Limited and Conditioned: Explaining the EU's First Fiscal Support Package in Response to the Coronavirus Crisis

Abstract

This paper offers a theoretically informed and empirically grounded explanation of the EU’s fiscal response to the coronavirus crisis. Deploying liberal intergovernmentalist theory, it assesses the making and form of the EU’s first fiscal support package of 23 April 2020 in terms of national preference formation, intergovernmental bargaining, and policy and institutional choice. National preferences resulted both from the overall threat the coronavirus crisis posed to the EU’s cohesion and from member states’ different affectedness and fiscal position: While all agreed that some common fiscal response was necessary, the particularly hard-hit and fiscally stricken Southern EU countries called for large and unconditional support via the introduction of Corona bonds. The fiscally more stable and conservative Northern EU countries, in turn, preferred more limited measures and the use of existing instruments. Due to their larger financial resources, the fiscally more conservative countries determined the room for agreement and dominated the negotiations. Consequently, the form of the EU’s eventual first fiscal support package mostly reflects the preferences and bargaining power of the Northern EU countries.

Keywords: coronavirus; crisis; fiscal response; EU; liberal intergovernmentalism