{"id":118,"date":"2020-07-30T16:36:20","date_gmt":"2020-07-30T15:36:20","guid":{"rendered":"http:\/\/blogs.exeter.ac.uk\/tarc\/?p=118"},"modified":"2024-12-04T11:01:09","modified_gmt":"2024-12-04T11:01:09","slug":"how-are-we-paying-for-this-economic-crisis-eus-new-budget","status":"publish","type":"post","link":"https:\/\/sites.exeter.ac.uk\/tarc\/2020\/07\/30\/how-are-we-paying-for-this-economic-crisis-eus-new-budget\/","title":{"rendered":"How are we paying for this economic crisis? EU\u2019s new budget"},"content":{"rendered":"<p style=\"text-align: center\"><strong>Clara Volintiru and John D\u2019Attoma<\/strong><\/p>\n<p>The EU is stepping up to the economic challenges posed by Covid19 with a recovery plan titled\u00a0<a href=\"https:\/\/ec.europa.eu\/commission\/presscorner\/detail\/en\/ip_20_940\">Next Generation EU<\/a>\u00a0of\u00a0<a href=\"https:\/\/www.ft.com\/content\/b16ea218-d520-47ab-bab2-bbd4041059b8\">750 billion euros<\/a>. Together with the\u00a0<a href=\"https:\/\/www.consilium.europa.eu\/media\/45109\/210720-euco-final-conclusions-en.pdf\">new multiannual EU budget<\/a>\u00a0it all rounds up at almost\u00a0<a href=\"https:\/\/edition.cnn.com\/2020\/07\/21\/economy\/eu-stimulus-coronavirus\/index.html\">2 trillion euro<\/a>, which are to be dispersed through grants and loans to member states. As member states rally in solidarity,\u00a0<a href=\"https:\/\/www.washingtonpost.com\/gdpr-consent\/?next_url=https%3a%2f%2fwww.washingtonpost.com%2fbusiness%2ftechnology%2fstimulus-package-breaks-new-ground-in-european-unity%2f2020%2f07%2f21%2f81310358-cb4e-11ea-99b0-8426e26d203b_story.html\">mutualizing debt<\/a>, a looming issue persists: will the next generation foot the bill?\u00a0Will it be worth the burden?<\/p>\n<p>There is very little room for the\u00a0<a href=\"https:\/\/foreignpolicy.com\/2020\/03\/20\/this-time-can-we-finally-turn-a-financial-crisis-into-an-opportunity\/\">austerity-based approach of the previous crisis<\/a>\u00a0which has left governments across Europe with little political capital. The continent shifts from the concept of\u00a0<a href=\"https:\/\/www.ecfr.eu\/article\/commentary_the_case_for_a_sovereign_europe\">European sovereignty<\/a>\u00a0to that of\u00a0<a href=\"https:\/\/www.ecfr.eu\/solidaritytracker\">European solidarity<\/a>, but leaders stumble on how to proceed with the\u00a0<a href=\"https:\/\/www.researchgate.net\/publication\/337819410_EUROPE_NEXT_PROJECT\">European project<\/a>. As always, it is a question of money: will countries pool together their resources and further the\u00a0<a href=\"https:\/\/www.washingtonpost.com\/politics\/2020\/04\/21\/europes-leaders-meet-this-week-confront-coronavirus\/\">political union<\/a>, or will they continue to stand apart, cautious of their national electorates\u2019 reaction to what is characterized by many to be a \u201c<a href=\"https:\/\/www.forbes.com\/sites\/georgecalhoun\/2020\/05\/26\/europes-hamiltonian-moment--what-is-it-really\/#1b4f3ca61e1a\">Hamiltonian moment<\/a>\u201d for Europe? Interestingly enough,\u00a0<a href=\"https:\/\/www.europarl.europa.eu\/resources\/library\/media\/20200526RES79816\/20200526RES79816.pdf\">recent polls<\/a>\u00a0show Europeans more inclined to support further integration, as the pandemic has convinced many of the\u00a0<a href=\"https:\/\/www.theguardian.com\/world\/2020\/jun\/23\/europeans-believe-in-more-cohesion-despite-eus-covid-19-failings\">need for more EU cooperation.<\/a><u>\u00a0<\/u>And this is all about common action in the end &#8211; the ever-elusive convergence and cohesion across all member states, North and South, East and West. The move towards\u00a0<a href=\"https:\/\/euobserver.com\/opinion\/148930\">common action in the health sector<\/a>\u00a0in the context of the Covid19 could be the very thing to jumpstart the next phase of a more political EU.<\/p>\n<p>Given the current context, with the motto of standing \u201c<a href=\"https:\/\/www.europarl.europa.eu\/news\/en\/headlines\/eu-affairs\/20200624STO81905\/together-for-europe-s-recovery-germany-takes-over-council-presidency\">together for Europe\u2019s recovery<\/a>\u201d,\u00a0<a href=\"https:\/\/www.politico.com\/news\/2020\/06\/24\/angela-merkel-germany-339195\">Germany seems forced to take the lead<\/a>\u00a0and pay the bill, as the single largest economic power in the EU. But it is highly unlikely it will do so without a clear contingency plan on public finances at the national level.<\/p>\n<p>Global public debt is expected to reach an all-time high, exceeding 101% of GDP, and the average overall fiscal deficit is expected to soar to 14 percent of GDP in 2020, according to the\u00a0<a href=\"https:\/\/www.imf.org\/en\/Publications\/WEO\/Issues\/2020\/06\/24\/WEOUpdateJune2020\">latest IMF projections<\/a>.\u00a0For many EU countries, the year could close with\u00a0<a href=\"https:\/\/ec.europa.eu\/info\/sites\/info\/files\/economy-finance\/ip125_en.pdf\">double-digit public deficits<\/a>\u2014for Spain and Italy for sure, but also likely for France, Poland and Romania.<\/p>\n<p>Therefore, a\u00a0<a href=\"https:\/\/www.foreignaffairs.com\/articles\/2020-04-22\/can-pandemic-defeat-politics-austerity?fbclid=IwAR2XXyF3_01P8guo75sH7wKzPkOHWOFaDV2uc-DE_kIIZWRqsY2YBXfqwLA\">new strategy to reign in public deficits<\/a>\u00a0is needed. Rather than slashing spending, another approach could be to strengthen tax administrations and fiscal collection through digitalization and tax administration reform. At the EU level, estimates placed the\u00a0<a href=\"https:\/\/www.europarl.europa.eu\/thinktank\/en\/document.html?reference=EPRS_STU(2016)558776\">tax gap at approximately 825 billion euros per year<\/a>, and in many EU member states\u00a0<a href=\"https:\/\/www.sipotra.it\/wp-content\/uploads\/2020\/02\/The-European-Tax-Gap.pdf\">tax gaps exceed healthcare spending<\/a>. In contrast to Northern states, Southern and Eastern European countries have extensive tax gaps that could be addressed through digitalization and public administration reform. In many of the newer member states,\u00a0<a href=\"https:\/\/data.oecd.org\/tax\/tax-revenue.htm\">tax revenues are only about a third of their GDP<\/a>.<\/p>\n<p>Even before the Covid19 pandemics, the tide was turning towards a\u00a0<a href=\"https:\/\/www.ey.com\/en_gl\/tax\/how-tax-administration-is-going-digital\">new digital era for fiscal authorities<\/a>.\u00a0Governments play a pivotal role when it comes to digitizing payments in an economy\u2014from tax collection to shifting government wages and social transfers into accounts, governments can lead by example and play a catalytic role in building a digital payments infrastructure and ecosystem where all kinds of payments\u2014including private-sector wages, payments for the sale of agricultural goods, utility bills, school fees, remittances, and everyday purchases\u2014are done digitally. This process yields better traceability of payments, thus countering fiscal evasion, and it has shown its merits in many European countries. However, such solutions are difficult to implement in contexts of ample\u00a0<a href=\"https:\/\/www.socialeurope.eu\/eu-can-prevent-an-east-west-divide\">subnational disparities of development<\/a>\u00a0as in the case of larger Central and Eastern European countries like Romania and \u00a0Poland or Southern countries with <a href=\"https:\/\/ore.exeter.ac.uk\/repository\/bitstream\/handle\/10871\/31892\/Acta_politica-3.pdf?sequence=2&amp;isAllowed=n\">consolidated informal traditions<\/a> like Italy or Greece.<\/p>\n<p>Institutional capacity is clearly another driving factor of fiscal collection. In our large scale<a href=\"https:\/\/academic.oup.com\/cesifo\/article-abstract\/doi\/10.1093\/cesifo\/ifz016\/5715970\">\u00a0behavioral experimental study of Europe and America<\/a>, we found that\u00a0<a href=\"https:\/\/journals.sagepub.com\/doi\/full\/10.1177\/2053168017707151\">cross-national differences in fiscal compliance<\/a>\u00a0could\u00a0be associated with institutional\u00a0differences.\u00a0It is time EU realizes that\u00a0<a href=\"https:\/\/carnegieeurope.eu\/strategiceurope\/82351\">general conditionalities<\/a>\u00a0do little in the way of convergence, and realistic\u00a0<a href=\"https:\/\/ec.europa.eu\/transparency\/regexpert\/index.cfm?do=groupDetail.groupMeetingDoc&amp;docid=38463\">technical assistance<\/a>\u00a0packages should be geared towards meaningful institutional reform and harmonization of practices across the EU. This is particularly important for countries with a poor track record on state capacity in Eastern or Southern Europe. It is also useful for insulating these funds from\u00a0<a href=\"https:\/\/visegradinsight.eu\/hungary-autocratic-shield\/\">political opportunism<\/a>\u00a0and clientelism in countries\u00a0with authoritarian tendencies such as Poland and Hungary.<\/p>\n<p>We understand that improving administrative capacity is not a panacea for the tax gap and that any reform plan must realistically account for a number of other factors, such as the number of SMEs in an economy, informal norms, political opportunism, and poor institutional capacity. And the stakes are literally much higher in the context of the unprecedented financial package put forth by the EU.<\/p>\n<p><strong>Clara Volintiru<\/strong>\u00a0is an Associate Professor at the Bucharest University of Economic Studies (ASE) and a GMF Rethink.CEE fellow 2020.<\/p>\n<p><strong>John D\u2019Attoma<\/strong>\u00a0is a Lecturer at the University of Exeter Business School and a member of TARC.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Clara Volintiru and John D\u2019Attoma The EU is stepping up to the economic challenges posed by Covid19 with a recovery plan titled\u00a0Next Generation EU\u00a0of\u00a0750 billion [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,5,9],"tags":[21],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How are we paying for this economic crisis? 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