May 5, 2020

Coronavirus – A New Test for the EU

By Anastasia Efimova

While the past decade marked a number of divergences inside the EU over the immigration issue, the eurozone debt crisis, Brexit, along with the rise of the populist radical-right parties with their anti-European political agenda, the coronavirus pandemic becomes another complication piling up on the top of existing problems. And it is turning out to be one of the biggest tests for the EU. With much of the EU economy being on lockdown, which may result in the worst economic crisis since the Great Depression of the 1930s, according to the IMF’s estimations, the Covid-19 exposes ever-greater vulnerabilities of the system. In fact, the lack of coordinated action to confront the pandemic, as well as the member states opting to protect their national interests, triggers the debates about the EU project being put at peril again. Indeed, the initial me-first approach and providing from little to no help to the first and hardest-hit countries, while introducing border controls and national export bans on medical equipment, have set the wrong direction in terms of confronting the pandemic from the very beginning and compromised the public trust in the EU’s project.

As the European leaders are struggling to find an efficient solution to contain the economic impact of the virus outbreak, thus exposing divisions inside the bloc, the current crisis is likely to have not only economic consequences but also long-term political and social fallout. Such implications are already starting to kick in with the public opinion questioning the EU’s value as well as some European leaders using the coronavirus emergency to consolidate power and curtail civil liberties.

The EU Response to the Crisis

The lack of the meaningful internationally led response during the early phases of the virus outbreak was further compounded by the failure of the European leaders to take coordinated action and multiple attempts to reach an agreement over the economic recovery plan passing on the issue to the Eurogroup finance ministers. As a result of the lengthy debates over adopting a number of common financial measures to contain the coronavirus pandemic’s economic fallout and to kick-start the European recovery, the European leaders have finally endorsed the rescue package. Even though the agreement on launching the European Stability Mechanism has been reached the negotiations over the mechanism on how to apply the recovery fund have not been smooth at all and have demonstrated deep divisions inside the bloc.

The European leaders during a videoconference on 23 April agreed on a €540bn rescue package, which would be released from 1 June, permitting to borrow from the Eurozone bailout fund, known as the European Stability Mechanism, in order to safeguard workers, business and the EU countries most affected during the coronavirus pandemic. Despite the positive outcome of the negotiations, more decisive actions were expected to support the public debt that states are taking on.

The biggest argument was around the coronavirus-related debt-sharing measures put forward by the southern European states. A common debt instrument dubbed “coronabonds” would entail a joint liability for the debt and result in all the EU states borrowing from the markets on the same terms, making it more expensive for the wealthier northern states and driving down the costs for the most affected southern countries. The initiative backed by the nine states, among which the hardly hit by the pandemic Italy, Spain, and France, has clashed against the opposition of the Netherlands, Germany, Finland, and Austria unwilling to share out the costs of the crisis with already indebted countries.

Such financial assistance coming in the form of the loans might be valuable in the short-term, however, in the long-run, it can lead to an unsustainable debt burden on the already indebted countries. Due to the high level of public debt and relatively slow growth such countries as Italy, for instance, will need to pay higher interest rates on the money the government borrows, than for example Germany, which will lead to mounting public debt. Even before the crisis, Italy was already crippled with debt being 137 % of its GDP (which is about €2.5 trillion). In comparison, Germany’s debt to GDP ratio is slightly above 60 %.

The IMF estimates the economy to decline by more than 9% this year and a debt-to-GDP ratio to rise by 20% reaching 157%, which is still not the most pessimistic outlook. According to some estimations, Italy’s debt-to-GDP ratio will rise to around 180 % by the end of 2020, as estimates Alberto Bisin, a professor of economics at New York University.

The message behind the coronabonds proposal is that in the wake of the crisis, ripping off the European economies, it is worthwhile to spend more in order to rebalance inequalities between the EU member states and make the market more competitive in the long term, thus holding off another sovereign debt crisis. The lack of unified approach and the privileging of the national interests by the northern states will certainly result in the even more profound divergences between the EU member states’ economies, increasing the likelihood of the financial crisis for the southern states, which in turn will have long-term ripple effects across the Eurozone.

Surge in Euroscepticism

Despite the member states reached an agreement setting up a recovery fund and the further measures to tackle the economic impact of the virus outbreak will be discussed later, the EU leaders’ clashes over the rescue package have exposed the deeply rooted tensions on the north-south lines between the EU member states.

Such divisions between the member states are having not only deep social and economic consequences but also political ones, adding fuel to the Eurosceptic debate and triggering the discussions inside the societies about the EU’s insolvency as a political institution. In some member states, the EU’s initial lack of support provided to contain the virus outbreak has already resulted in a prominent shift in public opinion over the value of the EU membership. Thus, nearly half of Italians (49%), according to the recent surveys, would opt for leaving the EU, while the number of pro-remains has dropped from 71% in November 2018 to 51% in April 2020.

The delayed assistance to the first hit countries as well as further divergences over the approach to tackle the economic fallout have turned into unfavourable statistics for the EU: only 4 % of Italians believe that Europe is doing enough to salvage the situation while 88 % estimate the opposite. Considering that even before the pandemic, Italy was one of the most Eurosceptic states, the failure of the EU to come up with a unified and solidarity approach to tackle the crisis have triggered an ever more Eurosceptic backlash among one of the most affected EU member states. This is eroding trust into the EU capacity to take swift actions to rescue the hardest-hit states and may lead to the Eurosceptic narrative spreading to the mainstream. Which, in turn, will play into the hands of the radical-right-wing parties and their anti-EU political agenda taking hold at faster speeds not only in Italy but across Europe.

Setback in Democracy

Apart from testing the EU’s cohesion, bringing the most affected member states on the brink of economic crisis and resurfacing divisions between them, the virus outbreak has also shaken the basis of the EU’s fundamental principles of democracy and the rule of law with some political authorities already taking this opportunity to turn the health emergency into the victory of the nation-state over the EU. Thus, emergency measures to fight pandemic at the expense of the democratic principles were taken by the Hungarian Prime Minister, Viktor Orbán, who is using the pandemic to seize more powers. A bill permitting Orbán to rule by decree during the state of emergency without any clear limit has been approved by 137 votes against 53 in the Parliament on 30 March. Apart from granting extraordinary powers without a clear cut-off date, it has also expanded the state control over the media, introducing the jail sentences for spreading misinformation about the pandemic, hereby causing the risk that such measures will be used to censor the criticism against the government’s response to the crisis.  This, in turn, gives carte blanche to the Hungarian prime minister permitting him to suspend existing laws and rule by decree indefinitely until the state of emergency is lifted. In this way, the Hungarian authorities are using the coronavirus outbreak to further roll back liberal democratic standards and eroding the EU pillar principles of the rule of law and freedom of press hereby “placing the Hungarian democracy in quarantine”, which has been well noticed by the opposition Jobbik party.

According to the Freedom House evaluation, even before announcing the state of emergency, Hungary was the only EU member state categorized as partially free with the rate of democracy sliding back each year.

While in Hungary the government declares the state emergency to seize more power for the indefinite period thus precluding any possibility of any by-elections to be held until the state of emergency is lifted, in Poland there is the opposite situation but with the same undemocratic fallout. The government has passed the changes to the electoral rules ahead of presidential elections scheduled for 10 May authorizing the forthcoming elections to be held by postal ballot. Therefore, instead of declaring the state of emergency and postponing the elections, the government decides to keep elections on track besides the lockdown and the high risk to public health seeking to grant more chances to the incumbent Andrzej Duda to be re-elected. This raises concerns over the conformity of the upcoming elections to the democratic standards as the opponents to the incumbent president cannot have normal electoral campaigns in the middle of the pandemic with the country being on lockdown. Furthermore, the new changes are expected to enter into force on 7 May, which makes it hard to organize the elections in such a short period and may cause a high risk of electoral fraud.

Conclusion

The coronavirus outbreak is testing not only the European economies but also affecting the political regimes and triggering the illiberal setback in the states with autocratically-minded governments.

The initial period has already demonstrated that lack of solidarity and a unified approach to counter the crisis as well as short-term divergences between the EU member states can have significant and possibly long-term implications. There is no other solution than a collective response to contain the economic and political effects of the crisis based on solidarity and share of responsibility, including the use of collective economic resources. The response should be commensurate to the dimension of damage that occurred in order to minimize the economic and forthcoming political and social fallout of the pandemic, which while occurring only in some of the member states, might have spillover effects across the EU. As the coronavirus is another test for national leaders, international cooperation, and the EU as a political institution, the European leaders should use this occasion to prove that the European Union is a viable project not only in the good times but can be a solution during challenging periods.

References

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