Covid-19, Crisis, Economics, EU – Baltic States, Modern EU

The EU-wide approach to tackle the pandemic was first of all through regulatory means: in early spring, the Commission’s decisions made it possible to increase European and the states’ spending, often contrary to the straight-jacket-type of the EU’s traditional state aid rules. Accordingly, the ECB measures managed not only stabilize the financial markets but also initiated the EU and national socio-economic decisions in order to neutralize the pandemic effect and tackle the emergency situation.

Among financial measures there was the EU’s package of subsidized loans providing support to previously inefficient development schemes, miserable attention to SMEs, businesses and forlorn public health systems.

See, e.g. the following articles: EU and the Baltics: assisting in crisis. In: http://www.baltic-course.com/eng2/editors_note/?doc=21222; - Managing COVID-19: additional support for science and innovation. 22.05.2020. In: http://www.baltic-course.com/eng2/modern_eu/?doc=156062; - European rescue plan and solidarity. 28.05.2020. In: http://www.baltic-course.com/eng2/modern_eu/?doc=156211

Finally, the EU managed to approve a recovery process through the so-called “the next generation EU’s scheme” with €750 billion, five times the EU's annual budget. After years of Commission’s dominance in the intergovernmental decision-making, the EU-wide initiative reflects solidarity in a visible and practical thing: i.e. providing support to the weakest, with a feeling of “common interest” as a value aspect of the European culture.

But the EU and the states’ actions shall be of a double nature: EU’s common socio-economic policy doesn't rest on the monetary policy alone; the main task is that of reconciling the differences among the European countries. In this regard, huge amounts of the EU’s financial resources will put the states’ governance to the test: these resources are “shared” among the EU-27 according to the plans drawn-up by the national governments. “This is not going to be a case of easy spending, treasure troves or fanciful schemes”, noted recently Commissioner Paolo Gentiloni.

Reference: Commission press release/14.06.20, at:  https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1061

Several European funds can contribute to the immediate response in the states: e.g. more flexible cohesion funds as well as some other EU sectoral-specific funds, such as “ReactEU” and the “Just Transition Fund”. Besides, some loan packages are of particular advantage to support health systems, industries, SMEs and short-time working schemes.

In particular, the EU’s Recovery and Resilience Facility represent the main tool of the “Next Generation EU package”, which provides additionally €310 billion in grants and €250 billion in loans for the member states (for example, Italy can receive up to 20% of the total of the grants or about €65 billion under this facility as the EU state which suffered most). These amounts are available to the states without any co-financing, and can be supplemented by even higher loans.

Therefore, the first challenge for the Baltic States’ governments will be to make full use of this facility. It is a fascinating and complicated challenge because it will require national investment and reform packages with a clear priority direction, with agreed schedules and milestones, and with legislative measures aimed at finally expected results. A substantial proportion of the EU resources (about 60%) will have to be committed by 2022.

The message to the member states is clear: these resources (and the way they will be distributed) will be available to tackle such issues as reducing tax evasion, improving active employment policies, activating youth and women's employment, improving education, resolving regional disparities, addressing the efficiency of the public services and the sluggish civil justice system.

The task ahead during next three-four years for the Baltic States’ governance is both to re-direct and newly prioritise the existing challenges with the help of above-mentioned exceptional EU’s financial resources. The national recovery plans shall be designed by the end of 2020, as the latest, and should be particularly geared towards two major European challenges: a) the “green deal”, and b) the digital transition; in short, the EU countries have to speed up the process of sustainability in all socio-economic sectors.

Countries in the Baltic Sea region have to react in a new way: that means turning away from pro-cyclical policies in favour of adopting extensive sustainability policies (even in situations of limited budgets). No doubt, this would inevitably mean that all states would have to break “common budgetary rules”; and the Commission has suspended it anyway to avoid mistakes made in the past decade, when premature fiscal tightening caused second waves of recession.

The present health crisis has made it clear the importance of the national government's measures being “pro-European”; this choice would define the cooperative priorities of present governance systems to both supporting nationalistic feelings and implementing the EU-wide strategic solutions through sustainability and digitalisation.