Applying Economic Resilience to Fiscal Policy

Since the outbreak of the global economic and financial crisis in 2008, crises have become part of our new everyday life. As such, policymaking needs to adapt to this new reality. Becoming resilient to shocks and crises has never been more important for the EU.

Transforming our economies in a green and just way is fundamental to building economic resilience in the EU. This will require fast investments into green infrastructure, for example to accelerate the expansion of renewable energy production capacities to become energy independent. More than half of the required investments in climate-compatible infrastructure cannot be expected to yield a satisfying return. Public funding plays thus a pivotal role in this transition and helps mobilising spin-off private capital. As such, fiscal policy is an important enabler for building economic resilience through advancing the green and just transition.

This paper delineates how the concept of economic resilience can be integrated into fiscal policy instruments and tools. To this end, the Economic Resilience Index (ERI) will be applied, an index that compares economic resilience of EU Member States. Building on the ERI, the paper investigates how fiscal space calculations can be complemented by a perspective on economic resilience. Likewise, the paper discusses the potential of the ERI to be applied in allocation keys for common funding instruments at the EU level. This is demonstrated by the example of the Recovery and Resilience Facility (RRF) and shows the differences between allocating funds with the goal of recovering from drops in GDP and employment in the short-run and building economic resilience in the long-run.