EU Leaders Remain at Loggerheads Over Economic Solidarity

The coronavirus crisis risks becoming an existential crisis for the European Union, say diplomats and analysts, as the EU struggles to coordinate a financial response to the pandemic. 
 
Last week, the EU’s national leaders struck an interim agreement on a recovery deal with an emergency fund of about $581 million (a half-billion euros), which the hardest hit member states can tap into for immediate assistance.  
 
But the wrangling over how to cope with the economic impact of the pandemic is far from over, and the overall $2 trillion-plus economic package mooted last week by the national leaders includes the budget costs of the EU itself for the next seven years.  
 
In fact, no final numbers, aside from the emergency fund, have yet been agreed upon, according to analysts. Members states already were at loggerheads over money before the coronavirus appeared, with sharp arguments between them about how to make up for the loss of Britain’s financial contribution to the EU.   
 
The emergency relief package came after an ill-natured squabble and warnings by Italian Prime Minister Giuseppe Conte that the EU project itself was in jeopardy unless the wealthier northern states help bail out their poorer southern neighbors. It also has left unresolved whether aid from the emergency fund to countries like Italy and Spain will be in the form of loans, which must be paid back, or grants, which won’t.Italian Premier Giuseppe Conte delivers his message to the Lower House of Chambers of the Italian Parliament, in Rome, April 21, 2020.Another key issue is whether the eurozone countries will eventually have to mutualize their debt by issuing jointly so-called “coronabonds” to meet health-care costs and mitigate the impact of a deep economic slump, one that could rival the Great Depression almost a century ago. 
 
As the behind-scenes quarreling continues over money, euro-skepticism, which before the pandemic appeared to be ebbing, is rising once again. It’s being fueled by southern Europeans smarting over what they see as an absence of solidarity by the more affluent nations, reminiscent, they say, of the debt crisis following the 2008 financial crash that nearly tore the EU apart. The pandemic is opening up the wounds of that crisis, which also saw a sharp split between the north and south. 
 
“The coronavirus pandemic could well be the ultimate acid test of its resilience as a community based on solidarity and common values,” according to Stefan Lehne of Carnegie Europe, a think tank based in Brussels. In a posted commentary, he wrote: “The mindset of everybody for itself, which is so tempting under the acute stress of the crisis, must be countered by stepping up cooperation and mutual assistance among the member states. Otherwise, the EU will be in great danger.” 
 
A poll published last found 40 percent of Italians would now support exiting the EU and scrapping the euro as its official currency. A further 6.1 percent would support just quitting the EU, while 7.3 percent support remaining in the bloc but replacing the euro with the lira. Just 41.7 percent agreed the status quo should be maintained. 
 
Last month another poll found 88 percent of Italians felt let down by their European neighbors in terms of health-care support for the country’s overwhelmed hospitals. European Commission President Ursula von der Leyen apologized to Italians earlier this month for the lack of solidarity shown to Italy, offering “a heartfelt apology” during a speech to the European Parliament. “Too many were not there on time when Italy needed a helping hand at the very beginning,” she said.A man walks along Naples promenade, Italy, Monday, April 27, 2020. Italian factories, construction sites and wholesale supply businesses can resume activity as soon as they put safety measures into place aimed at containing contagion with COVID-19.On Tuesday, Italy became the first country to apply for financial aid from an emergency fund of $581 million. Others will be making their applications shortly, including Spain. But the emergency funds on offer are likely to fall short of what is needed, admits Klaus Regling, director-general of the European Stability Mechanism, an EU agency that provides financial assistance, in the form of loans, to eurozone countries. 
 
He told Italian newspaper Corriere Della Sera: “I would say that for the second phase we need at least another €500 billion [$ half-trillion] from the European institutions, but it could be more.” He has warned that economic recovery from the virus will be “long and costly.” Italy—along with France and Spain—are demanding another $1 trillion be earmarked for emergency aid. 
 
So far, Germany, Finland and the Netherlands are resisting the idea of joint debt issuance, which would combine securities from different European countries. But Conte and other south European leaders have been doubling down on the demand for pooling debt, mainly underwritten by the EU’s northern states. 
 
A former adviser to France’s Emmanuel Macron, economist Shahin Vallée says greater financial and political integration will be the only way out of the impasse, which could include pooling taxes. Otherwise, only the countries with strong balance sheets able to subsidize their industries and households will recover quickly, further adding to the north-south divide.  
 
Vallée acknowledges, though, there is little political will to go down this route. The economic recovery plan so far “is incomplete and unbalanced, and it is planting the seed of profound divergence between member states,” he has warned. 
 
Others worry that further mutualizing eurozone debt and integrating more will allow Brussels to demand even more power over the fiscal and political affairs of member states, its due as the loan broker. That, in turn, could fuel the ire of the continent’s populist nationalists, who want nation states less hedged in by the EU.  
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