The Berlin puzzle: Why European solidarity prevailed in the adoption of the Corona recovery fund

Abstract

In light of the German government's long-held preference against EU-wide fiscal burden-sharing, a hallmark of the Euro crisis, its support for an EU-wide debt-instrument during the COVID-19 pandemic constitutes a dramatic policy U-turn. To make sense of the ‘Berlin puzzle’, we develop a theoretical mechanism that explores why an initially reluctant German government heeded to the call for transnational fiscal solidarity: First, to avoid a ‘common bad’ of a large-scale economic contraction, proposals for an EU-wide fiscal response became a political imperative. Second, the successful framing of the crisis as ‘nobody's fault’ rendered the call for European solidarity as the dominant standard of legitimacy to which all governments subscribed. Third, governments whose preferences were not aligned with this standard faced mounting normative pressure and isolation. As a result, governments changed their positions, but not their preferences. We probe this mechanism by carrying out a process-tracing analysis of the German government's fiscal policy U-turn in the crucial months preceding the adoption of the Next Generation EU (NGEU) recovery plan in July 2020. The paper contributes to the growing literature on fiscal burden-sharing in the EU by demonstrating when and how member states can change their stance on transnational fiscal burden-sharing.