The Impact of Coronavirus Pandemic on the EU and its Future

EPC | 19 May 2020

Europe has become the global epicentre of the novel coronavirus (COVID-19) epidemic since the end of April 2020. Despite the accelerating increase in infections and deaths in February and March in Italy, which was the first and most affected European country by the virus, and even the country with the then highest number of infections globally, the response of the European Union (EU) was extremely slow. At first, EU institutions seemed unaware of the size of the danger threatening its member states. The initial response of the EU was described as awkward, which brought it under severe criticism by the most affected countries such as Italy and Spain. French President Emmanuel Macron warned of the collapse of the EU as a political project if it does not take serious steps to support the economies of the afflicted countries.

While Germany initially banned the export of any medical equipment outside its borders, including to EU countries, and the Czech Republic seized a shipment of protective equipment exported from China to Italy, EU countries rushed to close their local borders in what was considered an undermining of EU basic principles such as the free movement of goods and individuals. Despite the existence of a legal basis that the EU countries used to justify their action, they came under severe criticism for doing that since their decisions were taken unilaterally, protectionist and devoid of any coordination or consultation with the EU and its institutions. Against these fissures in the wall of European unity, the Russian army had been transporting medical equipment to Italy, Chinese planes had been landing in Italy with loads of urgent medical aid, and Cuban doctors had been arriving after rushing to respond to the Italian distress call that did not receive a European response at the time.

Initial EU response

Although the mistake in dealing with the Italian case was admitted by the EU and an official apology was offered by the President of the European Commission Ursula von der Leyen because the EU “disappointed” Italy, the EU did not reach an agreement on the economic support plan to counter the coronavirus crisis except on 10 April 2020, although the beginning of that month marked the peak of daily infections in Germany, Italy, Spain, France and Belgium.

The EU did not approve the relevant economic support plan, estimated at nearly 7-8 percent of the EU’s GDP, except after dozens of discussions which were, according to observers, a waste of precious time for the affected countries to avoid further damage to their economies.

Differences about the economic support plan focused initially on the so-called “corona bonds”, a joint guarantee mechanism by EU countries for the debt bonds that the governments economically affected by the crisis may need to issue, or what is known as the mutual debts of the euro zone countries. At first, Germany, the Netherlands and other countries in northern Europe rejected demands by Italy, Spain and Portugal to be allowed to borrow by issuing corona bonds. This disagreement is attributed to the following:

  • Absence of a unified EU financial policy.
  • Frequent financial crises and faltering institutional reforms.
  • Effects of the 2011-2012 sovereign debt crisis where the controversy has not been resolved among EU member states over whether priority should be given to consolidating the debts or reforming faltering economies.

The initial faltering EU response to the coronavirus crisis could be divided into three levels:

Financial and monetary level: the EU continues to suffer from the absence of a unified monetary policy. The euro zone itself was established on weak foundations due to the failure to establish a financial union that would develop a single monetary policy and the inefficient methods of crisis management, in addition to the inadequate observance of the criteria to join the single currency. These structural and technical problems led to ineffective and incomplete solutions in earlier financial crises experienced by the EU such as the 2007-2008 global financial crisis and the 2011-2012 sovereign debt crisis.

The absence of clear monetary mechanisms and policies was reflected on the means of handling the economic shocks resulting from the coronavirus crisis in European countries. This led to an unstable mix of sometimes conflicting measures between the EU institutions and the governments of member states. For instance, while the European Central Bank seeks to fix the European debt market, the states more economically affected did not comply and continued to issue their private debts as urgent short-term measures and rapid solutions to counter the mounting pressures they face.

Institutional level: since its inception, the EU has been facing a problem in its decision-making mechanisms and the controversy over taking critical decisions by majority vote or consensus. However, the clash between technocrats within the EU institutions and politicians of EU member state governments emerged clearly during the 2011-2012 sovereign debt crisis. It re-appeared as vigorously during the debate over the EU means to counter the coronavirus epidemic crisis. The EU and its institutions and officials have at their disposal mechanisms that enable them to take decisions under the powers conferred on them by member states in those states. However, those mechanisms themselves need the approval of member states to become effective.

Political level: during the current crisis, it was clear that member states hesitated between showing solidarity with the EU and the domestic political pressures they face due to the different attitudes of their peoples towards the coronavirus crisis, at least during its first three months. Those varying attitudes emerged as a result of the varying effects of the crisis at both the health and economic levels in those countries which came under increasing political pressures in light of the wave of populism and skepticism about the EU led by far-right groups and parties whose influence in Europe has been growing in the last five years.

Current EU plan to counter the novel coronavirus epidemic crisis

The EU plan to respond to the novel coronavirus epidemic crisis included the following main components:

a) Limiting the spread of the virus, including:

  • Temporary closure of the EU’s external borders.
  • Introducing restrictions on non-essential travel to EU countries.
  • Managing borders among EU countries and creating “green lanes” for essential goods.
  • Assessing disease spread among the population of EU countries through the European Centre for Disease Control (ECDC).
  • Holding weekly coordination meetings that bring together experts and representatives of EU institutions and governments of EU member states through the so-called EU Integrated Political Crisis Response (IPCR), which is a mechanism endorsed by the European Council (EC) with a mandate to offer consultations and analyses with respect to major crises.

b) Ensuring provision of medical equipment, including:

  • Joint procurement of medical equipment needed to counter the novel coronavirus epidemic, including protective gear for medical teams, ventilators and testing kits for the virus.
  • Regulating exports of key medical supplies from the EU.
  • Stimulating and increasing the manufacture and production of medical equipment within EU countries.
  • Adopting the EU civil protection mechanism, including deployment of medical teams and delivery of supplies to countries in need, building a new common European reserve of emergency medical equipment, and coordinating support efforts through the Emergency Response Coordination Centre.

c) European safety network financial plan worth 540 billion euros to support the economy and the business sector and fight unemployment:

The financial plan allocates support packages to EU member states and European businesses and workers. The safety network plan was approved by the euro group and endorsed by the leaders of EU member states. It includes the following:

  • Establishing the temporary scheme Support to Mitigate Unemployment Risks in an Emergency (SURE) with a budget of 100 billion dollars with the aim of helping EU workers maintain their jobs during the novel coronavirus epidemic crisis. SURE would serve as a second defence line in the short term to protect those workers from the risk of losing their income. The instrument was established based on a political agreement reached between EU ambassadors on 15 May 2020. EU member states will be able to request loans from this temporary instrument to counter the negative economic and social effects resulting from the crisis, particularly the sudden and severe financial increases in public expenditure in some sectors. In short, the SURE instrument offers loans to cover short-term government programmes that were announced by member states to support self-employed persons and staff with the aim of maintaining productivity and human competencies working in the European market and protecting that market from the long-term risks of instability which may result from staff layoff.
  • Allocating 200 billion euros to establish the Pan-European Guarantee Fund to guarantee loans given to companies by the European Investment Bank.
  • Allocating 240 billion euros to the European Stability Mechanism which is an EU agency specialized in offering financial support to member states in the euro zone in case any of them is exposed to financial threats that endanger the stability of the euro zone.

d) Allocating financial support for scientific research, including:

  • Allocating 220 million euros for supporting research related to developing vaccines and treatments for the coronavirus disease.
  • Building a joint data platform for research on the novel coronavirus epidemic.
  • Allocating 164 million euros to support small and medium-sized enterprises (SMEs) and the entrepreneurial sector to help find innovative solutions to counter the epidemic.

e) Helping EU citizens stranded abroad.

f) Fighting disinformation on the epidemic.

The expected impact of the coronavirus epidemic crisis on the future of the EU

The novel coronavirus pandemic constitutes a real test of the concept of the EU as an international bloc and the world’s largest economic union of its kind. With the embarrassment of the EU and the severe impact of the crisis, leading to enormous human and economic losses in EU countries, several expectations have emerged regarding the future of the EU, mainly:

First scenario: the gradual collapse and disintegration of the EU

The losses sustained as a result of the crisis and the EU delay in the response that was expected from it may contribute to stepping up calls for separation from it, especially after the EU received a severe blow, although it has thus far managed to absorb its impact, with the separation of the UK from it (what is known as Brexit). However, the crisis has revealed factors such as the prompt resort by countries to protectionist measures without considering coordination with the EU as a priority, adherence by EU institutions and EU influential states to bureaucratic procedures that hindered response to the distress calls of the most affected countries, the deep imbalance revealed by the crisis in the EU rapid response and crisis management mechanisms, and the increasing pressures by groups doubtful of the feasibility of the EU and by far-right parties, all of which might lead to intensifying local calls in some member states to hold referendums for separation from the EU. If this is successful in one country, Italy for example, the exit of a second country from the EU after the UK would be expected to deal a severe blow to the single currency, i.e. the euro, and further shake trust in the EU, which might eventually lead to its gradual disintegration.

Second scenario: consolidation of the EU and benefitting by the EU from the crisis to enhance its presence

The coronavirus crisis has contributed to recognizing that no single country can counter cross-border crises alone. This crisis has demonstrated the extent of the need by the strongest global and regional economies for some kind of international cooperation. The coronavirus crisis may constitute a real opportunity for the EU to convince those in doubt about it of the necessity of its existence as a safe umbrella in such crises. However, this depends on several factors, including:

  • The effectiveness of the current EU plan in countering the crisis and alleviating its impact.
  • Demonstration by the EU of more flexibility in case the novel coronavirus epidemic crisis develops or in case the region is exposed to other expected waves of the epidemic.
  • Rapid EU consensus without passing again through earlier differences on a plan to exit the crisis and revive the economy that would be found satisfactory by all countries and include effective technical and financial mechanisms to save the affected economies and rebuild the European health sectors.
  • The extent of EU benefit from the current crisis to implement deep reforms in its structure and policies, especially the single monetary policies.

Third scenario: interim handling of the crisis and continued faltering and rectification in the response

This is the most likely scenario. It is based on the continued reliance by the EU on its current legislation and institutional mechanisms, spending longer time in developing different solutions and mechanisms and relying more on already tried solutions while implementing gradual reforms according to the lessons learned from the crisis to rectify plans and paths. However, this scenario will greatly depend on the political convictions of member states regarding the feasibility of the EU. Those convictions are expected to depend directly more on the plan for recovery and exiting the crisis than on the plan to respond to it. The countries affected by the coronavirus crisis are not expected to raise the issue of exiting the EU in case they are provided with a feasible economic recovery plan that meets their interest in this respect. Those countries are aware that they cannot counter the impact of the crisis alone once it is over.

The implications of the coronavirus crisis for the future of the EU remain contingent on the developments of the epidemic crisis itself in terms of the likely exposure by the continent and the whole world to new waves of the epidemic or the discovery of a treatment or vaccine that could end the state of awkwardness experienced by the world as a result of this crisis and return life to normal. The EU economy will continue to be affected by the direction to be taken by the global economy after the crisis is over.

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