During the pandemic, the European Union received considerable new debt-financed instruments with the Corona recovery plan Next Generation EU and the short-time work fund SURE. If Council President Charles Michel or Commission President Ursula von der Leyen have their way, then this is just the beginning. Whether on the subject of European industrial policy (sovereignty fund), the energy crisis or a possible reconstruction of Ukraine. The SURE program in particular is seen everywhere as a model for new debt-financed programs. The European-financed short-time work program is such a success that this blueprint should also be used for new fields.
The only problem with this euphoric assessment is that there is still no reliable evidence that SURE brings real added value. The Commission writes in its SURE annual reports that the program saved 1.5 million people from unemployment. But this assertion lacks evidence in the form of a methodologically convincing evaluation study. After all, the program will only add value if it would help the Member States to make better policies than they would be able to do on their own. To date, this evidence is lacking. Because even member states that have not made use of SURE, such as Sweden or Germany, were able to protect their employees very effectively against unemployment during the pandemic. In its SURE audit report, the European Court of Auditors also complains that there has been no real evaluation of SURE and that the benefits of the program have not yet been proven (European Court of Auditors 2022).
A strict distinction must be made between the interest rate advantage and the program benefit
In this debate, there is now an indirect method to identify the program benefits of SURE as seen from the Member States’ perspective. Because with SURE, two types of benefits are associated for the member states of the EU, which differ fundamentally in terms of content.
On the one hand, countries can realize an interest rate advantage. However, this only applies to those Member States that have a below-average credit rating. These countries with relatively poor credit ratings can finance themselves more cheaply with EU loans than in their own name. Your benefit from SURE is therefore simply an interest advantage. These countries are perfectly rational in taking up the SURE loan, even if the program does not bring them any progress in their labor market policies. This is because they are replacing national debt with European debt and getting their loans through the European channel for lower interest rates. This is not programmatic added value, but corresponds to a classic free-rider effect.
On the other hand, countries may also be able to realize a program benefit. In terms of quality, this would be something completely different from the interest rate advantage. A program benefit arises when SURE actually helps Member States to implement effective labor market policies that they would not be able to implement on their own. That would be conceivable if, for example, SURE was accompanied by learning effects about a good design of short-time work rules. If such a program benefit exists, it would be a real added value of the program that has nothing to do with an interest rate advantage.
A credit rating comparison provides a meaningful test
The following is now crucial: If SURE creates such a benefit, then the program should also be attractive for the member states that cannot achieve interest savings with the help of the EU debt. These would be the countries that have a credit rating that is as good as or better than that of the EU. This provides a meaningful test to determine whether Member States genuinely believe that SURE has a program benefit other than a simple interest benefit. In this case, there would have to be EU member states that take out SURE loans, even if they do not get any interest rate advantage from them.
This test comes to a result that cannot be surpassed in terms of clarity: The European Union is rated AA+ by Standard & Poor’s. Of the EU Member States that score the same (Austria, Finland) or better (Denmark, Germany, Luxembourg, Netherlands, Sweden), not a single one has applied for a SURE loan. Conversely, all EU countries rated AA- or worse by Standard % Poor’s have used SURE. It is also noticeable that countries that have taken out particularly high SURE loans in relation to their economic performance have particularly poor credit ratings. With almost three percent of economic output, Greece is at the top of the SURE utilization and also has by far the worst rating.
These facts show that countries that cannot realize a minimum of interest rate benefits from SURE ignore the program. Utilization only begins when there is a significant interest advantage and increases with declining creditworthiness. In other words, the national governments’ revealed willingness to pay to benefit from the program in order to improve national labor market policy is zero. On the other hand, utilization is clearly driven by the extent of the interest advantage. So whoever may believe that SURE is a successful EU program in terms of its policy incentives, Member State governments are certainly not among them.
The Commission makes a conceptual error in its analysis
None of this fits in any way with the euphoric Brussels rhetoric surrounding the SURE program. It should also be emphasized that the interest rate advantage of countries with poor credit ratings does not represent any added value of the programme. This is what the Commission’s SURE reports claim, but this interpretation stems from a conceptual error. Because this interest rate advantage is offset by a credit risk that the countries with good credit ratings have to bear due to their SURE guarantees. However, they are not compensated for this credit risk. The interest advantage is thus part of a zero-sum game.
It is highly desirable that Europe shifts its responsibilities towards activities with a real European added value. So far there is no evidence that SURE would contribute in this desired direction. In this respect, the program is not suitable as a model for new programs.
European Court of Auditors (2022): Special report 28/2022: Support to mitigate Unemployment Risks in an Emergency (SURE), Publications Office of the European Union.https://www.eca.europa.eu/en/Pages/DocItem.aspx?did=62745
