Europe May Emerge From the Pandemic As a Stronger Union

Photo: Yann Schreiber/AFP via Getty Images

Ten years ago, Europe faced a continental crisis, and the dominant powers in the European Union insisted that each country should deal with its sovereign-debt problems on its own. A few months ago, it appeared that the E.U. would respond to COVID-19 in the same way, and the pandemic threatened to drive another painful wedge between the comfortable Northern Europe and the suffering South.

But in July, the E.U. came to a historic agreement and agreed to distribute hundreds of billions of dollars to countries ravaged by the effects of the coronavirus pandemic. More importantly, they will raise money as a group, and badly damaged countries like Italy and Spain won’t have to pay it all back. It came in fits and starts, but the €750 billion ($880 billion) coronavirus recovery package — officially called Next Generation E.U. — is inspiring cautious optimism that Europe is taking steps toward a more perfect union.

“In the last few months, we have rediscovered the value of what we hold in common,” European Commission chief Ursula von der Leyen said in her annual State of the Union address on Wednesday. “We showed what is possible when we trust each other and trust our European institutions.” In the speech, she announced that 30 percent of the €750 billion will be raised through “green bonds,” which raise money for environmentally sustainable projects. “We choose to not only repair and recover for the here and now but to shape a better way of living for the world of tomorrow,” von der Leyen said.

“This is surely a turning point in the history of the European Union,” Fabiano Schivardi, an economist at LUISS University in Rome, told Intelligencer. There are a few reasons E.U. leaders may have acted differently than they did in 2010, when blowback from the financial crisis forced so much of Southern Europe into years of catastrophic budget cuts and national humiliation, he said. First, there is increasing agreement that the austerity imposed on the continent simply did not work. Secondly, the rise of anti-E.U. populism in Europe over the last few years has made clear the risks if the union is seen once more as a bloodless, technocratic club. The fact that the U.K. is actually going through with Brexit may have sharpened minds, too. And third, it became clear that Europeans, including in the wealthy and thrifty North, saw the virus as an act of God that inspired feelings of genuine solidarity.

“Last time, there was this sentiment that Southern Europe needed to pay for our sins, but in this case, it is hard to come to a moral judgment. It was a shock that simply hit some countries worse than others, and people around Europe could see the horrible images of the suffering here,” Schivardi said.

Earlier in the year, Germany, the most powerful country in the E.U., dismissed talk of “coronabonds” raised by the union to finance pandemic recovery. But the pandemic strengthened Angela Merkel’s position within Germany, and she saw that national polls reflected a shift toward European solidarity, historian Adam Tooze wrote in Foreign Affairs. At the July summit in Brussels, she and other leaders hammered out an agreement through which the European Commission would borrow large sums of money, for the first time and hand out €390 billion in grants, not loans. Southern European countries, especially, were overjoyed by the deal.

“This deal is historic because it represents a qualitative leap forward in the European project, and because it opens a path to a Europe that is more just, more modern, and more sustainable,” Javier Moreno, head of the Spanish Socialist Party (PSOE) delegation in the European Parliament, said in a written statement to Intelligencer. The PSOE is currently ruling in coalition with the left-wing Podemos, which was itself born out of anti-austerity protests in 2011. “You can debate whether or not the response to coronavirus has been as fast or as wide-ranging as we would have liked, but it’s clear that things would have been infinitely worse if there were no E.U.,” Moreno wrote. “To take on this emergency, the answer continues to be clear: more union.”

In much of Europe, life has returned to a kind of a normal, with restaurants open and schools reopening. But the continent has seen a sharp increase in cases in August, and even without a second wave, many countries face a long climb back to full health. In addition to a higher number of deaths, countries in Southern Europe face a more severe economic challenge because countries on the Mediterranean coast rely so heavily on tourism.

The mechanism created for Next Generation Europe — debt issued by the European Commission — will make it much easier for the E.U. to tackle future crises, analysts say. Rather than risk continental division over money problems in the future, they may rely on eager investors to fund an emergency injection. The “green bond” announcement came after investors and politicians called for the funds to be used to drive a transition to a greener European economy. In addition to the €750 billion for Next Generation E.U., the commission will also raise €150 billion to help fund European unemployment schemes.

On the question of European economic unity, more pro-Europe countries like Spain, Italy, Greece, and Portugal have their inverse in the so-called “Frugal Four,” a group of nations opposed to giving the E.U. more cash to distribute. The Netherlands, Denmark, Sweden, and Austria have worked to claw back some money for their well-off countries in the wake of the July deal. But overall this time, the other side has won the day. For now.

“Like almost everything that happens with the E.U., the good news is complicated by challenges ahead,” said Rainer Kattel, an Estonian economist at the UCL Institute for Innovation and Public Purpose in London. “On the one hand, it’s really positive they got a deal, and it is a good sign that the E.U. is able to function as an institution. On the other hand, this is still very much a collection of member states, and far too often those member states are pitted against each other.”

Europe May Emerge From the Pandemic As a Stronger Union