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FACTS Post opinions with a wide range of perspectives to encourage constructive discussion.
When the President of the European Commission, Ursula von der Leyen, presented the EU’s remarkable recovery package in response to the coronavirus crisis, it was hailed as a historic moment. The plan was ambitious: 750 billion euros in co-financed debt was to give EU countries additional firepower to boost their economic recovery and help them through the biggest crisis since World War II, MEP Pedro Márquez wrote in a material. for the European edition of Politico, quoted by the FOCUS news agency.
The package, which represents around 9% of the EU’s GDP, is comparable in size to the original recovery package drawn up by the US government, which mobilizes an amount equivalent to 10% of its GDP. However, the favorable comparisons end here. While the EU is still wondering how to unlock the agreed money so that it can finally be paid, Washington has already come a long way. US President Joe Biden’s latest stimulus package, the Biden Plan, is the government’s third stimulus bill and increases federal support for the economy to more than three times the European response. Of course, the discrepancy in recovery plans can be partly explained by the differences between the two models of government: the United States is a federal state, while the EU is a union of independent states.
However, there is also a clear difference in the ambition of the US and EU reactions, even after taking into account national measures introduced by European countries on EU money. The response from the United States is not only much greater. Perhaps most importantly, it got into the real economy much faster. This is because much of their incentive is in the form of direct payments to households, while other measures have a direct impact on citizens’ income and, as a result, on demand. The $ 1,400 incentive check that every adult should receive under Biden’s plan will be the third such check that they can redeem since the onset of the pandemic. Meanwhile, at the European level, direct citizen transfers not only seem taboo, the rules are designed in a way that prevents most of the money from being used to rebuild the EU on the ground now, when perhaps it is needed most. As a result, the OECD estimates that the recovery measures taken by the US will have a positive impact of 3.8% of GDP over the next 12 months starting in April. In contrast, the impact of the EU Recovery Fund is estimated to be between 0.5% and 1% of GDP.
Worse still, forecasts show that the level of European support for the economy may be insufficient. Even if the European Central Bank was quick and bold in its response to the crisis (and even if it can do more in the coming months), monetary policy has its limits. And when it comes to fiscal policy, the EU has problems here too. The EU needs to put in more resources right now, not just in the long term. As the spread of vaccines is gaining momentum and we are breaking free from the lockdown, we must ensure that companies retain their jobs and continue to have clients, especially after the termination of government-backed layoff schemes. This means that we need a strong incentive package to jumpstart the economy right away. The EU must send a strong signal to national governments that they must continue to support their economies and ensure that EU money reaches its target in a few months, not years.
But there is an even better way to ensure that recovery funds provide the necessary incentive: if the months required to pass national recovery plans are used to find a way to pay 1,000 euros to each unemployed person, elderly person and parent. Direct payments will not be a silver bullet, but they would provide much-needed help to the economy, but only if the EU succeeds in breaking its taboo. And why not? The block went down in history last year with its recovery agreement. You can certainly do it again in this smaller but equally important way. Pedro Márquez is a member of the European Parliament of Socialists and vice president of the group’s New Green Deal and Communications.
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