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An Abandoned Union?

April, 2020

An Abandoned Union?

Today, as we are flooded with opinions and forecasts on the post pandemic world we might forget to discuss one of the biggest geo political casualties of this crisis. The European project. The idea of Europe is a beautifully intricate one, and by Europe I refer to the European Union. One which was conceived not just in the houses of politicians, the halls of parliaments or the chambers of bureaucrats, but rather in the hearts and minds of its people. It was built on the ideals of brotherhood and unity, essentially propped up on a common currency, regulated financial system, free movement and trade, among other policies to instate the above stated beliefs. Yes, the dream of a united Europe stemmed from the fear and violence inflicted on nations as a consequence of a cycle of wars. However, that doesn’t take anything away from the foundation it was built on and meant to serve, that of solidarity and fraternity.

This project of solidarity is facing its largest threat to date, brought to its knees by the coronavirus pandemic and its unprecedented economic impact. It would be fair to assume that the largest experiment of political and financial integration would put up a common front to tackle this crisis. The reality is a little further from this and the bloc stands divided on how to combat the crisis. There has been hesitation to extend aid and credit lines to fellow member nations which has raised anti-EU sentiments in the worst hit countries. Italy is a prime example of this. Giuseppe Conte, the Prime Minister of Italy, had initially requested to make use of the 500-billion-euro bailout fund to help Italy combat the virus. Their request was met with silence as other nations also grappled with the reality of this crisis. The country had also called for help from the emergency response coordination center. Again, their pleas for help were met with silence. The stoic response to Italy’s calls for help has made its citizens and government vocally question the need for the bloc. To make matters worse, Germany and France briefly imposed export bans on medical equipment, which was soon after lifted. This only garnered more voices calling for Italexit post the crisis. Conte in an interview to BBC has already stated that the coronavirus pandemic could be the end for the European project. With the death toll nearing 19,000 in the country, help came from unexpected sources with China, Cuba and Russia rushing to extend aid to Italy. With new found friends, the support for Italexit is strengthening by the day and on some radical platforms, calls for the complete breakdown of the European dream are being made.

The finance ministers of the Union did take a major step forward last week and reached a $590 billion coronavirus rescue deal to cushion the economic impact of the virus. The deal was announced after weeks of discussions, growing scrutiny about the divisions in the bloc and Conte’s warning that no deal would mean the end of Europe. The stimulus includes allotment for wage subsidies to prevent large scale layoffs, loans to businesses and credit for EU governments.
However, the bloc remains split over pooling debt and this division has reopened political fault lines. The question of who would finance this package remains unresolved. A group of nations, led by Germany, Netherlands and Austria, balked at the move of issuing euro bonds (‘Corona Bonds’), which is essentially a tool to jointly issuing debt as a union. The countries fear that their taxpayers would end up underwriting spending by poorer member states, mostly located in the south of Europe. They are pushing for the use of tools under the European Stability Mechanism, which has a history of coming with conditionality from Brussels. Macroeconomic conditionality was overlooked for this specific deal as long as the credit lines are used to finance direct and indirect health cost but this failed to reinstate the confidence of the southern states in the bloc.
Nine countries, including Italy, Spain and France, signaled for the union to jointly issue debt by way of corona bonds to help finance a recovery for all member nations, most of which are anticipated to fall into a deep recession soon. They believe that the time for euro bonds has arrived. The Union doesn’t have a precedence of sharing debt. But, it has also never faced such a crisis, where the continent has seen over 50,000 fatalities within a period of two months. This fueled the hope that the bloc might come together and go ahead with euro bonds. Pooling debt is what led to the inception of the United States. The move could have the potential to eradicate doubts over the need for the Union. But the resistance against this tool doesn’t seem to weaken. The reluctance from northern members over subsidizing debt for the poorer southern states, has reinforced the growing belief that the union exists to serve the wealthier members. On 10 th April, Conte threatened to block a statement of endorsement from the EU leaders and derail the progress of all talks until now, unless euro bonds or adequate instruments are brought back into the picture.

The European project has been thrown into a pool of uncertainty and panic which is fueling protectionism. The future of the EU depends on its coronavirus response, as a bloc. The union needs to come together and prevent redrawing of the very borders it envisioned of erasing. It is not the time for division, for division in such a time could lead to catastrophic results which cannot be reversed. This is not the first time the political foundations of the European project have come under threat. The bloc has been brought back from the brink of disbandment before. The sovereign Eurozone debt crisis of the previous decade is one such instance. But, the stakes this time are significantly higher than those of 2012. Mario Draghi managed to save the Euro then, can his successor, Lagarde, do the same?

  • Written By Suviti Singh

Suviti is an intern at the firm since 2020. Suviti handles the world seeing the happy face (of TSB, of course). She knows where she's going, it just might take her 2 hours longer than expected.