Europe’s virus crunch time

Europe’s virus crunch time

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The 500 billion euro package agreed on last week to combat the economic fallout of the coronavirus pandemic has been called the “most important economic plan” in EU history, but the political impact of the outbreak continues to rock the bloc in what could yet be an existential challenge.

The virus has already wreaked havoc across much of the continent in the past few weeks; 65 percent of known deaths attributable to COVID-19, the disease the virus causes, have been in Europe. The scale of the damage has exacerbated the bloc’s vulnerabilities, which in the past decade have been driven by the eurozone crisis, an influx of migrants, and growing euroskepticism, exemplified by Brexit. 

Moreover, in confronting the effects of the virus, many EU member states have acted alone and in their own interests. This has intensified a longstanding economic schism between several southern European states, especially Italy and Spain, which have been worst hit in Europe by the health emergency, and a number of northern countries, especially the Netherlands.  Before last week’s economic deal was agreed, Italian Prime Minister Giuseppe Conte said Europe’s leaders were “facing an appointment with history,” and that “if we do not seize the opportunity to put new life into the European project, the risk of failure is real.”

While Conte’s words were designed in part to put pressure on northern Europe to agree to the financial deal, other leaders have shared his bleak assessment. “The EU stands before the biggest test since its founding,” German Chancellor Angela Merkel said.

The immediate tensions will have been eased by last week’s deal, although it still needs to be signed off by European leaders, perhaps as early as this week. The cornerstone of the proposal, which French Finance Minister Bruno Le Maire said was the most important economic plan in EU history, will be to employ the European Stability Mechanism (ESM), the euro area’s bailout fund, to offer credit lines worth as much as 240 billion euros.

However, the financial package aside, it is increasingly clear that the coronavirus pandemic could catalyse a debate that has long been brewing about Europe’s future, especially as the continent goes into a deep recession.  Issues in play range from eurozone reform — ideas on the table include a eurozone common budget and a possible expanded role for ESM — through to the future of the Schengen area, the continent’s border-free zone that has been seriously compromised by national reactions to the pandemic.

The previous European Commission President Jean-Claude Juncker had a clear preference for greater integration among member states, including the creation of a European Defence Union (a scheme also favored by his successor, Ursula von der Leyen), but there are still a multitude of views across the continent. 

The coronavirus financial package aside, it is increasingly clear that the pandemic could catalyse a debate that has long been brewing about Europe’s future, especially as the continent goes into a deep recession.

Andrew Hammond

The futures that could unfold in the early 2020s range from the worst case for Brussels of the bloc imploding,through to a new spurt of “ever closer union” in the way that Juncker favoured. In the latter scenario, EU countries would do much more together, share more power and resources, and reach decisions and enforce them much more quickly. 

While greater integration is not the most likely future for the union, neither is its complete destruction, given the significant support the EU enjoys across much of the continent. But that cannot be completely dismissed,given the build-up of challenges the union faces, including the growth of euroskepticism across the bloc.

It is between these two outlier scenarios that the reality of the next few years is most likely to lie.  Perhaps the most likely outcome is one in which the bloc “muddles through,” following a similar trajectory to that of the past few years.

However, further major setbacks could instead bring about a retrenchment in which the current scale of EU functions are rolled back, with attention and limited resources focused instead on a smaller number of policy areas, including the single market. Indeed, in this scenario the EU may even retreat to no more that, simplyguaranteeing free movement of goods, capital, services and people.  

Conversely, if the next few years bring more stability than currently expected, it is possible that European integration may be reignited. However, Juncker’s vision for the 27 member states to do much more together, which is also favored by French President Emmanuel Macron, may still prove unrealistic.

Perhaps more likely is that more “coalitions of the willing” emerge in select policy areas to take forward integration on a flexible, rather than across-the-board, basis.  A precedent here could be the eurozone itself, a monetary union of 19 of the 27 EU members with the euro as the single currency. 
This whole debate underlines why the pandemic has the potential to reshape the politics of the EU well into the 2020s and beyond.  Last week’s financial package is likely to be only one of the key decisions taken in coming months that will define the longer-term economic and political character of the bloc for years to come. 

  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics
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