The coronavirus is pushing the crisis-marred EU to a new breaking point

April 17, 2020, 8:00 AM UTC

The global financial crisis buckled but didn’t break the European Union. The coronavirus pandemic may tear it to shreds.

As the death toll in Italy soared during late February and March, the 27-nation bloc, founded on the ideal of solidarity among European nations, failed to mount a collective humanitarian response and struggled for weeks to agree on a package of economic aid.

Disagreements over that rescue deal laid bare fissures only likely to grow in the coming months as additional financial assistance becomes necessary.

French President Emmanuel Macron, in an interview with The Financial Times, warned that the EU will collapse as a “political project” unless the bloc supports Italy and other economies stricken by the coronavirus pandemic through a commonly issued and guaranteed funding mechanism.

When Italy invoked an EU framework meant to facilitate the sharing of vital medical supplies between members, not a single European country responded. Only weeks later, on March 22, did the European Commission approve a €50 million ($54.6 million) grant to Italy to help it produce ventilators and personal protective equipment.

Instead of mutual aid, an every-nation-for-itself mentality gripped the Continent. Denmark, Poland, and the Czech Republic closed their borders, with Germany shuttering crossings with France, Austria, and Luxembourg. Many EU nations imposed export restrictions on medical supplies. France nationalized its entire supply of face masks while Germany blocked shipments of masks intended for Austria, sparking outrage.

Into the void stepped China, Cuba, and Albania, delivering medical supplies, doctors, and nurses. Russia sent a far more provocative aid package. It dispatched eight brigades of soldiers trained in chemical and biological warfare to deliver supplies and construct field hospitals. Given that the EU was originally formed, in part, as a bulwark against Moscow’s designs on Western Europe, the irony was acute.   

“A heartfelt apology”

Last week, the EU approved a €500 billion ($545 billion) rescue plan for the countries hit hardest by crisis. Then, this past Wednesday, it unveiled a coordinated-if-somewhat-vague plan for how members of the bloc can gradually restart their frozen economies. And on Thursday, European Commission President Ursula von der Leyen offered Italy “a heartfelt apology” for failing the country in its hour of need.

But the damage may already be done. “The EU has suffered over the past decade a series of crises that have created new institutions but that have weakened the project politically,” Heather Conley, the Europe director at the Center for Strategic and International Studies in Washington, D.C., says. “The pandemic will accelerate those trends.”

More than two-thirds of Italians now believe being part of the union is a disadvantage for their country, according to a survey conducted last month by Tecne Institute, up from 47% in November 2018. Another poll by the same researchers this week found 49% of Italians would vote to leave the EU if there were a referendum.

The U.K.’s 2016 decision to leave the union shook the bloc to its core. It is unlikely the EU could also survive the defection of the third-largest eurozone economy.

At €500 billion, the EU’s emergency funding falls well short of the €1.5 trillion the European Central Bank says may eventually be needed to prop up the region’s shattered economies. And the fight between Italy and the Netherlands over the size and scope of the aid package foreshadows further strife.

The main points of contention are over what conditions will be imposed on those countries that access EU funds and whether responsibility for paying for any economic help will be shared equally among all the bloc’s members.

During the global financial crisis, richer European nations, such as Germany, insisted that countries taking bailout money, such as Greece and Ireland, make deep cuts to public spending to bring budget deficits in line with the bloc’s 3% cap and to begin to reduce public debt-to-GDP closer to the EU’s 60% ceiling.

The Netherlands initially insisted on similar requirements for Italy, which had a debt-to-GDP ratio of close to 135% even before the pandemic hit, to access rescue funding. The Dutch were eventually persuaded to drop those demands, but the issue is likely to reemerge in the future with Italy’s debt-to-GDP ratio now on track to exceed 150% once coronavirus aid packages are taken into account.

The eurobonds debate

A group of nine EU nations, led by Italy—but also including Belgium, Greece, France, Ireland, Luxembourg, Portugal, Slovenia, and Spain—have been pushing the EU to issue special euro-denominated “coronabonds” to fund additional stimulus across the bloc. The idea has met stiff resistance from the Dutch and Germans, who insist that any additional debt should be the obligation of each member state requiring funding, not the EU collectively.

The coronavirus has also brought to a head the EU’s creeping crisis over Hungary, an EU nation that strayed far from the democratic norms, such as the guarantee of an independent judiciary, free press, and civil society, required for membership in the bloc. Prime Minister Viktor Orban has lurched further toward authoritarianism during the pandemic, using the outbreak as an excuse to impose sweeping and indefinite emergency powers.

Already, Hungary’s actions, as well as moves in Poland to limit the independence of judges, had opened up an East-West fissure within the EU, with bitter battles over the Western states’ efforts to punish illiberal members by limiting their access to EU funding.

The extent of this East-West divide over liberalism as well as the renewed North-South division over deficits will be tested this summer when the EU enters final negotiations over a seven-year long-term budget, known as the multi-annual financial framework (MFF). This will be one of several milestones that, Conley says, that may well indicate whether the EU survives. In February, before the coronavirus’s terrible economic toll was apparent, the bloc floundered in its efforts to resolve many outstanding issues concerning the MFF—simply papering over disputes and pushing a hard reckoning off to the summer.

Another test will come in June over the renewal of EU sanctions on Russia. Those sanctions, in place since Russia’s annexation of the Crimea in 2014, have to be renewed every six months by unanimous consent of all EU members. More than merely scoring propaganda points, Russia’s decision to send troops to assist Italy was aimed at convincing Rome to vote against sanctions renewal, according to Nigel Gould-Davies, a senior fellow for Russia and Eurasia at London’s International Institute of Strategic Studies.

A final breaking point may come if the fiscal cost of the pandemic eventually pushes Italy into insolvency—unable to service its debt or issue more, Conley says. “That will be the clarifying moment of whether Europe and its institutions can overcome some of their birth defects,” she says, adding that the scenario is an extreme one that she hopes does not come to pass.

Others see the situation as far less grave. Maria Demertzis, deputy director at the Brussels-based think tank Bruegel, says that the EU will “unequivocally” survive this latest crisis. “We are just like a family fighting with each other,” she says. “We come to dinner and we are all fighting with one another. We are still a family though.”

She says that Brexit shocked Europe—but also had a galvanizing effect, strengthening feelings of European solidarity among the remaining members of the bloc and emphasizing how important it is to prevent another member from departing.

Even opinion polls showing Italians’ disillusionment with Europe are not a sign of serious trouble, in Demertzis’s view. “Go to Italy and ask someone, is Europe good for them? They will say no,” she says. “But ask that same Italian if they want to go back to the lira, and they will say never.”

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