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The EU responds to the coronavirus: déjà vu all over again?

Vivien Schmidt 23rd March 2020

The European Union must manifest real solidarity in response to the coronavirus crisis. Muddling through will not do.

muddling through, European solidarity
Vivien A Schmidt

The European Central Bank refuses major action. European leaders hunker down. They fear contagion from others. The European Commission’s measures are woefully inadequate. No, I am not talking about the eurozone crisis. This has been the EU’s response to the coronavirus crisis.

At the beginning of the eurozone crisis in 2010, country after country fell to market contagion. To avoid bankruptcy and ejection from the currency zone, countries ‘at risk’ suffered harsh austerity programmes, which slashed health and education budgets as well as job and welfare protections.

No wonder the Italian health services are struggling today to cope with the coronavirus crisis. Doctors have to decide who lives (the young) and who dies (the old), while businesses face bankruptcy and workers risk penury. The disastrous economic policies related to the eurozone crisis have left Italy struggling to respond.

But this is not just an Italian problem. Across Europe, lack of investment in infrastructure, education, training and health since the eurozone crisis has left all countries vulnerable, including rich northern-European ‘creditor’ countries and, of course, the United Kingdom.

Essential measures

This time is different in one way, though. All member states are setting aside the fiscal rules to confront the crisis.

The German chancellor, Angela Merkel, didn’t hesitate to announce the roll-out of the biggest stimulus ever, with unlimited liquidity assistance to German businesses, salary and job guarantees to workers. The French president, Emmanuel Macron, has pledged billions to support the economy, with an ‘exceptional and massive mechanism of partial unemployment’, allowing companies to postpone their March tax payments without justification or penalty. Italy has already put into effect a wide range of similar measures to forestall business closures, to provide for parental leave and childcare vouchers for health workers, and more. All are essential.

But where is the EU? The commission is doing a little, announcing a €25 billion coronavirus investment fund and saying it will use all ‘flexibility’ available, while setting aside state-aid rules. In the European Council member states have done almost nothing, having not yet agreed to a co-ordinated response, as they close their borders one after another—even refusing the export of emergency medical items to fellow member states in desperate need.

The ECB did even less, having refused to cut interest rates (in contrast to the US Federal Reserve and the Bank of England) or to intervene to reduce the German-Italian bond-spread. Until, that is, the turnaround on March 18th with the launch of a massive bond-buying programme.

Real solidarity

Every EU institution needs to act in concert, and to do more, for real solidarity across Europe. The union risks recession, or worse, while individual countries, such as Italy, risk bankruptcy. The European Council needs to come to agreement on major assistance funds, co-ordinated by the European Commission, to supplement what individual countries have been promising to spend to shore up their economies and support their citizens in this time of need.

Where will the money come from? Time to deploy the ECB to provide ‘helicopter money’ for households across the eurozone and to issue ‘orange bonds’ to underwrite current health-related national spending. That is in addition to the recently discussed (though still a pipe-dream) ‘green bonds’ for climate change.

Without a robust EU-level response to accompany national measures, the union risks limping along once again. Yet muddling through is not an option—especially because the economic and health-related devastation is likely to be accompanied by even greater political anger than before.

And then what?

Vivien Schmidt
Vivien Schmidt

Vivien A Schmidt is Jean Monnet professor of European integration in the Pardee School at Boston University and honorary professor at LUISS Guido Carli University in Rome. Her latest book is Europe’s Crisis of Legitimacy: Governing by Rules and Ruling by Numbers in the Eurozone (Oxford University Press).

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