Impact of crisis on HE will be large and long-lasting – EUA

The overall impact of the coronavirus pandemic and related economic crisis will be “large and long-lasting”, and universities must prepare for operational and financial difficulties in the coming few years, according to a new report* by the European University Association or EUA, which examines the lessons learnt from the 2008 financial crisis.

Adequate responses from public authorities can help universities mitigate the long-term damage. But universities “will have to react quickly and decisively”, the report says.

“The 2008 financial crisis has shown that institutions with a robust capacity to adapt have emerged stronger from a challenging environment. Management and implementation capacity throughout the institution has been an important differentiating factor.”

But the crisis 12 years ago also led to differing national responses that created an investment gap between countries, with some systems continuing to invest and others cutting funding. Since 2008, countries such as Luxembourg, Germany, Switzerland, Norway, Austria and Denmark have significantly increased funding compared to their GDP growth, while several countries such as the Czech Republic, Romania, Slovakia and Ireland reduced funding over the period.

On the positive side, the report notes that solutions to overcome the current crisis will come from research and skilled university graduates, and the current enhanced confidence in research-related expertise and in university experts is an opportunity for universities to engage strongly with decision-makers and society, it says.

“The scale of the challenge and the need for well-structured, deep-reaching and well-funded international collaboration demonstrate the importance of well-funded and coordinated European Higher Education and Research Areas,” it says.

Universities should therefore continue to demonstrate value for society generated from the full scope of university research and innovation activities in all disciplines and the importance of education and training, the report recommends.

Governments need to ensure ambitious investment, both at the European level through the next Multiannual Financial Framework and at the national level, in those areas that can build a sustainable future.

“While emergency interventions could mitigate income shortfalls and help universities come out of the crisis more quickly, commitment to sustainable funding is needed in the long term to support the sector’s flagship role in offering the scientific solutions to the current public health challenges and spearheading the post-crisis recovery,” the report argues.

“In this context, it is important to support universities in their mission to offer reskilling and upskilling to people temporarily affected by the crisis.”

The EUA has been closely following university funding trends in Europe since 2008. The association set up the EUA Public Funding Observatory as a monitoring tool in the aftermath of the global financial crisis.

Based on the extensive data accumulated in the framework of the Public Funding Observatory and other governance and funding related work pursued by the EUA, it has made projections about the immediate and longer-term effects of the coronavirus pandemic on European universities and suggested possible ways to mitigate them.

The report says the extent and nature of the coronavirus crisis are unparalleled and will have a long-lasting impact on the European economy and society. The contraction in EU GDP this year is expected to be 7.5% or higher, far deeper than in 2009 during the financial crisis.

Against this challenging backdrop, many European universities will see their funding affected in the short to long term. However, higher education systems in Europe will be affected differently and at different times, depending on the key features of their funding models. Notably, these include the mix of sources of income such as public funding, tuition fees and other sources.

Significant risk of reduced funding

Based on the experiences in higher education after the 2008 crisis, the report warns that there is a “significant risk that public funding allocations across Europe will decrease in the next two to four years, when considering the enhanced competition for public resources across various sectors of the economy”.

It also warned that the renewed pressure on public funding should not exacerbate the use of competitive funding at the expense of core block-grant funding, which may generate unwanted effects and interfere with policy goals.

In addition, higher education systems with a larger share of income generated from fees paid by international students (for example, England or Ireland) will be affected by the coronavirus pandemic already in the short term with knock-on effects in the years to come.

In some cases, the current crisis has already led to recruitment freezes or staff layoffs, the report says. “Travel restrictions, reduced family income and continued health risks will result in falling international enrolment, at least for the next academic year, and massively affect university finances and operations.”

Systems where university income depends significantly on domestic tuition fees (for example, Spain and Romania, in addition to England and Ireland) will also be impacted by reduced family income, depending on the scale of corrective measures implemented by national governments (for example, subsidised loans, unemployment benefits, student aid), the report says.

It recommends that “large-scale financial losses resulting from the shortfall of tuition fees need to be counterbalanced in the short term, particularly in those systems that are more reliant on students’ financial contributions. This will in turn enable universities to contribute sooner to the societal and economic recovery.”

Research contracts, philanthropic sources and other types of university income will also be affected by the crisis. For instance, restricted access to research labs could potentially obstruct research development and cause delays in fulfilling the existing commitments or even lead to a discontinuation of fixed-term research contracts, the authors argue.

“Universities will thus require dedicated support to preserve their research capacity to produce top graduates, deliver high-quality research output and play a vital role in the social and economic recovery,” the report warns.

The financial losses and squeezing of budgets will likely lead to increased competition for EU funds allocated under its flagship research programme Horizon Europe and its student and staff study and exchange scheme, Erasmus+, in the coming years.

“Universities will struggle to increase or even sustain the income from this source to support transnational research and education projects. National strategies pushing them in this direction will not be effective if not supported by additional funding, considering that EU programmes remain significantly underfunded and oversubscribed,” the report says.

Preparing for difficulties ahead

To prepare for oncoming operational and financial difficulties, universities should develop “detailed and forward-looking governance, income diversification, transformation and change management strategies with due attention to effectiveness, efficiency and value for society”, the report says. “They should also make risk assessment and crisis management a part of institutional operational planning.”

Policy-makers should grant universities sufficient autonomy to enable them to develop internal financial allocation mechanisms, adapt strategies and streamline the use of resources in accordance with key institutional objectives and goals.

European and national funders should support university leadership and management development, as well as the professionalisation of university staff, “which is crucial for universities’ resilience to crisis and transformation capacity”, the report argues.

The report calls on national and European policy-makers to “bridge the growing investment gap in higher education and research and foster the international collaboration that will make the difference in resolving the complex global challenges”.

But it also advises institutions that the challenges posed by the ongoing crisis should be used by all higher education stakeholders as a chance to revise institutional strategies and operations.

For universities this could mean exploring opportunities offered by the green agenda and digital transformation to rethink the balance between physical and virtual environments and processes.

To achieve this, national and European policy-makers should provide universities with both enabling frameworks and financial resources to support them in seizing arising opportunities.

“With the right support, universities will be able to strengthen their capacity to produce top graduates, deliver high-quality research output and play a vital role in our social and economic recovery,” the report says.

“There is abundant evidence of the value added by Horizon 2020 and its predecessors, as well as Erasmus+, complementary to what can be achieved at the national level. In a degraded economic context, it will be all the more important to secure ambitious funding at the European level, foster synergies between European and national funding mechanisms and enhance simplification at the European level.”

Support to basic and multidisciplinary research, secured through Horizon Europe, will be as crucial as the integration of all research capacities across Europe, the report argues.

Likewise, “ambitious funding for Erasmus+ will be indispensable for Europe’s capacity to train a highly skilled, internationally educated workforce capable of delivering solutions to global challenges and crises. It will be an equally important vehicle to foster social cohesion, European integration, citizenship and European values in the post-crisis period and beyond.”

*The Impact of the COVID-19 Crisis on University Funding in Europe: Lessons learnt from the 2008 global financial crisis, by Thomas Estermann, Enora Bennetot Pruvot, Veronika Kupriyanova and Hristiyana Stoyanova.