU’s GDP would be nearly 2% higher in the short and medium term, and 1% higher in the long term, provided that all subsidies and half of the loans under the programme would effectively be used to increase productive public investment. It was also assumed that this higher investment would lead to a boost in demand in the short term, as well as potential growth in the medium term. This higher GDP was, furthermore, expected to have a favourable impact on debt-to-GDP ratios. Finally, the coordinated nature of the fiscal stimulus programme was also expected to result into positive growth spill overs due to increased export opportunities within the EU.¹²⁸

The EU Commission also expected the introduction of the RRF to have the following positive effects:¹²⁹

• A significant positive impact on national fiscal policies.

• Stimulating Member States to make public expenditure and revenues more growth friendly.

• The support of recovery plans.

• The strengthening of economic and social resilience.

• The strengthening of tax collection and enforcement, the broadening of tax bases, and the implementation of growth-friendly tax shifts, especially by reducing the tax burden on labour.

• The support of environmental and climate goals.

• The support of sound public finances through higher economic growth, presumably at no budgetary cost.

• …

4.2.3.3.3.1.3 React-EU

A second component of the NextGenerationEU included EUR 47.5 billion for “REACT-EU”, an initiative that was specifically designed to be the successor of the “Coronavirus Response Investment Initiative” and the “Coronavirus Response Investment Initiative Plus”. REACT-EU was, thereby, in particular aimed at contributing to a “green”, “digital” and “resilient” recovery of the economy.¹³⁰

Funding under REACT-EU would be made available to:¹³¹

• The European Regional Development Fund (ERDF).

• The European Social Fund (ESF).

• The European Fund for Aid to the Most Deprived (FEAD).

These additional funds were to be provided through NextGenerationEU for the period 2021–2022, and through a targeted revision of the already pre-existing financial framework for 2020.¹³²

REACT-EU was thus set up to work by means of flexible cohesion policy grants for municipalities, hospitals and businesses which are however channelled through the managing authorities of the Member States concerned. There is, thereby, no requirement for additional co-financing by the Member States themselves. The initially envisaged budget of REACT-EU amounted to EUR 55 billion, later reduced to EUR 47.5 billion. This was meant as a form of additional cohesion policy funding for the period between 2020 and 2022.¹³³

Table 4.6 gives an overview of the allocations under REACT-EU per Member State regarding 2021.

Table 4.6 Allocations under REACT-EU for 2021 per Member State (in million EUR—Gross allocations before deduction of administrative expenditure and technical assistance) [Source: https://ec.europa.eu/info/sites/info/files/about_the_european_commission/eu_budget/react-eu_allocations_2021_2.pdf (consulted on 4 April 2021)]

4.2.3.3.3.1.4 Supporting the Green Transition

The main idea behind the third component of the first pillar of NextGenerationEU, was to support the green transition to a climate-neutral economy (again based upon resources made available through “Next Generation EU”). For this, the “Just Transition Fund” was enhanced with up to EUR 40 billion in order to help Member States in accomplish this. A second part of this third component concerned a EUR 15 billion reinforcement for the “European Agricultural Fund for Rural Development”. The latter financial injection was specifically aimed at supporting rural areas in addressing the necessary structural changes in line with the “European Green Deal”, as well as in reaching the ambitious European goals in line with the new strategies on “Biodiversity and Farm to Fork”.¹³⁴

Table 4.7 gives an overview of the allocations per Member State under the Just Transition Fund.

Table 4.7 Just Transition Fund—allocations per Member State (in million EUR—Gross allocations before transfers for technical assistance) [Source: https://ec.europa.eu/info/sites/info/files/about_the_european_commission/eu_budget/just_transition_fund_allocations_05.11_v2_0.pdf (consulted on April 4, 2021)]

4.2.3.3.3.2 Pillar II: Kick-Starting the Economy

4.2.3.3.3.2.1 General

Under “Pillar II. Kick-starting the economy and promoting private investment”, the following instruments were set up:¹³⁵

• (1) The “Enhanced InvestEU Programme”, including a “Strategic Investment Facility”.

• (2) The “New Solvency Support Instrument”, meant to support equity of viable companies.

4.2.3.3.3.2.2 InvestEU

The original proposal for an enhanced EU investment program was already tabled by the EU Commission in 2018, but investment needs increased significantly due to the impact of the Covid-19 pandemic on the European economy, and due to the risk that an “asymmetric recovery” would start to occur across the EU and within the EU Member States. In the context of the revamped proposals on the MFF 2021–2027, the European Commission thereto tabled a revised proposal for what started to be referred to as the “InvestEU-Programme” on 29 May 2020.¹³⁶

This new proposal increased the initial financial envelope and amended its scope to mirror the expected post-Covid-19 pandemic needs of the European economy. The new proposal, thereby, fully reflected the elements already agreed upon by the co-legislators when negotiating the original MFF proposal in 2018. However, in order to cater to the future needs of the European economy, and in order to secure or maintain strategic autonomy in certain key sectors, a new window was added to the programme, more precisely: “the strategic European investment window”. This programme was to be based upon the provisioning of an EU budget guarantee in order to finance investment projects through the EIB group and/or national promotional banks. The initial budget of the InvestEU-programme amounted to EUR 15.3 billion. Additionally, the new “Strategic Investment Facility” was set up with an additional EUR 15 billion provisioning under Next Generation EU.¹³⁷

The (NEW) programme was thus to stand on four legs:¹³⁸

• (1) “InvestEU Fund”, which would provide an EU guarantee;

• (2) “InvestEU Advisory Hub”, which would in particular provide project development-related technical assistance;

• (3) “InvestEU Portal”, which would provide easy access to a database for promoting projects in search of financing;

• (4) blending operations.

On 26 March 2021, the proposal was approved and became Regulation (EU) 2021/523. Under point (5) of its preamble, the main purpose of the new regulation was described as follows:

The InvestEU Fund should contribute to improving the competitiveness and socio-economic convergence and cohesion of the Union, including in the fields of innovation and digitisation, to the efficient use of resources in accordance with the circular economy, to the sustainability and inclusiveness of the Union’s economic growth and to the social resilience and integration of Union capital markets, including through solutions that address the fragmentation of Union capital markets and that diversify sources of financing for Union enterprises. To that end, the InvestEU Fund should support projects that are technically and economically viable by providing a framework for the use of debt, risk sharing and equity and quasi-equity instruments backed up by a guarantee from the Union budget and by financial contributions from implementing partners as relevant. The InvestEU Fund should be demand-driven, while at the same time focused on providing strategic, long-term benefits in relation to key areas of Union policy which would otherwise not be funded or would be insufficiently funded, thereby contributing to meeting the Union’s policy objectives. Support from the InvestEU Fund should cover a wide range of sectors and regions, but should avoid excessive sectoral or geographical concentration and should facilitate access to financing of projects composed of partner entities in multiple regions across the Union, including projects that foster the development of networks, clusters and digital innovation hubs.

Article 1, par. 1 of Regulation (EU) 2021/523 describes its principal subject, namely the establishment of “the InvestEU Fund”, aimed to provide for an EU guarantee to support financing and investment operations carried out by the implementing partners that contribute to objectives of the Union’s internal policies. According to the same Article 1, par 2. of Regulation (EU) 2021/523, it also establishes the “InvestEU Advisory Hub”, meant as an advisory support mechanism to provide support for the development of investable projects and access to financing and to provide related capacity building assistance.

Also according to Article 1, par 2. of Regulation (EU) 2021/523, the Regulation further established the “InvestEU Portal”, a database granting visibility to projects for which project promoters seek financing, and which provides investors with information about investment opportunities.

According to Article 3.1 of Regulation (EU) 2021/523, the general objective of the InvestEU Programme is to support the policy objectives of the Union by means of financing and investment operations that contribute to:

• (a) the competitiveness of the EU, including research, innovation and digitisation.

• (b) growth and employment in the EU economy, the sustainability of the EU economy and its environmental and climate dimension contributing to the achievement of the SDGs and the objectives of the Paris Agreement, as well as to the creation of high-quality jobs.

• (c) the social resilience, inclusiveness and innovativeness of the EU.

• (d) the promotion of scientific and technological advances, of culture, education and training.

• (e) the integration of the EU capital markets and the strengthening of the internal market, including solutions to address the fragmentation of EU capital markets, diversify sources of financing for EU enterprises and promote sustainable finance.

• (f) the promotion of economic, social and territorial cohesion; or

• (g) the sustainable and inclusive recovery of the EU economy after the Covid-19 crisis, including by providing capital support for SMEs that were negatively affected by the Covid-19 crisis and were not already in difficulty in State aid terms at the end of 2019, upholding and strengthening existing strategic value chains of tangible or intangible assets, developing new ones, and maintaining and reinforcing activities of strategic importance to the EU, including important projects of common European interest, in relation to critical infrastructure, whether physical or virtual, transformative technologies, game-changing innovations and inputs to businesses and consumers and supporting a sustainable transition.

According to Article 3.2 of Regulation (EU) 2021/523, the InvestEU Programme has the following specific objectives:

• (a) supporting financing and investment operations related to sustainable infrastructure in the areas referred to in point (a) of Article 8(1) of the Regulation;

• (b) supporting financing and investment operations related to research, innovation and digitisation, including support for the scaling up of innovative companies and the rolling out of technologies to market, in the areas referred to in point (b) of Article 8(1) of the Regulation;

• (c) increasing the access to and the availability of finance for SMEs and for small mid-cap companies and to enhance the global competitiveness of such SMEs;

• (d) increasing access to and the availability of microfinance and finance for social enterprises, to support financing and investment operations related to social investment, competences and skills, and to develop and consolidate social investment markets, in the areas referred to in point (d) of Article 8(1) of the Regulation.

Article 8.1 of Regulation (EU) 2021/523, furthermore, stipulates that the InvestEU Fund is to operate through the following four policy windows, intended to address market failures or suboptimal investment situations within their specific scope:

• (a) A sustainable infrastructure policy window which comprises sustainable investment in the areas of transport, including multimodal transport, road safety, including in accordance with the EU objective of eliminating fatal road accidents and serious injuries by 2050, the renewal and maintenance of rail and road infrastructure, energy, in particular renewable energy, energy efficiency in accordance with the 2030 energy framework, buildings renovation projects focused on energy savings and the integration of buildings into a connected energy, storage, digital and transport systems, improving interconnection levels, digital connectivity and access, including in rural areas, supply and processing of raw materials, space, oceans, water, including inland waterways, waste management in accordance with the waste hierarchy and the circular economy, nature and other environment infrastructure, cultural heritage, tourism, equipment, mobile assets and the deployment of innovative technologies that contribute to the environmental or climate resilience or social sustainability objectives of the EU and that meet the environmental or social sustainability standards of the EU.

• (b) A research, innovation and digitisation policy window which comprises research, product development and innovation activities, the transfer of technologies and research results to the market to support market enablers and cooperation between enterprises, the demonstration and deployment of innovative solutions and support for the scaling up of innovative companies, as well as digitisation of EU industry.

• (c) An SME policy window which comprises access to and the availability of finance primarily for SMEs, including for innovative SMEs and SMEs operating in the cultural and creative sectors, as well as for small mid-cap companies.

• (d) A social investment and skills policy window, which comprises microfinance, social enterprise finance, social economy and measures to promote gender equality, skills, education, training and related services, social infrastructure, including health and educational infrastructure and social and student housing, social innovation, health and long-term care, inclusion and accessibility, cultural and creative activities with a social goal, and the integration of vulnerable people, including third country nationals.

4.2.3.3.3.2.3 Proposal for a Solvency Support Instrument

At the end of May 2020, the EU Commission also adopted a proposal for a Solvency Support Instrument.¹³⁹

The aim of this proposal was to support otherwise viable companies in the EU that faced solvency difficulties as a result of the Covid-19 crisis, and to mitigate possible distortions to the single market and its level playing field. Such distortions were to be expected given the differing degree to which the Member States were affected and the likely unevenness of their responses, depending on their fiscal capacity and level of debt. The EU Commission proposed to increase the guarantee granted to the European Investment Bank under the “European Fund for Strategic Investments” and to use it to support financial intermediaries, which was then to select companies eligible for solvency help.¹⁴⁰

At the European Council meeting of July 2020, the EU Heads of State or Government had not yet taken up the idea of the solvency support instrument. Both the European Parliament and EU Commission President, Ursula von der Leyen, had expressed their regret at this. Continuing the examination of the proposal in Parliament, the co-rapporteurs—José Manuel Fernandes (EPP, Spain), Irene Tinagli (S&D, Italy) and Nils Torvalds (Renew Europe, Finland)—then published a draft report in which they proposed to widen the scope of eligible companies and ensure fair geographical distribution.¹⁴¹

At the time, the “European Fund for Strategic Investments” (EFSI) was an EU-budget based guarantee managed by the “European Investment Bank (EIB) Group”. The Group provided financing to higher-risk projects using its leverage at the highest credit rating. An independent Investment Committee decided, based on transparent and publicly available criteria, on the eligibility of projects for EFSI support. There were no quotas limiting the help by sector, or per Member State, and the financing was solely driven by market demand. Figures showed that, at the beginning of October 2020, total investments related to EFSI approvals amounted to EUR 524 billion. The financing focused on smaller companies, digitalisation, research, development and innovation, and energy efficiency improvements. Altogether, these sectors accounted for 89% of the Bank’s investments.¹⁴²

The proposal for the Solvency Support Instrument intended to respond to Covid-19, was adopted by the EU Commission on 29 May 2020. Its main aim was to help prevent insolvencies of viable companies which had been profoundly and negatively affected by the Covid-19 crisis. It was also intended to help achieve the EU priorities of the “twin green and digital transitions” and of supporting cross-border economic activities in the EU, as well as strengthening the Union’s social dimension and convergence.¹⁴³ The financing of the Instrument would come from money raised jointly by the EU on financial markets using the Recovery Instrument. This would be used to expand an EU guarantee granted to the European Investment Bank (EIB) Group under the European Fund for Strategic Investments (EFSI). The EU Commission in this regard proposed that the at the time prevailing guarantee would be increased by EUR 66 billion for the purposes of the Instrument, to reach a total of EUR 92.4 billion. Using this EUR 66 billion guarantee, the instrument was expected to mobilise EUR 300 billion for the real economy. The instrument would also constitute a separate window under the EFSI to attract private capital. The increased guarantee would be used by the EIB Group to provide investment, guarantees or funding of financial intermediaries (such as private equity funds, special purpose vehicles, investment platforms or national promotional banks). Independent fund or vehicle managers would then carry out a selection of eligible companies with adequate return prospects, using a commercial logic. Such a public intervention, while based on these commercial terms, hence, aimed to crowd in private investors by decreasing their risk. According to the EU’s initial proposal, the Instrument was primarily meant to channel solvency support through financial market intermediaries (which were to be established and operate in the EU in order to be eligible for the SSI), and only exceptionally to enable direct support to companies by the EIB Group.¹⁴⁴ The EFSI Steering Board, appointed by the EU Commission and the EIB, was to play a key role in the governance structure of the Instrument.¹⁴⁵ The SSI would be open to all Member States and sectors covered by the EFSI, but with an increased focus on those most economically affected by the Covid-19 pandemic, and for which national solvency support measures were weaker.¹⁴⁶

According to the proposal of 29 May 2020, the Instrument would however not be available to businesses that were already in financial difficulties at the end of 2019, before the Covid-19 outbreak.¹⁴⁷

The EU Commission indicated its wish to put the Instrument in place as soon as possible in 2020, and to deploy it at full capacity in the course of 2021, with the investment period ending in 2024. However, it insisted that 60% of the financing and investment operations should already be approved by the end of 2022.¹⁴⁸

By 21 July 2020, EU Heads of State or Government reached a political agreement on the 2021–2027 “Multiannual Financial Framework”, and on the EUR 750 billion recovery instrument, “Next Generation EU” (NGEU). (Cf. Sect. 4.2.3.3.3.) However, the idea of an additional “Solvency Support Instrument”, envisaged under the NGEU’s second pillar, was dropped by the EU leaders,¹⁴⁹ although the proposal had been welcomed by some of the EU’s advisory committees, such as the Economic and Social Committee (EESC) and Committee of the Regions (CoR).¹⁵⁰

After this refusal by the EU Heads of State or Government, the initiative remained supported by several stakeholders groups, such as “Eurochambers”, “SME United”, “AECM” (European Association of Credit Guarantee Institutions), “NEFI” (European Network of Promotional Banks) and “ETUC” (the European Trade Union Confederation), all urging—especially by putting pressure on members of the European parliament (MEPs)—that the instrument would be rekindled.¹⁵¹ In the European Parliament, the file was then assigned to the “Economic and Monetary Affairs” (ECON) and “Budgets” (BUDG) Committees, under Rule 58 of the Rules of Procedure (i.e., the joint committee procedure), and to the “Committees on Environment, Public Health and Food Safety” (ENVI), “Industry Research and Energy” (ITRE) and “Transport and Tourism” (TRAN) as associated committees (Rule 57).¹⁵²

The three appointed rapporteurs published their draft report on July 29, 2020. The draft report called on the EU Commission to make a variety of amendments to the initial proposal.¹⁵³ On 27 August 2020, a further 197 amendments proposed by MEPs were published.¹⁵⁴ These covered all the parts of the proposal including: options for broadening the aim and scope of the SSI, ensuring fair allocation of funds, proposals for specific economic sectors to be prioritised, limits and prohibition on executive pay, bonuses and dividends pay-outs, ideas for commitments required from companies covered by the SSI and green transition plans, measures to prevent tax avoidance, money laundering, fraud and abuse, ensuring alignment with broader EU objectives and reporting obligations.¹⁵⁵

The ITRE committee adopted its opinion on September 2, 2020, focusing on making the instrument more targeted towards saving jobs and creating new sustainable ones, as well as helping SMEs, especially to overcome the challenges of their green and digital transformation. It also proposed that the operations of the Instrument would be aligned with a wider and clear list of EU policy priorities.¹⁵⁶ The ENVI committee adopted its opinion on 3 September 2020. It argued that the instrument would contribute to the achievement of climate, energy and environmental targets in the EU. It also recommended that most supported companies would be SMEs.¹⁵⁷

4.2.3.3.3.3 Pillar III: Learning Lessons from the Covid-19 Crisis

4.2.3.3.3.3.1 General

Under ‘Pillar III. Learning the lessons of the crisis and addressing Europe’s strategic challenges’, the following instruments were announced:¹⁵⁸

• (1) A New health programme, “EU4Health”, aimed at helping to equip Europe against future health threats.

  The new Health Programme, “EU4Health”, was more especially to be installed in order to strengthen health security and prepare for future health crises, with a budget of EUR 9.4 billion.

• (2) Reinforcing rescEU, the EU’s “Civil Protection Mechanism”, for responding to large-scale emergencies.

  This program was to be based upon grants and procurements managed by the EU Commission, for an initial total budget of EUR 3.1 billion.

4.2.3.3.3.3.2 New Health Program “EU4Health”

On 28 May 2020, as part of the Next Generation EU (NGEU) recovery instrument, the EU Commission adopted a proposal for a regulation on new stand-alone health programme for the 2021–2027 period—the ‘EU4Health programme’—to strengthen health security and prepare for future health crises.¹⁵⁹ According to the EU Commission, the Covid-19 pandemic had revealed a clear need to strengthen crisis management and health systems, and the EU4Health programme was the EU’s response to these challenges. It was intended to build on the lessons learned with a view to better equipping the EU for the future.¹⁶⁰

According to the EU Commission’s proposal, EU4Health was to have three main priorities:¹⁶¹

• (1) Strengthening health systems, by focusing on: Improving the accessibility, efficiency and resilience of health systems; Reducing inequalities in accessing healthcare; Tackling non-communicable diseases, such as cancer by improving diagnosis, prevention and care; Exchanging of best practices on health promotion and disease prevention; Scaling up networking through the European reference networks and extending it to infectious and non-communicable diseases; and Supporting global cooperation on health challenges to improve health, reduce inequalities and increase protection against global health threats.

• (2) Making medicines available and affordable, by focusing on: Making medicines, medical devices and other critical health supplies available and affordable for patients and health systems; Advocating prudent and efficient use of medicines such as antimicrobials; and Supporting innovative medical products and greener manufacturing.

• (3) Tackling cross-border health threats, by focusing on: Ensuring prevention, preparedness, surveillance and response to cross-border health threats; Building emergency reserves of medicines, medical devices and other health supplies; Establishing a EU health emergency team to provide expert advice and technical assistance in case of a health crisis; and Coordinating emergency healthcare capacity.

Under this proposal of 28 May 2020, funding for the new programme would amount to EUR 9.4 billion in constant 2018 prices, or ± EUR 10.4 billion in prices prevailing at the time of the proposal.¹⁶²

However, as health issues are not high on the neoliberal agenda, already during the negotiations on the EU’s long-term budget, the envelope allocated to EU4Health was revised downwards, compared with what was originally proposed.¹⁶³

In the European Parliament, the Committee on the Environment, Public Health and Food Safety (ENVI) received responsibility for the file. The rapporteur, Cristian-Silviu Buşoi (EPP, Romania), was appointed on 2 June 2020. On 14 October 2020, ENVI adopted the rapporteur’s draft report.¹⁶⁴

The EU Council agreed on its mandate for negotiation with the European Parliament on 16 October 2020. The European Parliament confirmed the ENVI report in plenary on 13 November 2020, thereby paving the way for interinstitutional negotiations. On 14 December 2020, the European Parliament and the EU Council reached a provisional agreement. ENVI adopted the final compromise text resulting from these interinstitutional negotiations on 15 January 2021.¹⁶⁵

According to the text, the new EU4Health programme was to support actions in areas where the EU’s contribution would have clear added value.¹⁶⁶

The programme’s objectives were to include:¹⁶⁷

• (1) Supporting health promotion and disease prevention, including by reducing health inequalities.

• (2) Protecting people in the EU from serious cross-border threats to health and strengthening European health systems’ responsiveness to cope with those threats.

• (3) Improving the availability, accessibility and affordability of medicines, medical devices and crisis relevant products (such as hospital equipment, protective clothing and diagnostic tools).

• (4) Strengthening European health systems by improving their resilience and resource efficiency, including through digital transformation.

Of the programme’s proposed total budget, 20% was proposed to go to health promotion and disease prevention, 12.5% to procurement complementing national stockpiling of essential crisis-relevant products at the EU level, and 12.5% to supporting global commitments and health initiatives, in particular, the WHO. A further 8% was earmarked for administrative expenses. The remainder of the funds was proposed to be allocated going forward.¹⁶⁸

It was also proposed to establish an EU4Health steering group, which was proposed to be composed of one member and one alternate from each Member State, with the EU Commission providing the group’s secretariat. The EU Commission was to consult with stakeholders, including civil society representatives and patient organizations, to seek their input on the annual work programs. The EU Commission would then present both the steering group’s and the stakeholders’ conclusions to the European Parliament once a year.¹⁶⁹

The EU Council’s Permanent Representatives Committee endorsed the final compromise at its meeting of 18 December 2020. On 9 March 2021, the European Parliament adopted its first-reading position on this compromise text with 631 votes in favour, 32 against and 34 abstentions. The EU Council then approved this text version on 17 March 2021.¹⁷⁰

Finally, on 24 March 2021, the Regulation (EU) 2021/522 was enacted by the EU Council and the European Parliament. According to Article 3 of Regulation (EU) 2021/522, the Programme shall have a EU added value and complement the policies of the Member States, in order to improve human health throughout the EU and to ensure a high level of protection of human health in all EU policies and activities. It shall pursue the following general objectives in keeping with the “One Health approach”, where applicable:

• (a) improving and fostering health in the EU to reduce the burden of communicable and non-communicable diseases, by supporting health promotion and disease prevention, by reducing health inequalities, by fostering healthy lifestyles and by promoting access to healthcare.

• (b) protecting people in the EU from serious cross-border threats to health and strengthening the responsiveness of health systems and coordination among the Member States in order to cope with serious cross-border threats to health.

• (c) improving the availability, accessibility and affordability of medicinal products and medical devices, and crisis-relevant products in the EU, and supporting innovation regarding such products.

• (d) strengthening health systems by improving their resilience and resource efficiency, in particular through:

  • 1. supporting integrated and coordinated work between Member States.

  • 2. promoting the implementation of best practices and promoting data sharing.

  • 3. reinforcing the healthcare workforce.

  • 4. tackling the implications of demographic challenges; and

  • 5. advancing digital transformation.

Article 4 of Regulation (EU) 2021/522 mentions some further “specific objectives”.

4.2.3.3.3.3.3 Reinforcing “rescEU”

Already in 2019, the EU had reinforced and strengthened some of the components of its so-called “disaster risk management” by upgrading the in 2013 established “EU Civil Protection Mechanism”.¹⁷¹ The latest element added to this Mechanism¹⁷²—referred to as “rescEU”—had as objective enhancing both the protection of citizens from disasters, as well as the management of emerging risks. In addition, rescEU established a new European reserve of resources (the “rescEU reserve”), which includes a fleet of firefighting planes and helicopters, medical evacuation planes, as well as a stockpile of medical equipment and field hospitals that can respond to a variety of risk situations, ranging from health emergencies, to chemical, biological, radiological, and nuclear incidents.¹⁷³

With special regard to the Covid-19 virus crisis, it was perceived that the latter had overwhelmed the ability of EU Member States to still assist each other. This was especially attributed to the fact that all EU countries were facing the Covid-19 disaster simultaneously and to a similar extent. For such cases, when EU Member States are unable to assist each other due to the high risks faced by each of the EU countries, “rescEU” was meant to provide an extra layer of protection. Through the rescEU reserve, the EU would be enabled to ensure a faster and more comprehensive response.¹⁷⁴

As part of this program, the EU Commission had already created a strategic rescEU medical reserve and distribution mechanism under the umbrella of the so-called “EU Civil Protection Mechanism”. This reserve, e.g., enables a swift delivery of medical equipment, such as respiratory ventilators and PPE. The stockpile, hosted by 9 EU Member States (notably Belgium, Denmark, Germany, Greece, Hungary, Romania, Slovenia, Sweden, and The Netherlands), is in this regard intended to allow the EU to react to health crises more quickly. During the Covid-19 crisis, more than 3.5 million of protective face masks, along with respiratory ventilators and other equipment coming from the strategic rescEU distribution centres, were in this manner (re)distributed to countries who needed them most. The rescEU reserve is, furthermore, constantly acquiring and replenishing new and more medical equipment and PPE.¹⁷⁵

The EU also increased financial support for capacities registered in accordance with the so-called “European Civil Protection Pool”. This financial support was intended for the adaptation and the repair of capacities, as well as for covering operational costs (inside the EU) and transport costs (outside the EU), when deployed under the EU Civil Protection Mechanism.¹⁷⁶

On 2 June 2020, considering the events around Covid-19, the European Commission also formulated a new proposal for amending Decision 1313/2012/EU.¹⁷⁷ The Commission’s new proposal aimed at giving the EU the tools to react more quickly when a serious cross-border emergency, such as Covid-19, strikes and affects (several) EU member countries all at the same time. To accomplish this goal, rescEU was significantly reinforced with EUR 2 billion over 2021–2027. This financial injection was aimed to create reserves of strategic equipment intended for covering health emergencies, forest fire outbreaks, chemical, biological, radiological, or nuclear incidents or other major emergencies. As a result, the total budget for the EU Civil Protection Mechanism would amount to EUR 3.1 billion.¹⁷⁸

Under the EU Commission’s new proposal, the EU would be able:¹⁷⁹ (1) to create a reserve of crisis response capacities, (2) to directly procure equipment, (3) to fully finance the development and operational costs of rescEU capabilities, (4) to use its budget more flexibly to be able to prepare more effectively and react faster in times of exceptional needs, and (5) to dispose of the logistical capacity to provide multi-purpose air services in case of emergencies, as well as to ensure timely transport and delivery of assistance.

These enhanced strategic capacities were, according to the European Commission, moreover, intended to supplement these of the EU Member States themselves. Said enhanced strategic capacities were also intended to be strategically pre-positioned in such a manner as to guarantee the most effective geographic coverage in response to an emergency. In this manner, a sufficient number of strategic assets would become available in order to support EU member countries and participating states in situations of large-scale emergencies, thereby offering an effective EU-response.¹⁸⁰ The upgraded EU Civil Protection Mechanism would, finally, equip the EU with assets and logistical infrastructure intended for catering different types of emergencies, including those with a medical dimension.¹⁸¹ This would also include internationally deployable experts, technical and scientific support for all types of disasters, as well as specific medical equipment and personnel, such as “flying medical experts”, nurses and epidemiologists.¹⁸²

4.3 Actual Fiscal Policy of the EU and the EU/Euro Area Member States in Times of Covid-19

4.3.1 The National Fiscal Policy Responses: Addressing the Covid-19 Pandemic, Sustaining the Economy and Supporting a Sustainable Economic Recovery

4.3.1.1 Findings by the EU Commission

Shortly after the outbreak of Covid-19 in continental Europe, in the own estimation of the European Commission, the EU Member States undertook what has been referred to as an “unprecedentedly strong and rapid fiscal policy response”. The aim of these fiscal measures was to offset the huge contraction in GDP which amounted to about 4.5 percentage points in 2020. On a legal-technical level, these fiscal response measures were made possible by the early activation of the general escape clause to the SGP in March 2020 (cf. Sect. 4.2.2.), as well as by deploying the full flexibility provided by the EU State aid rules, in particular through the “temporary framework” with regard to these rules that were also adopted in March 2020 (cf. Sect. 4.2.2.1.).¹⁸³

In general, the discretionary fiscal measures adopted in 2020 can be grouped into three categories:¹⁸⁴

• (1) Immediate fiscal impulse: Such immediate fiscal impulses were given through both additional public expenditure (such as for the purchase of medical supplies, support for keeping people employed, subsidising SMEs, public investments…) and letting go of tax and other revenues (such as the cancellation of certain taxes and social security contributions).

  The downsize of these measures was that they immediately led to a worsening of the budget balance of the Member States concerned without any direct (financial) compensation prospects.

• (2) Payment deferrals: several member countries resorted to deferring certain payments (instead of completely cancelling them), e.g., with regard to taxes and social security contributions. Such deferment simply implied that these amounts were not cancelled but were still to be paid later. Although such measures improved the cash position of both individuals and enterprises, they did not abolish their obligations. Throughout 2020, albeit some of these postponements lasted for a few months, they still were in most cases intended to expire in 2020. This meant that they had in such cases no impact on the overall budget balance for 2020, but only on possible monthly budget balances. However, there were also postponements of public revenues for 2020 that became due to expire in 2021, or even later. In such cases, there was a deterioration in the fiscal balances of 2020, but this was expected to improve again later. A further tool for improving the cash position of affected individuals and enterprises implied that some member countries postponed loan repayments or payment of utility bills. These measures could, however, also impact government budgets. Even in cases where such loans were provided by private banks, or in cases where the utilities were provided by private suppliers, the fiscal balance of such deferrals was expected to deteriorate with regard to the year 2020, as these deferrals resulted in lower profits for the private enterprises concerned and, hence, in lower resulting profit taxes for the countries themselves, although this was expected to improve later.

• (3) Other liquidity facilities and guarantee mechanisms: this category of measures include export guarantees, liquidity assistance, as well as credit lines through national development banks. A part of these measures were intended to improve the liquidity position of the private sector. Unlike deferrals, which are granted automatically and generally apply to selected target groups, this category of measures required positive action from the affected enterprises. Credit lines and guarantees granted in 2020 in most cases did not weaken the fiscal balance with regard to 2020 (but they could create contingent liabilities that might turn into actual expenditure in 2020, or later).

Table 4.8 shows the amount (as a percentage of GDP) of these measures, as deployed by 18 November 2020, per country.¹⁸⁵

Table 4.8 Discretionary 2020 fiscal measures adopted in response to Covid-19 by 18 November 2020, % of 2019 GDP [Source: Anderson et al. (2020)]

Overall, budget support in the EU—both with regard to automatic stabilisers and discretionary measures—amounted around 8% of GDP in 2020. This percentage was considerably higher than the budget support that had been provided in 2008–2009 (in response to the 2008 financial crisis).¹⁸⁶ Accorded to information provided by the European Commission, Member States, more precisely, resorted to crisis-related discretionary fiscal measures that amounted to almost 4% of GDP in 2020, on top of already sizeable automatic stabilisers that were estimated at around another 4% of GDP. The biggest part of these discretionary measures consisted of additional expenditure, good for about 3.3% of GDP. This included emergency expenditure for healthcare (0.6% of GDP), e.g., for increasing the capacity of health care systems, for providing protective equipment, and/or for setting up testing and tracing systems. Expenditure measures in other domains amounted to about 2.7% of GDP and, e.g., consisted of compensations to specific economic sectors for income losses, short-time working (STW) schemes, and other measures. Tax relief measures were reported to account for a further 0.4% of GDP.¹⁸⁷

However, Member States were reported to have also provided substantial indirect liquidity support for a percentage of about 19% of GDP, mostly in the form of government guarantees. Most of these guarantee schemes were subject to a formal State aid assessment and to the prior approval by the EU Commission, which was in most cases rapidly granted under the temporary framework with regard to the EU State aid rules.¹⁸⁸

On 20 July 2020, the Council of the EU formally recommended that EU Member States would resort to all necessary measures for effectively tackling the Covid-19 pandemic, supporting the economy and sustaining economic recovery. The EU Council also recommended that Member States would implement fiscal policies aimed at achieving prudent medium-term budgetary objectives, ensuring debt sustainability and supporting investment, where economic conditions permitted this.¹⁸⁹

Still according to the EU Commission, the vital liquidity support that was granted through fiscal measures, succeeded in preventing that liquidity shortfalls led to solvency problems. This took explicit account of the fact that the business sector hugely suffered during the Covid-19 crisis and that many financially sound companies, with viable business models, had nevertheless found themselves in financial difficulties. The impact of the Covid-19 crisis hereby varied from sector to sector, with businesses in the service sector, which rely more directly on social contacts, particularly having been put under pressure. Government support measures to such businesses included: (1) capital injections, (2) opening credit lines, (3) providing government guarantees for loans, (4) deferring interest payments, (5) postponing or cancelling certain taxes and social contributions, and (6) insolvency-related measures. According to estimates made by the European Commission, without these public support measures (apart from short time working schemes) or new loans, a quarter of EU enterprises would have found themselves in severe liquidity distress by the end of 2020, while already having used up their capital buffers.¹⁹⁰

At the end of 2020, public sector credit guarantees, and loan repayment moratoria, had managed to prevent an increase in loan defaults. Administrative delays, loan repayment moratoria and the temporary relaxation of bankruptcy laws also attributed to fewer firms going bankrupt in 2020 than in the previous year.¹⁹¹

Still, by the end of 2020, these forms of discretionary budget support would decline gradually due to the withdrawal or expiry of emergency measures. With the emergence of what would be referred to as the “third wave” of the Covid-19 pandemic (cf. Sect. 2.4.3.), many EU Member States were by the end of 2020 forced to reconsider the pace of withdrawal of emergency measures and continued restrictions on social contacts, making it necessary for national fiscal responses to remain agile.¹⁹²

Overall, the impact of the Covid-19-related measures was expected to be around 2.6% of GDP by March 2021, and around 0.6% of GDP by 2022. In addition, there was an expectancy that automatic stabilisers would continue to support the economy.¹⁹³

The euro area Member States’ “Draft budgetary plans” for 2021 which said Member States gradually started to prepare in the course of 2020, proved to be generally in line with the EU’s fiscal policy recommendations. In the autumn of 2020, the EU Commission started assessing the draft fiscal plans of the euro area Member States for 2021 on the basis of a qualitative assessment of the fiscal measures resorted to, including their targeted and temporary nature. Most measures in the draft budgetary plans were hereby aimed at maintaining economic activity against a background of high uncertainty. Albeit the majority of these measures resorted to in most euro area Member States budget plans were temporary, some measures in the draft budgetary plans of a few Member States turned out not to be temporary, or to be offset by compensatory measures. Following the EU Commission assessment of the draft 2021 budget plans, Member States adopted further measures with an additional direct budgetary impact of 1.0% of EU GDP in 2021. Almost all of these were on the expenditure side of the Member States’ budgets. E.g., additional expenditure on healthcare and on short time working (STW) schemes were estimated to amount to 0.2% of GDP each. Additional expenditure also included various support schemes for enterprises affected by the Covid-19 crisis, including subsidies for particularly affected sectors.¹⁹⁴

4.3.1.2 Illustration: The Example of France

To the extent that the analysis of Sect. 4.3.1.1 is based upon abstract information provided by the European Commission regarding, as such, very concrete fiscal and liquidity measures that varied from country to country (in light of the socio-economic, political, cultural … specificities of each of the EU Member States concerned), a more detailed overview of the situation in a specific country may provide some further clarification of what all this implies in practical terms. In light of the availability of figures, it has been opted to sketch such illustration based on the example of France. This overview has, moreover, been based on the figures presented by the European think tank “Bruegel” which specializes in economics and in providing economic assessments.¹⁹⁵ The dates of announcement of the figures which were used by Bruegel to make its analysis of France have been: 12, 24 and 26 March 2020, 24 April 2020, 14 and 26 May 2020, 10 June 2020, 3 September 2020, and 29 October 2020. The analysis of Bruegel, moreover, followed the division into the three categories mentioned in Sect. 4.3.1.1. This overview is presented in Table 4.9.

Table 4.9 Fiscal measure of France by 29 October 2020 [Source: Anderson et al. (2020)]

4.3.2 The EU Policy Response: Making Best Use of the General Escape Clause and ‘Next Generation EU’

As explained earlier, in March 2020 the EU authorities had resorted to activating the general escape clause of the SGP which basically allows for a temporary derogation from the normal functioning of the EU fiscal rules in an acknowledged situation of severe economic downturn (cf. Sect. 4.2.2.).

As regards the preventive part of the SGP in particular, Articles 5(1) and 9(1) of Regulation (EC) No 1466/97 laydown that:

in periods of severe economic downturn for the euro area or the Union as a whole, member states may be allowed temporarily to depart from the adjustment path towards the medium-term budgetary objective, provided that this does not endanger fiscal sustainability in the medium term.

At the same time, however, the EU Commission considered that the activation of the general escape clause did not suspend the (other) procedural requirements of the SGPt, but that this activation would allow the EU Commission and the EU Council to take the necessary policy coordination measures for fighting the pandemic within the framework of the Pact, while being allowed from deviating from the budgetary rules that would apply under normal circumstances.¹⁹⁶

In May 2020, the Commission approved reports under Article 126(3) of the Treaty on the Functioning of the EU with regard to all Member States, with the exception of Romania. The reason for this exclusion of Romania was that the latter country was already subject to an excessive deficit procedure at the time. Said reports assessed the Member States’ compliance with the so-called “deficit criterion” for 2020, based on their own plans and/or on the European Commission’s spring 2020 forecast. With regard to some Member States, compliance with the debt criterion for 2019 was also assessed.¹⁹⁷

As a result of their policy response to the Covid-19 pandemic, EU Member States’ planned deficits with regard to 2020 were in most cases above the 3% of GDP threshold. Given the fact that this was the case for most Member States, the European Commission could only conclude that no decision was needed at that stage for the policy question of whether an “excessive deficit procedure” was to be opened for all of these Member States. This was justified by the exceptional uncertainty created by the Covid-19 outbreak on a macroeconomic and fiscal level, including for the design of a credible fiscal policy path.¹⁹⁸

According to the European Commission, any decision on the continued activations of the general escape clause of the SGP had to be taken on the basis of an overall assessment of the state of the EU economy in light of quantitative criteria. By May 2021, such an economic outlook still remained very uncertain, making it impossible to reach the conclusion (with a sufficient degree of certainty) that the severe economic downturn in the EU or the euro area would soon come to an end, especially in the light of the disastrous start of the European Covid-19 vaccination campaigns (cf., furthermore, Sect. 9.4.3.) and of the outbreak of a third wave of the pandemic (cf. Sect. 2.4.3.). In the opinion of the European Commission, the deactivation of the general escape clause (and, hence, the reactivation of the SGP as a whole) remained conditional on the state of the EU economy, as well as on the state of the euro area economies, with the European Commission explicitly acknowledging that it would take time for these economies to return to more normal economic conditions.¹⁹⁹

In the opinion of the European Commission, the main quantitative criterion for making the overall assessment of whether or not to continue the deactivation of the SGP’s general escape clause would be the measuring of the overall economic activity in the EU or the euro area, compared to pre-crisis levels (at the end of 2019). According to the EU Commission’s winter forecast for 2021, EU GDP was expected to again amount to its 2019 level no sooner than mid-2022. This was considered to be a sufficient preliminary indication for justifying that the general escape clause would probably remain activated throughout 2022, only to be deactivated as of 2023.²⁰⁰

4.4 United States

4.4.1 Overview

In the course of 2020 and 2021, the American legislator approved several major pieces of legislation for responding to the Covid-19 pandemic.²⁰¹

This first important legal measure for dealing with the Covid-19 crisis, was already resorted to on 6 March 2020. It concerned “H.R. 6074”,²⁰² or the “Coronavirus Preparedness and Response Supplemental Appropriations Act”. This law provided USD 8.3 billion in funding for vaccine development, loans to affected small enterprises, evacuations and emergency activities at State Department facilities, besides a variety of other humanitarian assistance.²⁰³

The second piece of legislation concerned “H.R. 6201”,²⁰⁴ or the “Families First Coronavirus Response Act”. This law was passed on 17 March 2020 and provided roughly USD 100 billion in tax credits aimed at supporting emergency paid leave benefits. The law also expanded unemployment benefits and mandated that employers would give, approximately, 2 weeks of paid sick leave to their employees. The law at the same time increased access to food and nutrition support, targeted at both children and adults and accomplished this through waiving specific program requirements.²⁰⁵

However, the centrepiece legislation for dealing with the Covid-19 crisis under the Trump administration, was the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”,²⁰⁶ which was approved by the US Senate on 19 March 2020 and then passed by the US Congress on 27 March 2020. (Cf. Sect. 4.4.2.)

A fourth piece of legislation still voted under the presidency of Donald Trump, was the “Consolidated Appropriations Act” (CAA), 2021. (Cf. Sect. 4.4.3.)

A fifth important piece of legislation for dealing with the consequences of the Covid-19 pandemic was President Joe Biden’s “American Rescue Plan Act” of 11 March 2021.²⁰⁷ The latter law was aimed at providing additional relief to workers and employers through a combination of further tax credits, expanded federal unemployment benefits, and additional forms of small-business aid²⁰⁸ (cf. Sect. 4.4.4.).

4.4.2 The “Coronavirus Aid, Relief, and Economic Security Act” (or “CARES Act”)

4.4.2.1 Passing of the CARES Act

The “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act”²⁰⁹ was approved by the US Senate on 19 March 2020. The CARES Act was then passed by the US Congress on 27 March 2020. The Act, purportedly, allocated USD 2.2 trillion for providing fast and direct economic aid to the American people negatively impacted by the Covid-19 pandemic. Of that money, approximately USD 14 billion was granted to the Office of Postsecondary Education, under the form of a programme that has been referred to as the “Higher Education Emergency Relief Fund”, or “HEERF”.²¹⁰

The CARES Act’s other principal provisions included:²¹¹

• A new Paycheck Protection Program, which expanded eligibility for, and provided USD 349 billion to fund, special new loans, loan forgiveness, and other relief to small enterprises that were negatively affected by the Covid-19 crisis.

• A USD 500 billion federal stimulus program for air carriers and other companies in severely distressed sectors of the American economy. The lending programs imposed stock buyback, dividend, executive compensation, and other restrictions on direct loan recipients.

• Changes to the tax code in order to provide economic relief to businesses.

• The creation of rapid tax rebates and expansion of unemployment benefits to provide relief to individuals.

• Substantial federal spending and significant changes for healthcare companies, providers, and patients.

• The creation of a Coronavirus Relief Fund (CRF).

4.4.2.2 General Budgetary Impact of the CARES Act

According to Boccia and Bogie, the official amount of financial support that the CARES Act provided in response to the Covid-19 pandemic amounted to USD 1.8 trillion, an amount lower than previous projections of almost USD 2.3 trillion, in part because the former estimation excluded loan guarantees on debt that the government expected to be repaid. According to these authors, by comparison, the American Recovery and Reinvestment Act of 2009 had (only) injected USD 831 billion into the US economy through tax cuts and spending programs. The CARES Act passed in March 2020 was, hence, more than twice the size of the American Recovery and Reinvestment Act, thereby dwarfing what had previously been the country’s largest stimulus package since World War II.²¹²

By means of a second comparison, with regard to the fiscal year 2019, the US federal government had spent a total of USD 1.3 trillion on discretionary programs. That was just over 74% of the spending approved by the CARES Act alone. Moreover, of that USD 1.3 trillion for the year 2019, the US Congress allocated USD 676 billion for national defence. By comparison, federal revenues that year totalled USD 3.5 trillion. The CARES package alone was expected to consume more than half of those revenues. The CARES Act was, furthermore, expected to add USD 1.8 trillion more to the government deficit for 2020 alone. When adding the amounts of the early Covid-19 measures, namely the “Families First Coronavirus Response Act” at USD 192 billion, and the initial “Coronavirus Preparedness and Response Supplemental Appropriations Act” at USD 8 billion, the US federal government deficit for 2020 had been tripled. The long-term debt impact, with additional borrowing costs included, were expected to even be greater.²¹³

Figure 4.1 gives an indication of the evolution of the US federal government spending, revenue and deficit/surplus as of the 1980s.²¹⁴

Fig. 4.1

US government spending, revenue, and deficit/surplus [Source: USAfacts (2020)]

4.4.2.3 Content of the CARES Act, in Headlines

According to a profound and informative assessment undertaken by USAfacts, the full text of the CARES Act is over 800 pages, with appropriations of up to USD 500 billion, but also many much smaller appropriations, such as a USD 100 million to support the Transportation Security Administration, and USD 9.1 million for supporting cyber security and infrastructure protection.²¹⁵

Figure 4.2 provides an overview of the Act’s main spending areas.

Fig. 4.2

The largest budget components of the CARES Act [Source: USAfacts (2020)]

According to “USAfacts”, the biggest part of spending under the CARES Act has been on roughly USD 500 billion for supporting ailing enterprises. This spending segment of the CARES Act was reported to include, amongst others, the following components: (1) over USD 425 billion for allowing the US Federal Reserve to rapidly expand its lending activities, as well as its purchases of government-backed securities, (2) USD 50 billion for loans to passenger airlines, (3) USD 8 billion for loans to cargo airlines, and (4) USD 17 billion for support to other enterprises critical for ensuring national security.²¹⁶ However, the possibility to provide loans to enterprises was not unconditional. E.g., employees entitled to remuneration amounting to more than USD 425,000 per year, were not to be given any higher remuneration, any repurchase of shares was prohibited during the term of the loan, and companies had to maintain their personnel level as high as possible.²¹⁷

The second biggest part of the spending component of the CARES Act concerned about USD 350 billion of support to small enterprises (referring to “businesses with fewer than 500 employees”). The bulk of this money for small enterprises ran through one of the best-known programmes of the CARES Act, namely the “Paycheck Protection Program”. This programme allowed small enterprises to borrow up to 250% of their average monthly wage bill, with a maximum limit of USD 10 million. Applications for receiving such a loan could be made through most banks. These loans were specifically intended to cover 8 weeks of payroll expenses and additional debt repayments. Money from such loans that was effectively used for paying wages and existing interest payments on mortgages, rent payments, leases and utilities, would, furthermore, be “waived”—i.e., would not have to be paid back by the lending enterprises.²¹⁸

Another key component of the CARES legislation concerned a programme aimed at providing eligible persons with a tax rebate of USD 1200, to be increased by USD 500 per eligible child. The rebate already declined at income levels above USD 75,000 (or USD 150,000 for joint residents). According to an estimate made by the Joint Committee on Taxation, this programme was good for a cost of USD 300 billion over the subsequent 2 years.²¹⁹

USD 250 billion dollars were allocated to a temporary programme for “Pandemic Unemployment Assistance (PUA)”. This programme extended coverage to a huge number of workers, including self-employed people and gig workers. The programme also provided up to 39 weeks of federally funded unemployment insurance (UI) benefits for unemployed workers who were not eligible for other unemployment benefits or paid leave. State legislation had to determine a person’s benefit amount based on such a person’s recent earnings. Under this programme, all eligible unemployment insurance benefits were to be supplemented by an additional benefit of USD 600 per week during the weeks of unemployment ending on, or before, 31 July 2020. For context: The average weekly regular unemployment benefit in the United States amounted to USD 356 per week in 2018. In 2018, claims for 79.2 million weeks of regular unemployment insurance had been made, accounting for USD 25.6 billion in government expenditure. According to data provided by the Bureau of labor Statistics, the median weekly wage for part-time workers in 2019 was USD 279. For full-time workers, it amounted to USD 933 per week.²²⁰

The CARES Act also established a USD 150 billion Coronavirus Relief Fund (CRF) for support to state, local and tribal governments. States were to receive an amount proportional to their population, with a minimum amount of USD 1.25 billion per state. The fund was to be used for all necessary expenses related to Covid-19. For some background, state and local governments across the United States were reported to have spent a total of USD 3.6 trillion in 2017, with large states such as California having spent a whopping USD 567 billion, and smaller states such as Idaho having spent USD 13 billion.²²¹

The CARES Act also distributed more than USD 140 billion in funds for various health-related efforts, in addition to an amount of USD 8.3 billion already before been earmarked for public health (cf. Sect. 4.4.2.4.7.). The CARES Act thus provided USD 100 billion to a “Public Health and Social Services Emergency Fund” which was intended to provide money to hospitals and other health care facilities responding to the Covid-19 pandemic. The law also allocated USD 16 billion for the “Strategic National Stockpile” and USD 27 billion for the development of Covid-19 diagnostics, vaccines, therapeutic treatments and personal protective equipment. Several other health-related funds were also distributed under the CARES Act, including USD 4.3 billion for the Centers for Disease Control and Prevention (CDC) and USD 200 million for the Centers for Medicare and Medicaid Services. To illustrate, the federal government had spent roughly USD 55 billion on public health in 2019, which represented a mere 0.1% of total federal spending that year.²²²

4.4.2.4 Further Details About Specific Components/Programs of the CARES Act

4.4.2.4.1 Paycheck Protection Program

According to Gore et al., the CARES Act added USD 349 billion to the already above-mentioned new “Paycheck Protection Program” that is administered by the Small Business Administration (“SBA”). This program was set up to provide loans and loan forgiveness in order to furnish enterprises with liquidity to keep employees on the payroll. The maximum amount available to a small enterprise under a Paycheck Protection Program loan was the lesser of: (1) 2.5 times the amount of the enterprise’s average monthly payroll costs, excluding any compensation of an employee in excess of his annual salary of USD 100,000 or compensation to an employee with a principal residence outside of the USA; or (2) USD 10 million.²²³

Enterprises were allowed to use these loans to pay:²²⁴

• Payroll costs, including salaries, wages, paid leave, group healthcare benefits, retirement benefits, and state or local taxes; and

• Interest on any mortgage obligation, rent, utilities, and interest on certain pre-existing debt obligations.

According to the mentioned authors, ordinarily, the SBA applied the size standards in 13 C.F.R. § 121.201 for determining eligibility for SBA loans. However, the Paycheck Protection Program of the CARES Act altered the SBA’s size standards to expand eligibility for these new SBA loans in two significant manners:²²⁵

• (a) First, the CARES Act increased the maximum size of enterprises under the standard to the greater of: (1) 500 employees; or (2) the prevailing maximum in the SBA’s regulations. For accommodations or food service enterprises, the Act applied the 500-employee size standard at each business location, not to the total across all locations. Moreover, under the SBA’s affiliation rule, the SBA aggregated the business and all affiliated companies for purposes of size standards.²²⁶

• (b) Second, the Paycheck Protection Program waived the affiliation rule for three types of enterprises: (1) Accommodations or food service businesses with no more than 500 employees at each business location; (2) Franchises assigned an SBA franchise identifier code; and (3) Businesses that received financial assistance through the Small Business Investment Company program.²²⁷

The Paycheck Protection Program also waived the SBA’s usual rule that the eligible enterprise should be unable to obtain credit elsewhere, as well as the usual personal guarantee and collateral requirements.²²⁸

4.4.2.4.2 Federal Stimulus Relief for Severely Distressed Economic Sectors

The Federal Stimulus Relief for Severely Distressed Economic Sectors program of the CARES Act authorized the Treasury Secretary to provide loans, loan guarantees, and other investments in support of eligible enterprises, states, and municipalities. Under this program, the CARES Act authorized up to USD 500 billion for lending programs, including:²²⁹

• Up to USD 25 billion to make loans and loan guarantees for passenger air carriers, eligible enterprises that were certified under 14 CFR Part 145 (i.e., maintenance repair operations), and ticket agents.

• Up to USD 4 billion to make loans and loan guarantees for cargo air carriers.

• Up to USD 17 billion to make loans and loan guarantees for “businesses critical to maintaining national security.”

• Up to USD 454 billion, plus any remainder from the three categories above, to make loans and loan guarantees to, and investments in, Federal Reserve programs or facilities, for the purpose of providing liquidity to the financial system that supports lending to otherwise eligible enterprises, states, or municipalities.

4.4.2.4.3 Passenger Air Carriers and Related Enterprises in Particular

As regards the conditions the CARES Act imposed on stimulus loans to passenger air carriers and related enterprises, cargo air carriers, and enterprises critical to national security in particular, the CARES Act instructed the US Treasury Secretary to publish procedures for applications and minimum requirements within 10 days upon enactment of the Act. The CARES Act also imposed several conditions in addition to otherwise applicable Treasury rules, including:²³⁰

• A borrower and its affiliates could not engage in stock buybacks of the borrower or its parent (unless required by contract in effect on date of the Act), or pay dividends until 1 year after the loan would no longer be outstanding.

• A borrower had to agree, until 30 September 2020, to maintain employment levels applicable as of 24 March 2020, and had to retain no less than 90% of employees as of that date.

• A borrower had to certify that it was a US-domiciled business and that its employees were predominantly located in the United States.

• The duration of the loan was to be as short as possible and not to exceed 5 years.

• Alternative financing was not reasonably available to the borrower.

• The loan had to be sufficiently secured, or made at an interest rate that reflected the risk of the loan and, if possible, not less than an interest rate based on market conditions for comparable obligations before the Covid-19 outbreak.

• The loan could not be forgiven.

• The borrower’s operations had to be jeopardized by losses related to the Covid-19 pandemic.

The loan programs also imposed restrictions on the compensation an eligible borrower was allowed to pay to the employee. In particular, the borrower was not allowed to increase the compensation of an employee whose total compensation exceeded USD 425,000 but was less than USD 3 million or pay such employees severance or termination payments that exceeded twice the maximum total annual compensation received by that employee. The Act also imposed a special compensation prohibition on officers or employees making more than USD 3 million: such employees were not to not receive compensation in excess of USD 3 million plus 50% of their pay in excess of USD 3 million. The Secretary’s regulations could impose other conditions, including on air carriers and businesses critical to national security.²³¹

4.4.2.4.4 Support for FED Liquidity Programs and Facilities

With regard to requirements and other considerations which the CARES Act imposed on the Treasury’s support for FED liquidity programs and facilities, the Act again authorized the Treasury Secretary to make loans and loan guarantees to, and other investments in, FED liquidity programs or facilities that supported lending to eligible businesses, states, or municipalities by: (1) purchasing obligations or other interests directly from issuers; (2) purchasing obligations or interests in secondary markets; or (3) making loans.²³² (On these monetary programs, cf. already Sect. 3.3.)

The following further rules applied:²³³

• Applicable requirements of section 13(3) of the Federal Reserve Act would apply to an obligation or interest acquired under such a program or facility.

• The principal amount of any obligation issued by an eligible enterprise, state, or municipality under such a program or facility could not be reduced through loan forgiveness.

• Specifically with regard to direct loans made pursuant to such a program or facility, equity repurchase prohibitions (except to the extent required by contract in effect on the date of the Act) regarding the enterprise and any parent company, capital distribution prohibitions, and limitations on certain employee compensation would generally apply until 12 months after the loan was no longer outstanding.

• The CARES Act also stated that the Treasury Secretary was to endeavour to seek the implementation of a Federal Reserve liquidity program or facility that provided financing to banks and other lenders that made direct loans to mid-sized enterprises and included specific requirements for borrowers under such a program or facility.

4.4.2.4.5 Further Measures of Relief to Enterprises

4.4.2.4.5.1 Credit for Covering Part of Employee Wages

The CARES Act provided significant tax relief to enterprises.²³⁴

With regard to the assistance that was made available to employers who kept employees on payroll even though the enterprise had temporarily stopped its activities, the CARES Act provided eligible employers a fully refundable credit.²³⁵

The credit that was granted to such an employer was equal to 50% of qualified wages paid, up to a maximum of USD 5000 of credit per employee. Eligible wages were those paid to an employee for any period during which the employer was an eligible employer. For enterprises employing more than 100 employees, however, the wages had to be paid to employees who did not provide services during that period.²³⁶

An eligible employer was one whose business either: (1) was fully or partially suspended because of a governmental decision in response to the Covid-19 pandemic, or (2) suffered a significant decline (50% or more) in gross receipts in given calendar quarter compared to the same quarter in the preceding year. Moreover, such an employer eligible due to a decline in his gross receipts still remained eligible until the first calendar quarter during which his gross receipts returned to 80%, or more, of the gross receipts from the same calendar quarter in the preceding year.²³⁷

This credit remained available for wages paid between 13 March 2020 and 31 December 2020.²³⁸

4.4.2.4.5.2 Delay of Employer Payroll Taxes

The CARES Act, furthermore, granted a “Delay of Payment of Employer Payroll Taxes”. This system allowed employers to defer payment of the employer portion of Social Security taxes (6.2% of wages) that would have been payable between the date of enactment of the CARES Act and 31 December 2020. Self-employed people were similarly allowed to defer payment of half of the self-employment tax that would have been payable between enactment of the CARES Act and 31 December 2020.²³⁹

However, the system allowed for a deferment, as a result of which all payment obligations remained due. Thus, deferred payments were required to be repaid over the next 2 years, implying that at least 50% of the deferred taxes had to be paid by 31 December 2021, while the remaining 50% had to be paid by 31 December 2022. Employers did not become subject to deposit penalties, while self-employed people did not become subject to estimated tax penalties with regard to the deferred payments provided that these would eventually get paid by the extended due dates. Furthermore, the deferral system was not available to a taxpayer who had a loan forgiven under the Paycheck Protection Program made available under Title I of the CARES Act.²⁴⁰

4.4.2.4.6 Tax Rebates and Other Measures to the Benefit of Individuals and Families

The CARES Act also provided tax rebates to individuals and families, such as an immediate rebate of up to USD 1200 (USD 2400 for married taxpayers, filing jointly), increased with an additional USD 500 for each qualifying child of the taxpayer(s). This rebate was however reduced by 5% of the taxpayer’s adjusted (yearly) gross income (“AGI”) in case the latter income exceeded: (1) USD 75,000 for single taxpayers (or married taxpayers filing separately); (2) USD 112,500 for heads of household; and (3) USD 150,000 for joint filers.²⁴¹

Moreover, the CARES Act eased rules for individuals to make so-called “in-service withdrawals”, or to take loans from qualified retirement plans in 2020. The CARES Act also waived certain required minimum distributions that would otherwise have occurred from certain contribution retirement accounts.²⁴²

The CARES Act also made some changes to unemployment assistance in order to both increase benefits and broaden eligibility for individuals whose jobs had been affected by Covid-19. E.g., as explained before, the CARES Act created a temporary “Pandemic Unemployment Assistance” (PUA) program for people who otherwise would have been ineligible for unemployment benefits, such as people being self-employed, people seeking part-time employment, people having insufficient work history, or people who would otherwise not qualify for regular unemployment.²⁴³ The CARES Act thus paid USD 600 per week, through 31 July 2020, above the unemployment benefits otherwise available under state formulas to each individual receiving unemployment insurance or Pandemic Unemployment Assistance. The CARES Act also extended unemployment benefits for an additional 13 weeks for those who remained unemployed after state unemployment resources were unavailable. These benefits were to be available through December 2020.²⁴⁴

4.4.2.4.7 Healthcare Provisions

With regard to the level of healthcare provisions, it is noteworthy to point to the fact that the CARES Act created a USD 100 billion fund meant for reimbursing hospitals and healthcare providers for costs attributable to Covid-19.²⁴⁵

In addition, the CARES Act made several other important changes to federal health laws. The CARES Act also expanded the requirement for health insurers, with no cost sharing by the patient, to cover either FDA-approved or HHS-identified Covid-19 diagnostic tests. This was conditional upon the requirement that test providers would display the test’s cash price on a website. The Act, furthermore, imposed on insurers to reimburse that price or a negotiated price.²⁴⁶

The CARES Act contained several more rules with regard to health care, such as expanded telehealth authorization and increased Medicare reimbursements for certain Covid-19 related care services, as well as for certain non-Covid-19 care services.²⁴⁷

The CARES Act finally also updated and streamlined an existing over the counter (“OTC”) monograph system for OTC drug products, transitioning from a process of formal rulemaking to administrative orders. Under certain circumstances, the CARES Act also provided for limited marketing exclusivity of qualifying products.²⁴⁸

4.4.2.4.8 Coronavirus Relief Fund (CRF)

An important further feature of the CARES Act concerned the establishment, by section 5001 of the CARES Act, of the CRF as a means of assistance to national and local governments. The CARES Act, more precisely, made a total amount of USD 150 billion of federal budget support available for state and local governments through the CRF. Eligibility for such support was made dependent on location, level of government and intended use of the potential funds.²⁴⁹

The CARES Act provided for a total of USD 8 billion to be distributed through the CRF to tribal governments. The CARES Act thereby stated that the allocations to individual tribes had to be based on the increase in government spending from fiscal year 2019 to fiscal year 2020. This had to done via a process established by the US Treasury and the Department of the Interior. That process resulted in two rounds of payments. In a first round, 60% of the total tribal support was disbursed, with allocations based on tribal population data. By contrast, the second round’s payments were to be distributed based on tribal employment and expenditure data, once these data would be available. The Department of Finance was made responsible for disbursing all allocations to tribal governments, except those for Alaska Native governments whose participation was the subject of a pending lawsuit.²⁵⁰

CRF assistance was in general intended for supporting state governments. However, the CARES Act allowed that local governments with at least 500,000 inhabitants (according to the latest census data) would opt for receiving assistance directly from the US Treasury,²⁵¹ while local governments in general could receive assistance from their state, as long as the funds obtained would be used for eligible purposes.²⁵²

Although no additional national and local support was provided under the CAA (cf. Sect. 4.4.3.), the deadline for spending the Coronavirus Relief Fund (CRF) funds under the CARES Act was extended by the CAA until 31 December 2021.²⁵³

4.4.3 The Consolidated Appropriations Act (CAA), 2021

On 21 December 2020, after what has been referred to as an 8-month test of endurance, the US House passed a USD 900 billion Covid-relief and a USD 1.4 trillion government funding package that was meant to provide critical Covid-19 pandemic aid to Americans, while securing federal agency operations through September 2021.²⁵⁴ The Act was named the “Consolidated Appropriations Act, 2021”.²⁵⁵

This mammoth measure, signed by President Donald Trump on 27 December 2020, provided for a new round of direct payments, higher unemployment benefits, funding for education, and support for sectors still affected by the economic impact of the Covid-19 pandemic.²⁵⁶

Congress itself had approved the long-awaited, additional set of Covid-19 legislation on 21 December 2020 as part of a “Bipartisan-Bicameral Omnibus COVID Relief Deal”. The Senate approved the bill with 92-6 votes, and the House of Representatives with 359-53 votes. The “relief bill” was included as Division N of a more general legislative package that included public financing and other bills. The final text of the legislative package²⁵⁷ was thereby the result of frantic last-minute negotiations between the Trump administration and lawmakers, and between Republicans and Democrats.²⁵⁸

The CAA represented the second largest Covid-19 recovery legislation, after the CARES Act, for a combined total of more than USD 3 trillion in support. The continuation of fiscal support for small enterprises, unemployed workers, households and other entities was intended to help bridge the gap until the large-scale Covid-19 vaccine rollout announced for 2021 (cf. Sect. 9.4.2.) was expected to end the worst of the Covid-19 crisis. In addition, the next (117th) Congress and the incoming Biden presidential administration were expected to consider further aid and incentives in early 2021.²⁵⁹ According to the federal government’s website, the CAA was also the fifth-longest bill passed by Congress in US history.²⁶⁰

Although the law is much more detailed, here follows a general overview of ten of its main features:²⁶¹

• (1) The set of Covid-19 measures carried a total price tag of USD 900 billion, to be attached to a year-end spending bill of USD 1.4 trillion, bringing the total cost of the package to about USD 2.3 trillion, making it one of the largest spending bills of the 116th Congress. About USD 429 billion of the package came from reused, unused funds from the “Paycheck Protection Program” included in the CARES law of March 2020.

• (2) The CAA included an extension of the (federal) “Pandemic Unemployment Assistance program” under which the federal government supplemented state unemployment benefits (cf. Sect. 4.4.2.4.6.).

  The new round of the programme would include benefits of USD 300 per week for up to 11 weeks, beginning on 27 December 2020. The legislation, furthermore, intended to support the unemployed with a USD 25 billion temporary and targeted rental assistance programme, extending a pre-existing eviction moratorium (instituted by the Centers for Disease Control and Prevention (CDC)) until 31 January 2021.²⁶²

  The CAA also provided for a second round of direct payments to individuals, modelled on the reparations granted as part of the CARES Act, albeit with significant changes. The direct payments would be up to USD 600 per person and eligible child, with no ceiling on household size. Adult dependents would not be eligible. The rebate would be set up in the same manner as the recovery rebates, namely as early eligible dependents and USD 174,000 for married couples with a joint household without eligible dependents.²⁶³

• (3) The CAA provided a new round of incentive vouchers in the amount of USD 600 per person, including children, below an income threshold of USD 75,000 per year or more. It also provided food assistance to families in need by increasing SNAP benefits, funding for the Commodity Supplemental Food Program and support for farmers.²⁶⁴

• (4) The CAA included roughly USD 325 billion for loans to small enterprises, including a new round of the wage protection programme. It also simplified the “loan forgiveness” process of the CARES Act for borrowers with loans of USD 150,000 or less.

  Renewed funds totalling USD 284 billion were allocated to the Paycheck Protection Program (PPP). The CAA thereby broadened eligibility for non-profit organisations and included reserves for very small enterprises and community-based lenders. Second-time loans were limited to companies with fewer than 300 employees and a decrease in gross receipts of at least 25% in a quarter of 2020, compared to the same quarter of 2019. The maximum size of loans for second-time borrowers was set at USD 2 million. Companies that took out a PPP loan could also take advantage of the Employee Retention Tax Credit (ERTC), whereas previously they could only choose one or the other.²⁶⁵ PPP loans could be used to pay for eligible expenses, extended to eligible expenses such as covered property damage, supplier costs or employee protection expenses, in addition to employee wages or operating costs such as rent and utilities. When used for eligible expenses, PPP loans could be waived. The CAA also provided a simplified application process for loan forgiveness of up to USD 150,000.²⁶⁶

• (5) The CAA provided USD 20 billion for new EIDL (“economic injury disaster loan programme”) grants for enterprises in low-income communities, USD 43.5 billion for continued debt relief from the Small Business Administration (SBA), and USD 2 billion for SBA loan enhancements. In addition, USD 15 billion in dedicated financing was set aside for cinemas, independent film theatres and cultural institutions.

• (6) The CAA increased the refundable payroll tax credit from a maximum of USD 5000 to USD 14,000 by changing the calculation from 50% of wages up to USD 10,000, to 70% of wages up to USD 10,000 for a quarter. The CAA clarified that companies could take the employee retention tax credit and participate in the PPP.

• (7) The CAA included USD 82 billion for education funding, including K-12 and higher education to help reopen in-person learning. The CAA also included support for public schools, territories and the Bureau of Indian education. Furthermore, USD 10 billion was allocated for grants to childcare centres to help them safely reopen.

• (8) Under the CAA, USD 69 billion was allocated for testing, traceability, vaccine development and vaccine distribution.

  When the law came into force, both the BioNTech-Pfizer (or “Comirnaty”) and Moderna Covid-19 vaccines had been granted emergency licences. As states had been made in charge of distribution, this made funding in this category particularly important. (Cf., furthermore, Sect. 9.3.1.3.)

• (9) The CAA helped the transport sector with USD 50 billion in aid for airlines (USD 16 billion), airports (USD 2 billion), highways (USD 10 billion), buses (USD 2 billion), Amtrak (USD 1 billion), and public transport (USD 14 billion). The US Postal Service was also helped by the removal of a loan repayment scheme from the CARES Act.

• (10) The CAA provided USD 3 billion to the Healthcare Provider Relief Fund to compensate caregivers for additional costs and lost income due to the Covid-19 pandemic.

4.4.4 The American Rescue Plan Act, 2021

On 11 March 2021, President Joe Biden signed a new set of Covid-19-related laws, the “American Rescue Plan Act of 2021”,²⁶⁷ which was intended to provide additional assistance to workers and employers under the form of tax credits, extended federal unemployment benefits and additional support for small enterprises.²⁶⁸

The US House of Representatives had previously approved a version of the “American Rescue Plan Act” on 27 February 2021. The US Senate approved a revised version on 6 March 2021.²⁶⁹

To make this plan possible, the House and Senate had already approved a budget revision in February 2021 that allowed to put together the USD 1.9 trillion aid package. The size of the package has remained roughly the same since it had been unveiled by President Biden during the transition period, and after he had successfully rebuffed a proposal by a group of 10 Republicans that advocated only a USD 618 billion bill.²⁷⁰

The American Rescue Plan Act 2021 initiative was announced on the White House website on 20 January 2021, where it was explained that President Biden was:²⁷¹

laying out the first step of an aggressive, two-step plan for rescue, from the depths of this crisis, and recovery, by investing in America, creating millions of additional good-paying jobs, combatting the climate crisis, advancing racial equity, and building back better than before.

Furthermore, the American Rescue Plan was announced:²⁷²

to change the course of the pandemic, build a bridge towards economic recovery, and invest in racial justice” [and to] address the stark, intergenerational inequities that had worsened in the wake of Covid-19.

It was also estimated “that these proposals would cut child poverty in half”.²⁷³

However, the Senate’s conciliation rules were much stricter than those of the House. In addition to raising the minimum wage, the Senate scrapped funding for an expansion of the “Bay Area Rapid Transit” underground in Silicon Valley and a bridge in New York State. The Democrats also shifted tax provisions in the bill. They scrapped a House proposal that would have ended the growth of annual limits on contributions to retirement accounts after 2030. These were replaced by tighter limits on executive pay, but only starting in 2027. Senate Democrats also added a proposal that would make a large portion of student loan forgiveness free of income tax, by making an exception to the normal rule that student loan forgiveness is income from 2021 to 2025.²⁷⁴

The American Rescue Plan Act of 2021 provided for a third round of direct stimulus vouchers for eligible beneficiaries. Individuals with an annual adjusted gross income of USD 75,000 or less would receive an amount of USD 1400 (plus USD 1400 for each eligible dependent). Persons with an income of more than USD 75,000 would receive less than USD 1400, and the benefit was completely eliminated for persons with an income of USD 80,000 or more.²⁷⁵ For married couples, each spouse was entitled to USD 1400 (USD 2800 for both), but the threshold was at a total annual income of USD 150,000, or less, and would be phased out for couples earning USD 160,000 or more per year.²⁷⁶

The American Rescue Plan Act of 2021 extended the three main unemployment insurance programmes started by the CARES Act and continued in the CAA, 2021.²⁷⁷

The Pandemic Unemployment Assistance (PUA) programme, which was designed for laborers who are traditionally ineligible for unemployment insurance (such as the self-employed), was normally scheduled to expire on 14 March 2021. However, the American Rescue Plan Act of 2021 extended it until 6 September 2021, and the number of weeks of eligibility was increased from 50 weeks to 79 weeks.²⁷⁸

Since the CARES Act, the “Pandemic Emergency Unemployment Compensation” (FPUC) provided additional weeks of unemployment compensation for persons who had exhausted their state unemployment benefits. The FPUC was to expire on 14 March 2021, but the programme was extended to 6 September 2021, by the American Rescue Plan Act of 2021. In addition, the eligible weeks were extended from 24 weeks to 53 weeks.²⁷⁹ Similarly, the FPUC supplement of USD 300 per week, which was also due to expire on 14 March 2021, was extended until 6 September 2021 by the American Rescue Plan Act.²⁸⁰

Importantly, under the American Rescue Plan Act of 2021, benefit recipients earning less than USD 50,000 annually were not required to declare the first USD 10,200 of unemployment benefits as income for the 2020 tax year.²⁸¹

The American Rescue Plan Act of 2021 also established a fund for the “Pension Benefit Guaranty Corporation” intended for providing financial assistance to “critical and declining” plans. This financial assistance was not a loan and did, hence, not involve repayment obligations for the schemes receiving assistance. The rules governing the withdrawal requirement remained unaltered and the legislation did nothing to deal with the problems that had led to the multi-employer pension crisis in the first place.²⁸²

From 1 April 2021 to 30 September 2021, eligible individuals who are laid off, put on leave or reduce their working hours, could choose to continue their group health insurance without having obliged to pay COBRA premiums.²⁸³

The American Rescue Plan Act of 2021 also provided premium subsidies for individuals who purchased health insurance on the “Affordable Care Act” exchanges until 2022. The subsidies were considered income increases, but under the law, individuals would not have to pay more than 8.5% of their income for health insurance purchased on an exchange.²⁸⁴

The American Rescue Plan Act of 2021, furthermore, extended tax credits to offset the costs for employers who voluntarily granted Families First Coronavirus Response Act (FFCRA) paid emergency medical leave or extended family and medical leave to their workers. The tax credits would be available from 1 April 2021 to 30 September 2021. In addition to the reasons for paid emergency sick leave allowed under the FFCRA, tax credits would be made available for sick leave wages paid when:²⁸⁵

an employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, Covid-19 and such employee had been exposed to Covid-19 or the employee’s employer had requested such test or diagnosis, or the employee was obtaining immunization related to Covid-19 or recovering from any injury, disability, illness, or condition related to such immunization.

Similarly, tax credits for paid emergency family leave could be taken when workers were unable to work or telecommute due to caring for a child whose school was closed due to the Covid-19 pandemic, for the existing six FFCRA sick leave reasons, as well as for two additional testing and vaccination reasons.²⁸⁶

The Biden package also included tens of billions of dollars aimed to facilitate the rollout of the Covid-19 vaccines. Specifically, USD 8.75 billion was allocated to federal, state, local, territorial and tribal public health agencies to distribute, administer and monitor vaccinations, with some funds specifically intended for ensuring that the administration of the Covid-19 vaccines would reach the disadvantaged communities. Vaccine development would also receive an additional boost, with about USD 20 billion allocated to federal biomedical research for the production and procurement of Covid-19 vaccines and therapeutics, along with about USD 3 billion for a strategic national stockpile of Covid-19 vaccines. Another USD 25 billion would be spent on testing and contact tracing and on reimbursing hospitals for lost income related to the Covid-19 pandemic.²⁸⁷

Furthermore, the employee deduction introduced under the CARES Act was to be continued until 31 December 2021. This provision allowed certain companies to claim a tax credit for eligible wages paid to employees.²⁸⁸

Two existing CARES Act assistance programmes of the Small Business Administration (SBA) received a further cash injection under the American Rescue Plan Act of 2021. The Paycheck Protection Program was granted another USD 7.25 billion, although the programme would not be prolonged beyond its prevailing expiry date of 31 March 2021. Another USD 15 billion was earmarked for the Economic Injury Disaster Loan Program.²⁸⁹

Furthermore, the American Rescue Plan Act of 2021 allocated USD 28.6 billion for the creation of the “Restaurant Revitalization Fund”, which would also be managed by the SBA. Eligible entities for grants from this fund included restaurants, bars, lounges, caterers and certain other businesses that had less than 20 locations and that were not publicly traded. The money received under the programme could be used for “personnel costs”, “rent and mortgage payments”, “utilities”, “maintenance costs”, “food and beverage expenses”, “sick leave” and other prescribed costs.²⁹⁰

Section 3610 of the CARES Act had been designed to reimburse federal contractors for paid leave granted to certain of their employees or subcontractors who are/were unable to work or telecommute due to the Covid-19 pandemic. The programme had already been extended by the CAA until 31 March 2020. The American Rescue Plan Act of 2021 further extended the programme until 30 September 2021.²⁹¹

The American Rescue Plan Act of 2021 was further to provide USD 200 million for the Wage and Hour Division of the US Department of Labor, the Office of Workers’ Compensation Programs, the Office of the Solicitor, the Mine Safety and Health Administration, and the Occupational Safety and Health Administration (OSHA) to carry out activities related to the protection of workers from Covid-19, and for the Office of Inspector General to oversee the Secretary’s activities “to prevent, prepare for, and combat Covid-19.” More specifically, [not] less than USD 100 million would be set aside for OSHA, and at least USD 5 million of that amount was meant for Covid-19 enforcement activities in high-risk workplaces, such as health care facilities, meat and poultry processing plants, agricultural labor places and prisons.²⁹²

4.5 Conclusions

During the Covid-19 crisis, the United States, the EU and the EU Member States (the latter, under a EU tolerance policy, esp. the activation of the general escape clause of the Stability Growth Pact (SGP): cf. Sect. 4.2.2.2.), each in their own way, made massive amounts of financial support available to their ailing economies, most notably to the corporate sector, thus protecting the latter from a deluge of bankruptcies.

In order to finance this support, both the United States and the EU member states—but even the EU itself—took out massive loans on the financial markets.

In this manner, the Covid-19 fiscal support became yet another illustration of how, especially in times of crisis, one of the basic principles of capitalism keeps prevailing, namely the supremacy of the interests of “capital”, ergo of the economy, over those of “labour”, ergo of real people of flesh and blood. (Cf., furthermore, Sect. 2.2.7.)

As a result, in full accordance with this neoliberal logic, most of the Covid-19 financial support went to large enterprises, from there to “trickle down” on common people in their capacity as employees. Recourse was thus, once more in history, taken to the traditional neoliberal recipe that had been used in the financial crisis of 2008, albeit this time not just in favour of banks, but of the entire business sector.

In light of this fiscal approach, one may even start to argue that capitalism has evolved into a form of socialism for the rich, subsidized by the poor. According to Chomsky, the corporate elite are in this manner basically given a for free insurance policy to the extent that, each time they get in trouble, the state—hence the general public—will bail them out. This is, moreover, bound to happen again and again.²⁹³

This massive financial support to the business sector, obviously, implied a far-reaching willingness on the part of the Western, neoliberal governments to shield large enterprises—ergo the rich (particularly the shareholders and other—important—stakeholders of (big) enterprises)—from the harsh logic of the free market itself, while everyone else is, with each crisis, getting more subjected to this capitalistic logic.²⁹⁴ Under classical and neoliberal doctrine, the former forms of financial support to the entrepreneurial world, should not even be possible, to the extent that they are, by definition, not in line with market functioning.²⁹⁵ According to neoliberal theory, enterprises facing hardship, in principle, should have to look after themselves, or simply go bankrupt. But, with regard to the rich and their enterprises, neoliberal policymakers clearly do not want to play the economic game in that manner anymore. On the contrary, with each crisis, the rich and their enterprises get the signal that, if the going gets tough, their neoliberal government will generously come to their aid, and then pass the cost of this aid on to the taxpayer in a more distant future. Already in the past, this neoliberal policy approach has been referred to as the “privatization of profits and socialization of costs”-principle, which had already been benevolently applied in response to the financial crisis of 2008.

This also implies that each crisis makes states more debt-laden, and therefore poorer, and, to the extent that states are themselves but a fiction of the law, this implies that in the real world, where people of flesh and blood are the ones who live and work, and pay taxes, it is mainly the lower and middle classes who have to bear the funding of government through said taxes. This implies that, once again, it is the common man (belonging to the lower and middle classes of society) who is the big victim of the crisis, with all the typically associated intergenerational injustices this entails. And as after the crisis, neoliberal governments are bound to resort to austerity to clean up their mess, the average citizens will have to endure an even further demolition of their welfare state as well.

This will obviously have far-reaching dimensions for the future of the Western world, which we shall readdress in Chap. 11.