Until the COVID-19 pandemic, fiscal integration in the European Union was constrained by member states' steadfast refusal to share debt—a stance famously emphasised by Angela Merkel's assertion that such measures would not be taken "as long as she lives." While the EU's response to the pandemic broke with this long-held position, it was quickly criticised for its temporary nature, as its fixed end date seemed to undermine its transformative potential.
In this project, Vanessa Endrejat argues that the EU's policy will have a lasting impact by fundamentally reshaping government finances and thus expanding fiscal capacity for European integration.
By definition, the fiscal capacity of governments is limited by their public debt and deficits. However, the statistics behind debt and deficit indicators allow for off-balance sheet policies, which are excluded from such calculations because they do not redistribute national wealth but rather represent profitable investments or guarantees for borrowing on financial markets. Endrejat compares the delineation of EU-wide and national policy responses to the COVID-19 emergency as off-balance sheet policies. The analysis reveals a critical difference in how national and European policies affect government debt and deficits, thereby shaping the fiscal capacity of member states. EU-level instruments are predominantly recorded off-balance sheet for member states, whereas national counterparts are assessed on a case-by-case basis and often included. As statistical rules are path dependent, this distinction will have a lasting impact on European integration.
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Vanessa Endrejat, PhD, is a Max Weber Fellow at the Robert Schuman Centre, where she focuses on the calculation of European public debt and the scope for off-balance sheet policies as well as the political economy of finance and insurance. Her work has been published in Competition & Change and the Journal of Economic Policy Reform.