Shutdown or simply standby? Ordoliberalism and the EU’s fiscal paradigm during the Covid-19 pandemic

When the Covid-19 pandemic broke out, the European Union (EU) was called to suspend its fiscal rules and to find unprecedented ways to financially assist Member States (MS). It did both, but it is still not clear whether this crisis management has resulted in a change to the EU’s fiscal paradigm. This paper thus explores the following research question: when and how does a fiscal paradigm change? To do so, the paper operationalizes the fiscal paradigm through three main dimensions of EU fiscal policy (collecting resources, spending them, and regulating the fiscal conduct of MS) and through the institutions involved in each dimension. Based on that analytical model, the paper tests its underlying hypotheses in order to investigate whether the fiscal management of the Covid-19 pandemic marked a shift away from the previous fiscal paradigm. Such paradigm had developed with the birth of the Economic and Monetary Union (EMU) and had been reinforced through the euro crisis. Our model outlines why the pre-pandemic fiscal paradigm was compatible with ordoliberalism. The ordoliberal paradigm became dominant because it was in line with the preferences of the most influential actors, most notably Germany. Our analysis shows that as a result of the Covid-19 pandemic the EU’s collecting power did not turn into a proper power to tax. Neither did the spending power became truly such, as it still mainly consists in conditionally distributing resources to MS rather than in directly spending them at EU level. Fiscal rules have been temporarily suspended through the escape clause of the Stability and Growth Pact, but influential actors have made it clear that those rules will come back once the pandemic is over. Institutionally, intergovernmentalism has remained central. Such temporary, Covid-related discontinuity in the EU’s fiscal approach was advocated by most MS, including those who actively supported the previous fiscal paradigm. In the light of that, the paper concludes that the pre-pandemic, ordoliberal fiscal paradigm has only been put on standby but has not been shut down or replaced by a new one. In other words, the EU’s Hamiltonian moment is yet to come.