As Europe reels from being the centre of the Covid-19 outbreak, the EU is creaking at the seams and may not recover, argues Martin Hall

The European model of a borderless supranational entity predicated upon the free movement of capital, goods, services and labour has effectively been temporarily suspended. We have seen Germany and France refuse to export needed medical equipment, similar goods being stopped at a variety of borders, and a general atmosphere off pulling the blinds down and looking inward. The Single Market has been junked for the moment.

This has now come to a head with Germany and other Hanseatic countries refusing to accept ‘coronabonds’, which would be a way for the countries most in need to inject liquidity into their systems and for the debt to be mutualised. Nine European countries – including France, Spain and Italy – wrote to Charles Michel, President of the European Council, asking for a common-debt instrument within the eurozone to raise funds. This was immediately blocked by the Germans and Dutch, with Mark Rutte, the Dutch prime minister, being particularly blunt in his comments: 

“It would bring the eurozone into a different realm. You would cross the Rubicon into a eurozone that is more of a transfer union. We are against it, but it’s not just us, and I cannot foresee any circumstances in which we would change that position.”

The European Central Bank has neither the legal authority nor the financial instruments required to act independently, so once again, the unfinished project of European integration has left the EU’s economy extremely vulnerable to shock.

The so-called Latin Front has a variety of reasons for wanting to go down this road. Italy, after years of annual growth rates that tend to lag behind the EU average, high public debt that increases its interest rates on government borrowing, and the highest number of Covid-19 deaths in the world, is simply not prepared to accept immiseration and the sort of disciplinary measures imposed on Greece in exchange for a bail-out. Giuseppe Conte, Italy’s prime minister, has made it clear that the country will go it alone rather than suffer that. 

France, on the other hand, sees the current situation as an opportunity to push for greater integration, with the long term aim being fiscal as well as monetary union. What could happen is that the Latin Front uses its majority to get the ECB simply to print money, which would effectively bring fiscal union in under the table. 

The EU virtual summit that took place last Thursday ended with Italy, Spain and others refusing to sign up to the summit’s conclusions, instead giving Brussels 10 days to come up with a better plan. It now has that time to come up with a solution that will allow it to continue to duck the issue that it’s been avoiding since the eurozone was born in 1999: fiscal and full political union, as well as monetary. While the northern states will attempt to talk about a ‘moral hazard’ – similarly to what happened after the crisis at the start of the decade – and lay the blame firmly with the fiscal habits of ‘feckless Mediterraneans’ who want to live off others, it will be significantly more difficult to do so this time given the nature of the current crisis. 

Of course, in terms of individual responses to crises, we have been here before: the response to the crash of 2008; the refugee crisis of 2015. What makes the current situation different is its global nature and the fact that the EU’s second and third largest economies are on one side, and its largest on the other. 

A further challenge has been laid down in Hungary, where Viktor Orbán has taken advantage of the Coronavirus outbreak to bypass parliamentary democracy and set himself up to rule by decree with no time limit on these powers. MPs no longer need to approve extensions. There will be no elections during this period of executive fiat. Any perceived obstruction of official efforts to deal with the crisis has been criminalised, and anyone spreading fake news about the pandemic will face up to five years in jail. 

Furthermore, Orbán has used the fact that the first two cases in the country were Iranian students as an excuse to suggest that the virus entered the country via migrants, and in general has used the opportunity to move what was already a far right nationalist regime closer to actual fascism. Criticism of this from senior figures in the EU has been muted, with European Commission president Ursula von der Leyen simply making generalised remarks to the effect that such measures (she did not mention Hungary by name) “must not last indefinitely”. To provide context for her vacillation, even politicians from the European People’s Party, the bloc’s principal centre right grouping, have condemned Orbán’s move.

What does this all mean for the European ideal? 

As the great and the good of the EU past (if not present) fall over themselves to condemn the bloc’s response, it is clear that it is in crisis. Jacques Delors has warned that the situation puts the European project in mortal danger and Mario Draghi, in a recent Financial Times article, argued for significantly higher public debt in future along with private debt cancellation, in the context of a crisis that he likens to war time. That would reverse the direction of travel of the previous 20 years. Articles are appearing suggesting that the northern states’ response threatens the future of the EU. 

Meanwhile, in the UK, arch-Europhile Kier Starmer, about to win the Labour leadership contest, remains AWOL both at home and in response to what is happening in the institution that he did so much to try to keep the UK in. If rumours that the Labour Party are to try and force a post-coronavirus election within 12 months are true, then it is entirely possible that it will attempt to run on a remain/rejoin (depending on where Brexit is at that point) ticket. Are he and others seeing what is happening there? 

In Italy, the EU’s third largest economy, people will be asking themselves this: if the bloc does not stand together when times are tough, then what is the incentive for Italy to accept the constraints that have hampered it these last 20 years and why should it not use what sovereign powers it has to lever itself out of the crisis? The context here, of course, is increasing pressure from the right regarding the EU: from Matteo Salvini of the Lega, and from the Fratelli d’Italia. Voices on the left and centre – Mario Monti, for example – are angry as well, and this consensus may well tip the balance of Italian public opinion firmly to one side. 

Furthermore, in the context of the Single Market effectively ceasing to exist in real terms, China has extended its soft power via providing Italy and Spain with the medical equipment it needed. Italy became the first G7 country to sign up to China’s Belt and Road Initiative (OBOR) a year ago, and a number of other EU member states have also got on board. At a time when the EU is reeling from Brexit and an increasingly unfriendly United States, more countries looking eastwards will be causing further ripples in Brussels and Berlin.

What does seem to be clear is that the current economic model in the EU, designed to favour German export, cannot continue in a situation where it refuses to export needed goods during the greatest crisis in the institution’s history and refuses to mutualise debt. Angela Merkel has stated that ‘coronabonds’ would require a change to the German constitution, once more making clear to the rest of Europe how the EU’s most powerful country has built its hegemony structurally both at home and throughout the bloc.

As Larry Elliott has recently reminded us:

“Jean Monnet, the driving force behind the creation of what was to become the European Union in the 1950s, said that Europe would be forged in crises, and Covid-19 clearly meets that criterion. The twin health-economic emergency is by far the worst crisis Europe has had to face since the signing of the Treaty of Rome in 1957.”

Of course, Monnet went on to say that the response would shape what sort of Europe would be forged. At the moment, the dream of a global supranational entity to rival blocs to its east and west, formed on a liberal capitalist model of open economic borders, is looking shaky. The contradiction between monetary policy run by the ECB and fiscal policy controlled by each nation state had long made the eurozone an intensely inequitable union. And how could it and the EU not be? After all, it is a hierarchy of nation states under an umbrella based in the first instance upon free trade and competition. 

Moreover, it is not like the EU was in a good position economically or politically before the Covid-19 outbreak. As Costas Lapavitas argued in 2018, it exists “in a state of profound and uncommon instability”. That was the context before the last month. Now all its structural contradictions have been thrown into sharp relief. It is not at all clear that the EU can find a way out of this particular crisis.