The world is seriously stricken with Novel Corona virus. The lockdowns made almost everyone confined to their homes, economic activities have come to a standstill, household incomes & consumer spending has plummeted. With the unemployment skyrocketing, bankruptcy concerns many companies. As time lapses, uncertainty cripples.
Europe is no more out of the paw of this pandemic. Each day, No of cases & deaths are soaring. Until the article was written, Italy, the most victim state member, confirms 32,330 of deaths toll. Spain & France are also experiencing a deplorable fate at the same time. But the economic fallout is still to be acute and it heads towards its worst recession ever as The IMF estimates that the euro zone will witness more than 7% slump in GDP, means this downturn would be more severe than 2009-10 financial crisis, when economy shrank by 4.3%. Though the pandemic started as health crisis, but sooner it concatenated political & constitutional crises for this bloc. Analyst Pepijn Bergsen says, “What started as a health crisis became an economic crisis, then a political crisis, then a financial crisis”.
In 1950, after 2nd world war ended, French foreign minister Robert Schuman along with six war-ravaged countries established ‘European coal and steel community’ as a peace project aiming to create a common market in Europe. It was the forbear of European Union. Afterwards, British Prime Minister Margaret Thatcher amplified the ‘Single Market Program’ in 1992 & made regional trade easier. On the course of time, they were introduced to €Euro. Now, 19 state members share the same currency & they are named Euro zone. Then it stood beacon of regional harmony & exemplar of capitalism. As the bite of the virus intensifies the crises we will delve into the reasons, past few ones and way forward-
Economically, EU is divided in southern & northern parts. Italy & Spain are in southern bloc who are economically fragile, remain indebted year-long. Unfortunately, they are the hardest-hit countries of EU in this pandemic. At the time of covid-19 outbreak, Italy remained its epicenter in Europe. Even before this crisis, Italy’s public debt stood at 133% of its total output (GDP) – the highest next to Greece in the bloc. Though European Central Bank stepped in fast to introduce a recovery package of €1-1.5 trillion, it was not enough.
So, Spain, Italy, France and other nations intended to share the debt incurred due to coronavirus response and proposed shared debt- ‘corona bonds’. Wealthier countries like Germany & Netherlands refused to help out through bond. Philippe Legrain, former economic adviser to the president of European commission suggests common debt which ECB will buy & hold for some months or years. It’s unlike the Corona bonds that would cost northern taxpayers for southern debts.
Italy regards corona bonds as European solidarity. They argue that the crisis is totally unexpected. Therefore, Italy deserves support from other European state members; and corona bonds are the best way to help out. On the other hand, German government view corona bonds as a burden, because they might room for Eurobonds in future, which means that German taxpayers would be liable for debts Italy, Greece borrow. Moreover, in late February, when Italy sought urgent medical help, none of the EU members stretched out helping hand until china supported. Nothing but it’s a mockery to EU’s single marketas an excuse storing medical equipment. Even Some countries of passport-free Schengen area closed their borders. If it was the scenario, the meaningfulness of the union lasts in doubt. Is their protectionism leading to a doom? Not obvious, we have to wait for what happens next.
As EU members have free movement of capital, labor & workers, the Commission has strict rules of limited subsidies- how much a country can help its domestic industries. When covid-19 outbreak happened, the commission relaxed them. Throughout the European states, government supports in form of grants & wage supplements stood at €1.9 trn, whereas German grants for its domestic businesses accounted more than half of this total amount. Incredibly, this is how protectionism grew amidst the pandemic. As the burden of the disaster falls heavily on the least able to tackle it, excusing lack of cooperation, Italy’s Lega party leader Matteo Salvini is seducing agitated people to leave EU & Euro. Last week, some Italian politicians bought a page in Germany’s newspaper, Frankfurter Allgemeine Zeitung, rebuking Germany that it has never paid back its debts after Second World War. On the contrary, German leaders bantered that Italy & Spain deserve this fallout. That European politicians have recently involved in unseemly scramble of words is not seen from the near past even at the time of euro-crisis in 2010-14, when Euro zone seemed to break-up due to the conflict ignited by Germany & France. People were betting of the collapse, but it survived somehow. However, this time, the clash between southern & northern nations is endangering the zone.
Nonetheless, the way the most pro-European country Italy was treated in 2015 refugee crisis, is likely to ignite their outrage. Without Italy, what would be left of EU, whom they trust more than their government? Fate of Brussels is swaying like pendulum. Another existential crisis made the bloc exceptionally vulnerable as in May; Germany’s constitutional court challenged its legal supremacy over European Court of Justice (ECJ).Because EU is built on ‘rule of law’.
German court questioned the ECB’s (European Central Bank) action. In March, in a bid to avert the pandemic caused financial crisis, it launched bond-buying program worth €750bn which lightened loan-burdens of indebted poorer nations. Italy & Spain could easily borrow from the EU’s open market. The court ruled that ECJ was acting beyond its remit letting the bank, ECB to buy Italy’s debts. Furthermore, Poland also brought the dispute in light by lowering ECJ’s status to its own court. Two courts have involved in unseemly jostling for their status. Berlin’s ruling asked the ECB to justify the monetary policies it has taken. On the contrary, ECJ thinks to impose sanctions on Germany as it violated EU’s accord. As long as constitutional scramble will go on, it will shake the entire union.
German analyst Jan Techau, remarks perfectly; ‘’a shared currency but no shared spending policy. This was originally a feature of the euro’s design, not a bug. The euro’s creators wanted this tension to be there. What the euro’s designers did not envisage was that Europe’s leaders would balk, repeatedly, at that deeper integration, thus endangering the currency’s survival”. Indeed, this fault has come long through the EU. Today as EU’s state members have different expectations & interests, a common goal is hard to attain. As long as the protectionism & constitutional fight last, risk of breakup will be high.
European leader’s negotiation is therefore crying need. Though fiscal transfers and debt share would be untenable, but to curb the disaster, supporting the least able in form of soft loans & medical equipment is what they deserve most. People of this bloc also expect from their leaders to come to resolve and keep EU stable.
The author is studying in the Department of Economics, University of Dhaka.