The EU’s Latest Existential Crisis Might Be Its Biggest One Yet

Ian Wishart
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The EU’s Latest Existential Crisis Might Be Its Biggest One Yet

(Bloomberg) -- When the European Union’s 27 leaders last managed to gather in person, they didn’t even talk about coronavirus.

It was Feb. 21, the day Italy recorded its first fatality from the disease. They haggled unsuccessfully for 28 hours over the EU’s notoriously complicated budget. In a matter of weeks, everything changed. The pandemic tore into any last notion of unity and confronted the bloc with its next existential crisis.

Leaders and officials, unable to meet face-to-face, have become emotional as they’ve bickered on the phone, some blaming each other for slow responses and unwillingness to help as the outbreak spread across the continent. Old divisions have resurfaced, with the north seemingly reluctant to bail out the south. Even the usually more stoical Portuguese have bristled at Dutch comments about southern finances.  

The EU faces its biggest challenge since it was created in the wake of World War II, German Chancellor Angela Merkel told reporters on Monday after returning from a 12-day quarantine. “Everyone has been hit equally by this and it must be in the interest of everyone and of Germany that Europe emerges stronger from this test,” she said.

But some of the bloc’s most senior operators appeared paralyzed at the size of the task, according to officials who spoke on condition of anonymity. They don’t know whether to “get out of the way” of national governments responding to the emergency or demand Europe-wide action.

With the euro area facing the deepest recession in its history, finance ministers from the 19 countries in the currency zone will hold a video call on Tuesday in an attempt to agree on how to provide financial support to the areas in deepest need. The decisions the EU makes over the coming weeks will shape it for years to come. “The day after won’t look like the day before,” French President Emmanuel Macron said during a televised address last week.

Read More: The Virus Will Force Europe to Make a Decision About Italy

The crucial difference between this crisis and the financial meltdown that started in Greece in late 2009 is that the effects of the pandemic, with people still dying in their thousands, are indiscriminate and unquantifiable. Several officials said they were alarmed that the EU was falling back on old solutions—and prejudices—that are simply not relevant this time.

The bloc is renowned for its back-room deal-making and late-night brinkmanship. But even the 2015 climax to the Greek debt standoff, when the country came within hours of falling out of the euro, owed much to the setting of arbitrary deadlines.

This time, nobody knows how or when the pandemic will end and leaders have less control than ever before. The EU can’t resort to “by the book” economic responses, Italian Prime Minister Giuseppe Conte said last week.

Calls between leaders and finance ministries have laid bare a lack of trust between countries, officials said. Divides from the debt-crisis days—where fiscally conservative northern countries blamed the profligate south—remain, even though no government is responsible for where the pandemic hit hardest.

Quicktake‘Coronabonds’ Could Bail Europe Out, Tie It Together

The biggest leap the euro area could take, missing from its response to the last crisis, is to issue joint debt to pay for huge public spending programs. But this isn’t happening because of German and Dutch opposition.

Italy and Spain, pushing most strongly for joint “coronabonds,” insist that the coronavirus shock owes nothing to the old tropes of borrowing extravagantly and spending too much. Saving the countries worst affected by the crisis is vital to save the EU, they say. Allowing governments to tap the euro area’s bailout fund, with watered down conditions, now looks the most likely response.

The Germans and Dutch “are thinking about this from an old point of view,” Conte told Spanish newspaper El Pais last week. “Nationalist instincts, in Italy and in other countries, will be very strong if Europe is not up to the challenge.”

The European integration project has been defined by its enduring ability to face down adversity. Jean Monnet, one of the founding fathers, said “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.”

Bailouts for Greece, Ireland, Spain, Portugal and Cyprus were followed by a schism over accepting refugees from the Middle East and North Africa. Together they fueled an anti-EU backlash led by populist parties that gained ground across the continent. The U.K., one of its most powerful countries, voted to become the first member to leave the bloc.

There’s a feeling Covid-19 needs different solutions because the consequences of failure are much higher. Macron, who officials say has sounded the most dramatic tone on calls, told his counterparts last month that “the survival of the European project” is at stake.

“The EU’s initial belated and chaotic response and its failure to coordinate has weakened its reputation and provided fertile ground for euroskeptics,” said Agata Gostynska-Jakubowska, senior research fellow at the Centre for European Reform in Brussels. “This shock is of a more symmetric nature and can hit the north and south equally. So the question is whether this makes the north more open to risk-sharing.”

Since the Feb. 21 summit, leaders have held three video conference calls, each one more bad-tempered than the last, according to officials. The last one, on March 26, after Conte and his Spanish counterpart Pedro Sanchez pleaded for consideration of coronabonds, ended in failure when leaders punted the decision to their finance ministers due to convene remotely on Tuesday.

Portuguese Prime Minister Antonio Costa described as “disgusting” a request attributed to Dutch Finance Minister Wopke Hoekstra for the EU to investigate why countries didn’t have enough money to pay for the economic impact.

Hoekstra later said he acknowledged that his words lacked compassion. The damage, though, was done. “That recurring pettiness completely undermines what the spirit of the European Union is,” Costa told reporters. Such ideas are “a threat to the future of the European Union,” he said.

The anger extends to Italy, long-feared the soft financial underbelly of the euro region and now a country gripped by the pandemic and the economic burden of locking down the nation.

A Noto Sondaggi institute opinion poll published on March 29 indicated that 72% of people believe Europe has done nothing to help the country tackle the crisis. The leader of Italy’s anti-immigrant League party, Matteo Salvini, has already said Italians should reconsider their country’s membership of the EU once the crisis is over.

In Hungary, Prime Minister Viktor Orban last week pushed through legislation giving him the right to rule by decree indefinitely. Orban for years has been the ringleader in stoking populist sentiment against the EU mainstream.

Read More: Orban’s Pandemic Power Grab Reveals the EU’s Wider Frailties

Last week, the EU’s management acknowledged they’d made mistakes. In a letter to Italian newspaper La Repubblica, European Commission President Ursula von der Leyen admitted the bloc was late in understanding the scale of the outbreak in Italy and had been too slow to act.

With the bloc estimating that each month of lockdown will knock 3% off annual gross domestic product, the emotional toll of the pandemic immeasurable, and populists ready to pounce on any sign of disunity, leaders are confronted with a challenge to ensure the EU’s latest existential threat isn’t its last.

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