For a resilient, sustainable, and inclusive recovery in Europe: challenges and proposals in response to the pandemic crisis

A corollary of the pandemic crisis and the unprecedented contraction of economic activity in Europe is the inevitable increase in public debt, and the need for active support of the European Central Bank (ECB), centred on the emergency purchase programme of government bonds. There is broad agreement on the gen-eral thrust of fiscal and monetary policies, but significant differences exist on the appropriate implementation and efficacy of policy impulses, notably between “Nordic” and “Peripheral” countries. This paper starts by reconsidering the dogma of balanced budgets as a general principle. A different approach is based on the taxonomy of deadweight and (re)productive debt. If government bonds finance capital expenditure (infrastructures broadly defined) with net returns higher than the cost of borrowing, the debt is fundamentally self-financing. More broadly, by reason of the huge warranted public investments (as documented by the European Investment Bank, EIB and the European Commission, EC), it is argued that “good” infrastructure capital accumulation represents a solution not only to the economic consequences of the pandemic crisis, but also to the issue of the savings glut.On the basis of this approach an assessment is offered of the responses to the crisis. Special attention is devoted to the EC proposal of the Recovery Fund. The model proposed here dovetails with the Recovery approach, and suggests a struc-tural scheme to finance European Union (EU) infrastructures (monitored at EU lev-el) through the issue of EU Real Infrastructure Securities (EURIS). The securities would comprise non only debt but also equity and equity-related instruments. The emphasis would be on Public-Private-Partnership initiatives. These real infrastruc-ture securities would form the basis of a new European debt at Union level. The need to ensure rigour in public finances would be satisfied in two concurrent ways: the quality and net returns of the assets financed and a gradual move to a new fis-cal pact, whereby national public deficits would be exclusively allowed for the fi-nancing of sound public investments, agreed and monitored at European level. Safety clauses would be introduced for exceptional events and to cope with cyclical developments (with full reversal in upturns).