This is the second part of the lesson “Reforming the European Economic governance” held by Professor Masini in the Module 1 of the EUPress Teacher Training curriculum in the macro-level topic of “Steering the Euro Across the Crises: (2008-2019) and possible evolutions in the coming future”
The objective of this lesson is to examine the reform of European economic governance.
As Europe emerges from the pandemic only to face a new era of geopolitical uncertainty, the question of how to reshape its economic and political governance has become more urgent than ever. A series of overlapping crises — Covid-19, Russia’s war on Ukraine, and inflation — are exposing vulnerabilities and reopening the debate on the future of the European Union.
NextGenerationEU and the unresolved question of financing
The EU’s boldest response so far has been the NextGenerationEU recovery plan — a €750 billion package funded through common debt. But while the plan marked a historic step toward fiscal solidarity, key questions remain unanswered: How should the resulting debt be repaid? And will the EU develop new own resources — such as carbon border taxes or digital levies — to finance it?
With discussions ongoing, the choice between shared and national solutions could define whether the recovery instrument becomes a one-off intervention or lays the foundation for a permanent fiscal capacity at the EU level.
A shifting balance of power: The global and internal effects of war
Russia’s invasion of Ukraine has fundamentally altered Europe’s geopolitical and economic landscape. Beyond the military threat, the war has disrupted key global value chains, from energy and raw materials to semiconductors and agrifood products. The EU has been forced to rethink its economic dependencies and accelerate efforts to secure alternative supply routes.
The crisis has also:
- Reinforced the need for a common energy strategy,
- Exposed the limits of Europe’s fragmented energy grid,
- Led to skyrocketing prices for households and firms, driving inflation to multi-decade highs.
The cumulative pressure of these shocks has brought economic divergence back into focus — with countries like Germany able to massively increase public spending, while heavily indebted states such as Italy are constrained by reduced fiscal space.
A trio of crises — and a debate about Europe’s future
Europeans are grappling simultaneously with:
- The economic fallout of Covid-19,
- The security crisis sparked by war in Ukraine,
- The cost-of-living pressures stemming from inflation and energy scarcity.
These shocks have revived a fundamental political debate: Should the EU rely on national fiscal policies, or should it centralize the capacity to address systemic challenges through European public goods — such as an energy union, cyber-defense mechanisms, or joint investments in green and digital technologies?
As one observer noted: “We cannot build a shared future by relying on the unequal fiscal capacities of Member States.”
The return of fiscal rules and the push for reform
The Stability and Growth Pact, suspended during Covid-19, is set to return in January 2024. But with new realities on the ground, the EU faces the delicate task of redesigning its fiscal framework to balance:
- Debt sustainability,
- Investment needs for the twin transitions (green and digital),
- Economic cohesion across the Union.
The debate is not purely technical: it touches on the political heart of Europe’s integration, reigniting calls for treaty change, especially in light of proposals emerging from the Conference on the Future of Europe.
A window of opportunity — or a widening divide?
Despite fragmentation risks, public opinion across the EU seems increasingly aware that collective solutions are necessary. The war in Ukraine has started to shift perceptions toward shared defense and energy security. The same may happen for industrial policy, digital sovereignty, and climate action — all areas where global competitors are moving swiftly.
But this new convergence of public sentiment may be fleeting. Whether Europe seizes this moment to deepen supranational governance — or continues to rely on an unequal patchwork of national responses — will shape the continent’s ability to compete globally and maintain internal cohesion in the years ahead.
