The European Union must reform its economic governance after the COVID-19 crisis

​​ Cities and regions call for an economic governance review that boosts green and digital transitions, promotes public investments and gives more democratic legitimacy to the EU project

Local and regional authorities stress the need for budgetary flexibility in order to foster recovery and resilience after the current COVID-19 crisis. The general escape clause of the Stability and Growth Pact (SGP) - activated in March 2020 for the first time in the history of the euro area - and the temporary state aid framework at EU level should continue to apply until the economic situation in Europe has stabilised. The call is contained into an opinion drafted by Elio di Rupo (BE/PES) presented today to the plenary of the Committee of the Regions (CoR).

The European economic governance framework has major effects on all levels of government, more specifically local and regional governments, which are responsible for almost a third of public spending and more than half of public investment in the EU as a whole, with wide variations between Member States. The opinion on the Economic governance review of the European Union, drafted by the Minister-President of Wallonia, Elio di Rupo (BE/PES), emphasises that this reform must take into account the greater need for investment and public spending required to support transition in the key sectors of health, food, transport, digital technology and energy. The European Commission estimates that EUR 260 billion a year (around 1.7% of EU GDP) of additional investments is needed to reach the 2030 climate and energy targets.

" The COVID-19 crisis has created an unprecedented economic, social and budgetary tsunami. Citizens in the EU are suffering terribly from the pandemic's consequences. Our wish is thus that the European economic governance is reviewed and adapted to our territories and regions' realities. Once the pandemic will be under control, we cannot go back to the ex-ante status quo nor continue as though nothing happened " underlined the rapporteur Di Rupo.

CoR members believe that the European economic governance framework is partly responsible for the sharp drop in public investment that occurred following the euro area crisis because it does not sufficiently take into account the distinction between current expenditure and investment expenditure. Between 2009 and 2018, public investment as a whole fell in the EU by 20% (as a share of GDP). Investment by local and regional authorities decreased by almost 25% and by 40% or more in some of the Member States worst affected by the crisis.

The Committee has consistently called for public spending from Member States and local and regional authorities linked to Structural and Investment Fund co-financing to not be included in the deficit calculation defined in the SGP. This expenditure is, by definition, investment in the general European interest with a proven leverage effect in terms of sustainable growth.

The first EU-wide Annual Regional and Local Barometer , published in October, rang the alarm bell: the crisis is affecting sub-national authorities' revenues, with a dangerous "scissors effect" of increasing expenditure and falling revenues. Moreover, a CoR-OECD joint survey shown that, already in July, 13% of subnational governments had already applied for additional EU funds and 49% were considering doing so in order to cope with the crisis.

The opinion drafted by Mr. Di Rupo has been discussed on the 8 of December by the first fully virtual plenary of the Committee of the Regions (CoR), with the participation of Margarida Marques (PT/S&D), member of the European Parliament. Due to the rules of procedure, the results of the votes on amendments and on the final text will be announced on the 10 of December, at the end of the session.