Finance: Research, Policy and Anecdotes

Together with my colleagues Maria del Carmen Sandoval Velasco and Pierre Schlosser I wrote a short policy note on the impact of the Ukraine invasion on European integration. Well known to political scientists, Monnet’s method posits that reforms and new European structures and powers are driven by adverse events and crises that cannot be solved with existing policy tools and on the national level. The eurodebt crisis has brought us the (incomplete) banking union and the Covid crisis the Next Generation EU, a joint fiscal response which I referred to earlier as Hamiltonian glimpse at what might be feasible in a fiscal union. Similarly, the Ukraine crisis will have repercussions for actors, instruments and rules, as we discuss in our note. Concerning actors, the European Commission seems again in the position of taking on new crisis management responsibilities, even though security is not its area of expertise; the ECB will, on the one hand, be struggling with higher inflation, while at the same time, becoming again pre-occupied with sovereign yield divergence in the euro area. For the first time, the SSM will have to take geopolitical risks clearly into account in its risk monitoring, while the still to be created Anti-Money Laundering Agency will take on an even more important role. Concerning instruments, while the EU has played second violin to NATO, a total of €1.5 billion of military assistance has been agreed at the European level to support the Ukrainian army, which constitutes a new policy area for the EU. While the cohesion funds might take on a stronger role (with necessary flexibility to reallocate funds approved by the Commission) as economies across Europe are differently exposed to the conflict and rising energy prices, there is still discussion on an NGEU 2 to help with the reconstruction of Ukraine. Finally, concerning rules, the conflict has made clear that the Stability and Growth Pact – suspended since spring 2020 – needs an urgent revamp and redefinition although politics might only allow for further suspensions. Similarly, the suspension of state aid rules might have to be extended, at least for some sectors in light of a looing energy crisis.

In summary, this crisis will have important implications for the European Union on different levels and we will certainly see more actions and reforms in the coming months.

Overview