Will the EU survive Covid-19?

17 Apr 2020 Nick Garbutt    Last updated: 17 Apr 2020

Pic: Pixabay

It’s not just people who are threatened by Covid-19, it endangers political institutions as well. The European Union now finds itself in an existential crisis.  

One of the most important creators of the modern EU Jacques Delors is in despair. He told a French news agency last week: “The germ is back. The climate that seems to hang over the heads of state and government and the lack of European solidarity pose a mortal danger to the European Union."

At the heart of the crisis has been the re-emergence of the nation state in the face of the pandemic.

This has seen national controls over borders being imposed across the Union as states pursue individual strategies of containment. Free movement of people is constrained, the once sacrosanct rules around state aid and competition law central to the Lisbon Treaty have been set aside.

In Europe, as everywhere else nation states are reasserting themselves, to protect their citizens and their economies. It would appear they are no longer as willing to trust to the vagaries of the markets. The problem for EU institutions is that they are not set up to perform the functions that require national sovereignty.

The European Parliament’s Brexit representative Guy Verhofstadt says he has the answer to that. At the end of last month he produced a commentary on the crisis for the European Policy Centre.

He wrote: “the dramatic transmission of Covid-19 on our continent is caused not by accident, but by a lack of adequate institutions and, ditto, good governance in the European Union.

“A pandemic is not like war; it is war. And what we have seen in Europe during these past eight weeks is exactly the opposite: 27 centres of decision, 27 lines of command.

“To overcome a pandemic crisis of this magnitude, we need far more. We need one centre of decision and one line of command, and this on a continental scale.”

Verhofstadt’s solution is a federal Europe. “ Will the European Union survive? The answer to that question will depend on a fundamental choice: will we do business as usual, or will we use this crisis, and the lessons learned, as a unique opportunity to fundamentally reform our Union? If we choose business as usual, we will come out of this crisis devastated and broken.”

Creating a United States of Europe would be one way of fixing the problem. But the evidence suggests that that ship has sailed.

In December 2017 German SPD leader Martin Schulz called for the EU to become a United States of Europe by 2025. This would be put to the vote in each country, and any that did not support the proposal would have to leave the union. However a YouGov poll found lukewarm support for this in Germany and France, the two great European power houses. Given the rise of the far right across the continent it is difficult to imagine widespread popular support for this today.

Indeed the evidence points to widening divisions within the EU from west to east and north to south.

Hungary’s prime minister  Viktor Orbán has used the pandemic as a pretext for declaring a state of emergency, suspending parliament and ruling by decree. The EU now faces the dilemma of what to do when one of its members becomes an authoritarian state.

Just as unpleasant have been the fault lines which have reopened between wealthier northern states, so-called Hanseatic League and southern countries, which their opponents disparagingly dub Club Med.

These include both Italy and Spain, countries that have yet to fully recover from the 2008 banking crash. Before the pandemic Italy’s debt-to-GDP ratio was 134%. Spain’s was close to 100 percent.

The economic impact of the total shutdowns of national economics will be devastating. However neither Italy nor Spain have the headroom for the same kind of fiscal stimulus we have seen in Germany (debt to GDP ration 57%).

They need help.

The European Central Bank put in place a €750 billion package to stabilise the markets by purchasing assets. There are no limits on how much debt the ECB can hold from each member.

But this still isn’t enough for the poorer European states. They wanted “corona bonds” backed by all countries in the eurozone, with proceeds from their sale going to help harder-pressed countries. Ireland and France backed them.

However this crossed a line for the likes of Germany and the Netherlands (debt to GDP ratio 52%). They didn’t want to saddle their countries with southern Europe’s debt. In 2008 these countries had been the architects of European austerity which all but broke Greece (debt to GDP 181%). They refused similar measures then and stood their ground.

After prolonged and increasingly angry exchanges during an all-night session they finally agreed on a a €540 billion package  of credits and loan guarantees.

It’s not clear whether this will be enough.

There’s an awful lot at stake. After the banking collapse the EU forced Greece into a brutal regime of austerity. On the other hand Italy, the eurozone’s third largest economy with its mountains of existing debt is considered too big to fail.  

Enrico Letta, the former Italian prime minister told the Guardian newspaper this week that the EU faces a “deadly risk” from the global pandemic. Central to this, he said, was that “The communitarian spirit of Europe is weaker today than 10 years ago.”

And he warned that the EU would fall if every country stuck to “Italy first”, “Belgium first” or “Germany first”.

There are signs that the EU is heeding that. In the early days of its crisis it was China and Russia rather than its European neighbours that first came to Italy’s aid.

The hurt amongst Italians was palpable. Italy is a founding member of the EU yet a poll in mid-March found that 88% of Italians felt Europe was failing to support Italy, while 67% saw EU membership as a disadvantage. This is grim.

During the Brexit negotiations the European Union showed a remarkable firmness and unanimity. If it is to pull through the pandemic and its devastating economic aftermath it will need to display that same common purpose to avoid the sort of destructive, non-co-operative behaviour between member nations that we’ve seen glimpses of to date.

When the pandemic is over there will be a global debate about whether it was exacerbated by too much internationalism or too little. Europe appears to have descended into a network of fortresses just at the time it most needed to work together.

In September of last year Guy Verhofstadt told the British Liberal Party conference: “the world of tomorrow is a world of empires in which we Europeans, and you British, can only defend your interests, your way of life, by doing it together, in a European framework and in the European Union.”

Bold words, but when this is over the rulers of Europe will inherit a hollow crown.

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