The EU’s response to Covid-19 has given plenty of ammunition to its opponents. Frontiers have been closed and supply chains broken as countries have put their own needs first. Trust among governments has diminished, with France and Germany banning medical exports in the early days of the crisis, to the fury of Italy, while the long-running north-south rift over the future of the eurozone risks widening into a dangerous chasm. But while the economic depression will hit everyone, the impact of the pandemic outbreak on EU members will be uneven: some will suffer more deaths, some start with loads of debt and some depend on industries like tourism that will be severely affected. Several debt-laden southern countries, and especially Italy, face particularly grim prospects. Italians feel that after the eurozone and migration crises, the EU is once again abandoning them, and they are becoming more eurosceptic.
The European Commission has struggled to deliver strong leadership, with its efforts to coordinate responses to the coronavirus crisis, and more recently steps towards lifting the lockdowns, gaining little traction in national capitals. But to be fair to it, most of the key levers on health, borders and the economy remain with member states. The Commission has done its best, for example by lifting limits on state aid and budget deficits, persuading governments not to ban exports of medical equipment and launching ‘SURE’, a plan for subsidising the costs of short-time working in member states. While the European Central Bank (ECB) has come up with an impressive €750bn bond-buying programme, which has helped to reduce spreads between Italian and German debt, it cannot single-handedly defeat the looming depression.
But the EU needs to take on a role in fiscal policy and some member states, including France, Italy and Spain, have already been pushing for some sort of ‘eurobond’ that would allow the EU to raise new money that would be guaranteed by the members and spent on alleviating the coronavirus crisis. Eurobonds would mean the better-off EU countries helping to limit dire outcomes in southern Europe. The Germans, Dutch and other northerners have long opposed the idea, arguing that their taxpayers should not be liable for loans to southerners and that eurobonds would discourage weaker countries from undertaking painful structural reform. There is clearly some truth in this argument but the alternative – eurozone members sinking into a negative spiral of falling GDP and rising public debt, and perhaps abandoning the euro and/or leaving the EU – would be worse for all concerned.
