What the economic downturn that began in 2008 did not achieve, could be managed by a microorganism. The outbreak and spread of the virus SARS-CoV-2 and the COVID-19 disease it causes across Europe has revealed a previous illness that had been incubating in the European Union for years.
In their book, The Existential Crisis of Europe, César Molinas and Fernando Ramírez Mazarredo argue:
“The last major financial crisis came close to breaking down the European Union, plunged its citizens into deep pessimism and encouraged populism.”
The authors finish their book advocating the need to develop a true sense of belonging to Europe. Today, we find no sense of belonging in the European management of COVID-19.
The European Union has for years been in search of a way to surpass an old institution, the nation state. But the fight against COVID-19 is being waged at national, not European level.
No coordinated actions to tackle problems
The European Commission has limited its involvement, and member states have approached the outbreak individually. The Schengen agreement, which allows freedom of movement around much of the continent, has effectively been suspended. There has been a moratorium on the enforcement of the macroeconomic stability and balance of public accounts commitments. Brussels has merely let go, but done little else.
It is no coincidence that the virus has concentrated in old Europe. Globalisation has taken it from the great factory of the world to the West, where it continued on its deadly path.
This virus confronts an ageing and suffering Europe, but also a European Union that is losing the race for technological leadership in a world suddenly fast-tracked to digital and remote solutions.
If the Asian management of the pandemic has taught us something, it is the importance of new technologies. The digital revolution is not only a source of progress and competitiveness led by China and the United States. It has proved to be fundamental when it comes to controlling the virus and giving instructions to the population. The mobile phone has been almost more useful than masks. But the EU has been found wanting in both cases.
Can we do better?
We have learned from other crises. Austerity measures have been relaxed and the European Central Bank has announced unprecedented measures. But monetary policy is not enough.
The forecasts of the Purchasing Management Index (PMI), an index of the prevailing direction of economic trends in the manufacturing and service sectors, published on March 24, shows three things:
COVID-19 has brought the largest drop in this index since records began; much greater than that experienced with the 2008 crisis.
It projects performance in the future worsening, indicating that the contraction may last longer than the initial shock if economic agents do not see adequate economic policy responses.
There is a strongly asymmetric impact between various European countries, in a very clear core-periphery pattern.
The usual question
Given these results, the usual question arises: how is monetary union going to handle such an intense shock? So far there has been no agreement on European fiscal policy, but it is absolutely necessary to start this conversation.
José M González-Páramo, a former member of the executive board of the European Central Bank, and María José Álvarez Gil, have written in depth on macroeconomic stability, integration and debt in the eurozone.
Much like Dani Rodrick in The Globalization Paradox: Democracy and the Future of the World Economy, they suggest that nation states have little room to carry out independent economic policies in a globalised world.
There is, they indicate, an incompatibility of maintaining national financial regulation and supervision policies with the monetary union and financial stability rules of the eurozone. National regulation framework entails a strong connection between the worsening of a country’s debt capacity and the situation of its own financial system.
Politically, national budgetary and fiscal policies cannot be maintained if a genuine monetary and banking union aspires to have democratic legitimacy. This is where we are now.
On the one hand, economic agents (the markets) expect clear and forceful responses from the authorities (including from those of the European Union). And they expect that the EU will anticipate events and prepare responses. However, when governments meet at EU summits, they speak and plan. But taking joint actions in fast moving situations often appears beyond them.
Questions that Europe does not want to answer
When future data of countries’ fiscal imbalances driven from direct spending caused by the management of the pandemic become public or when the fall in productive activity deteriorates public accounts, what will be the response of the European Union? Will the markets be calm when the financing needs of already heavily indebted countries increase and they try to place more debt? Will the risk premium return to startle our markets?
Today, there are only national responses to a global problem. And what Europe needs are community responses in all areas, including macroeconomics.
The European Union has relaxed the macroeconomic supervision mechanisms but still delays on making a decision on the “risk sharing” scheme: joint debt issuance, European coverage mechanisms … and it is necessary to know how and who paid the pandemics bills.
European citizens deserve a European Union that protects them, not an absent zombie. Populism and Eurosceptic nationalisms lurk, and today, more than ever, a stronger and reliable EU is needed – one that can react to crises more rapidly.