European Union financial instruments in crisis management

Abstract

This dissertation critically examines the European Union’s financial crisis management through the principles of solidarity and conditionality by comparing two key financial instruments: the European Stability Mechanism, established during the Eurozone crisis, and the Recovery and Resilience Facility, created in response to the COVID-19 pandemic. Through a comparative case study methodology, the dissertation explores how these instruments reflect evolving EU approaches to crisis governance, particularly by analysing their implementation in the Republic of Cyprus, which received aid under both mechanisms. The study begins by establishing the theoretical and legal foundations of solidarity and conditionality in EU governance. It then delves into the institutional design and operational frameworks of the ESM and RRF, drawing from legal documents. The ESM, rooted in a top- down, austerity-driven model, is shown to exemplify strict conditionality, with limited scope for national input and a primary focus on macroeconomic stability. The RRF adopts a more cooperative and performance-based framework, emphasising national ownership, social investment, and alignment with broader EU goals such as the green and digital transitions. The empirical core of the dissertation centres on Cyprus, offering a comparative analysis of the country's Economic Adjustment Programme under the ESM (2013– 2016) and its National Recovery and Resilience Plan (2021–2026). The findings reveal that while the ESM programme provided substantial financial assistance to avert sovereign default, it imposed severe austerity measures, limited Cyprus’ agency, and had significant social costs. The RRF facilitated a more collaborative process, offering a combination of grants and loans with conditions tied to investment milestones rather than fiscal retrenchment. The Cypriot NRRP focused on long-term resilience, supporting structural reforms in green energy, digital infrastructure, and social policy [...]