EU leaders cannot agree on how to deploy financial aid to economies in crisis.
First published in April 2020.
European leaders are struggling to agree on how to handle the coronavirus pandemic. Their most recent disagreements are undermining European Union-level responses and making regional solutions tricky to implement.
We should remember that member states are largely responsible for their own public health policies. There are only a few EU-level structures that truly play a role in this pandemic. These include medical and pharmaceutical standards and shared medicine and disease agencies. But while each member state has naturally opted for its own COVID-19 response, there remains huge scope for improved cross-border cooperation. It’s a pity that leaders are squabbling over shared financial mechanisms at precisely the worst time.
Until Italy became the European epicentre of the coronavirus frighteningly quickly, EU nations were operating almost exclusively nationally. But as the situation escalated, Germany and France kickstarted basic cross-border cooperation, sending protective masks to Italy. Germany then went further, taking in patients from Italy and France, in a sign of regional, if not EU-wide solidarity. And while the UK is now desperately building its own national ventilator industry, EU leaders are working together to put in joint orders to aim for an even distribution.
The coronavirus has also temporarily changed the geography of the EU. The external borders of the Schengen area are now closed. At internal borders, priority access lanes ease the passage of heavy goods vehicles carrying medical supplies, food imports and general exports.
But more is needed beyond kit and borders. The first financial step is perhaps the toughest: simply agreeing to share the debt that the continent is collectively accruing in fighting COVID-19. Some positive signals have emerged here. The EU, along with the G20, is working together as a collective investor, putting large amounts of funding into vaccine research.
Various EU-level financial structures have also been altered to help the cause. State aid regulations have been eased so that member states can subsidise businesses hit by the crisis. Eurozone rules on the overall size of government debt have been temporarily suspended, allowing spending far beyond the usual allowable limits.
But the EU has come unstuck on the next step to temporarily convert the European Stability Mechanism (a post-eurozone crisis tool established in 2012) into a new “coronavirus crisis emergency bank”, funded by “coronabonds”. Fierce arguments have erupted both over the size of the fund and the borrowing conditions. This is ironic given the “whatever-it-takes” approach adopted for protecting the euro.
The Italian prime minister, Giuseppe Conte, has accused his EU partners of a tardy and timid response. Along with France, Spain, and seven other eurozone states, Conte’s preferred method is to raise funds by issuing “shared European debt”. This would underwrite EU member states against the expected recession, while allowing them to dramatically increase spending on healthcare and public finances more generally.
Opposing this campaign are Germany, the Netherlands and Austria. Their antipathy towards shared EU debt saw them turn down coronabonds on the same grounds as they turned down eurobonds during the eurozone crisis.
Working largely by video conference, EU leaders cannot afford to debate and delay. Rescue packages must be agreed swiftly and collectively. Finance ministers are due to report back within two weeks of the last meeting with fresh ideas about supporting an emergency coronafund – a disappointing delay.
For struggling countries such as Spain and Italy (and the many to come), the outcome is particularly bitter and likely contributing to anti-EU sentiment. The French president, Emmanuel Macron, bluntly stated that failure to agree a response “could spell the end of the EU”.
BBC News, 27 March 2019
Divided we fall?
The European Commission president, Ursula von der Leyen, argued that the EU needs an “intelligent strategy” that simultaneously “protects the health of our citizens, keeps our economy afloat, and our goods and cross-border workers moving”. While she’s unlikely to get labour movement until quarantines are lifted, Von der Leyen has garnered agreement on a few key areas.
There’s funding for vaccine research and protection for European “strategic assets” against broad offers of foreign investment. This latter is largely a response to Germany’s rejection of the offer by the US president, Donald Trump, to buy wholesale a Germany medical company researching possible COVID-19 vaccines.
The challenge for the EU is how to support member states in their chosen national responses while ensuring the shared financial package is equitably and swiftly distributed. This means preventing routine bickering over “debt-sharing” and instead accepting that a pandemic of these proportions effectively – indeed ruthlessly – levels the playing field like nothing else.
The point isn’t about prosperous northern EU states bailing out poorer southern neighbours, but getting both institutional leadership from the Commission and financial pioneering from the European Central Bank to work together – and fast. Failure to do so will jeopardise both the macro-economic and micro-social connections which together make up the tissue of the union. Schisms are also a ready invitation to other states and regions willing to offer assistance – for a price.
Indeed, a number of European states have already begun to work beyond EU boundaries in tackling the crisis. Italy saw Chinese medical teams and equipment arrive in mid-March. This nascent “Health Silk Road” is currently delivering substantial shipments of Chinese medical supplies on trucks emblazoned with the motto “the friendship road knows no borders”. The question is, to what extent does this aid rely on future Italian support for China’s ambitious Belt and Road initiative.
If Italy is anything to go by, the EU could be supported in its collective endeavours to battle COVID-19 by a host of new international allies – including Russia and the US. At home however, the EU still needs its members to agree among themselves on their shared response. And quickly.🔷