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Ukraine and European integration

Written by: Thorsten Beck

The Russian invasion of Ukraine in February 2022 has brought unprecedented consequences and unfolded new challenges for the European Union (EU) in many domains. My colleagues María del Carmen Sandoval Velasco, Pierre Schlosser and I wrote a short policy note on the impact of the Ukraine invasion on European integration, based on a presentation given in May as part of a seminar series convened by the EUI’s EGPP Programme.  While the immediate impact of the war has been on Ukraine’s population and economy, it also constitutes a major shock for the rest of Europe, including the polity of the European Union.

Well known to political scientists, Monnet’s method posits that reforms and new European structures and powers are driven by adverse events and crises that cannot be solved with existing policy tools and on the national level. The eurodebt crisis has brought us the (incomplete) banking union and the Covid crisis the Next Generation EU, a joint fiscal response.

Similarly, the Ukraine crisis will have repercussions for actors, instruments, and rules, as we discuss in our note. Concerning actors, the European Commission seems again in the position of taking on new crisis management responsibilities, even though security is not its area of expertise; the ECB will, on the one hand, be struggling with higher inflation, while at the same time, becoming again pre-occupied with sovereign yield divergence in the euro area. For the first time, the SSM will have to take geopolitical risks clearly into account in its risk monitoring, while the still to be created Anti-Money Laundering Agency will take on an even more important role.

Concerning instruments, while the EU has played second violin to NATO, a total of €2.5 billion of military assistance has been agreed at the European level to support the Ukrainian army, which constitutes a new policy area for the European Union. While the cohesion funds might take on a stronger role (with necessary flexibility to reallocate funds approved by the Commission) as economies across Europe are differently exposed to the conflict and rising energy prices, there is still discussion on an NGEU 2 to help with the reconstruction of Ukraine, contain the macroeconomic consequences of the war and finance the EU’s energy independence from Russia. There is also a window of opportunity for further changes in the European fiscal framework. Despite the negative economic effects that the war in Ukraine will have on the EU in the coming years, it could also represent an occasion to move towards greater fiscal integration and the extension of the EU’s responsibilities in this area.

Finally, concerning rules, the conflict has made clear that the Stability and Growth Pact – suspended since spring 2020 – needs an urgent revamp and redefinition although politics might only allow for further suspensions. Similarly, the suspension of state aid rules might have to be extended, at least for some sectors in light of a looing energy crisis.

Written by

  • Thorsten Beck

    Director

    Florence School of Banking and Finance

    Full-time Professor

    Robert Schuman Centre for Advanced Studies

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