Can Europe be brought closer by its coronavirus response?
PUBLISHED: 08:00 24 April 2020
The French president wants the coronavirus crisis to bring Europe closer together. JASON WALSH assesses his chances.
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It was noticeable right away that even as French president Emmanuel Macron attempted to stir deep national sentiments in his recent address to his nation about the coronavirus crisis, he was quick to talk about the EU. The message was loud and clear: Europe would get through this together.
Even those inclined to doubt his sincerity must admit that, at the very least, Macron had a good reason to make the call for Europe.
Having abandoned his liberal-right agenda with, on the surface least, a sharp leftward turn on economic policy and his reform policies placed on indefinite hold, all that Macron has left of the platform that saw him shoot to power is the promise of a better, more united EU.
Put simply, he is not in a position to back up the truck on Europe.
As a result, the president has spied an opportunity amid the coronavirus chaos: as citizens across the continent lambast the EU, he sees a co-ordinated and EU-wide ‘Marshall Plan’ as a way of not only shoring-up a bruised and battered institution, but actually refashioning the EU into a genuinely popular project.
The problem is the EU doesn’t want to play ball.
Or rather, some of it doesn’t. The EU itself, at least as represented by European commission chief Ursula von der Leyen, said there would be solidarity, and she apologised for recent failures in the bloc’s response to the pandemic.
Writing in Italian daily La Repubblica in early April she said that “Europe is mobilising alongside Italy. Unfortunately, this has not always been the case”.
But if things were improving in Brussels there remained problems just up the road in the Hague. With Angela Merkel still heading towards the end of her time in office, prime minister of Netherlands Mark Rutte and his finance minister Wopke Hoekstra are now the standard bearers for hardliners who think that the EU should not let the crisis bounce it into fiscal union and the sharing of pain that such a union would demand.
The problem is so-called ‘coronabonds’ – and those who remember the proposal of ‘eurobonds’ in 2011 as a response to the economic crisis then spreading around the eurozone should be forgiven for any feelings of déjà vu.
Italian prime minister Giuseppe Conte has repeatedly called for coronabonds, a debt instrument to allow eurozone members to share the financial burden of the pandemic.
Speaking this week Conte repeated that only such burden-sharing could work, and that the EU must issue common bonds backed by the entire eurozone.
“We are experiencing the biggest shock since the Second World War, and Europe has to come up with an answer,” he told German newspaper Sueddeutsche Zeitung, saying the “full firepower” of the EU was required.
Conte’s most powerful ally is Macron and last week the French president chose to signal he was prepared for a showdown by doing an interview with the Financial Times.
Macron told the FT that he supported the creation of “a fund that ‘could issue a common debt with a common guarantee’ to finance member states according to their needs rather than the size of their economies”. In other words: coronabonds.
The Dutch government begs to differ. Call it ‘fiscal distancing’, if you like; the Netherlands, as the leader of a ‘New Hanseatic League’ group of northern European counties, is not willing to stand too close to indebted Italy.
Rutte says his country will not guarantee other countries’ debt. No dice, no bonds.
Leader of the liberal-right People’s Party for Freedom and Democracy (VVD), Rutte is no eurosceptic. In fact, until recently he was widely seen as a bridge between Macron and northern Europe: just two years ago the pair were lauded as a “dream team” and a “progressive coalition”.
Today the two men stand apart, with Rutte offering, in his words, a ‘gift’ to Italy and Macron arguing that without solidarity the EU will split apart.
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And he means it: in the interview Macron said European countries cannot simply use other member states as mere export markets. Instead of this intra-EU mercantilism, he proposed true political union because the EU faces an existential threat.
“If we can’t do this today, I tell you the populists will win – today, tomorrow, the day after, in Italy, in Spain, perhaps in France and elsewhere,” he said.
The debate has echoes of 2008-2012 in those countries worst hit by the last economic crisis, the PIIGS: Portugal, Ireland, Italy, Greece and Spain.
Even the terminology is the same: moral hazard, mutualisation, fiscal transfers, bonds and burden sharing.
Thus far, Portugal and Ireland have avoided the worst when it comes to the coronavirus death toll, but they were both traumatised by the last economic recovery process, one that was brought about alongside swingeing cuts to public services, mass unemployment and emigration – all driven by European Central Bank (ECB) policies that even the International Monetary Fund, normally the tough guy of fiscal rectitude, said were too strict.
Italy and Greece, meanwhile, had not recovered and now Italy, along with Spain, has been hit with one of highest rates of death due to the coronavirus.
In 2012 the ECB finally developed the European Stability Mechanism (ESM), a collection of financial instruments including loans, credit underwriting and re-capitalisation measures.
In the end most of the ESM’s mechanisms were never deployed, but Merkel has now suggested they could be, while Rutte said they should be “the last resort”.
Italian demands for bonds rest on three facts: firstly no country traumatised by the EU-ECB-IMF ‘troika’ ever wants to experience that again; secondly the coronavirus is making all of Europe suffer, not just the ‘PIIGS’; and, thirdly, Italy is a net contributor to the EU. Often portrayed as a minnow, it is the world’s eight largest economy and the third largest contributor to the EU after Germany and France. Debt-laden it may be, but Italy pays a lot more into the ESM than does the Netherlands.
At home, allies long thought Macron was facing an uphill battle on Europe. In January, Yves Bertoncini, president of the European Movement France said he was a “brilliant architect but a disappointing mason, to use a metaphor from Jacques Delors”. The problem, he said, was that Macron’s “ambition [for the EU] is undoubtedly too high for France’s partners”.
One sticking point would be that Macron’s plans for eurozone reform hinged on France itself reforming: bringing down debt, lowering unemployment and increasing growth. None of these happened, and Macron’s reforms were met with popular revolts. Today, with the coronavirus rampant, his reforms have gone out the window entirely, with the institution, temporarily, of a virtual command economy.
But even before the coronavirus crashed the world economy, Macron’s plans had stalled: his rhetoric was warmly welcomed in national capitals but his policy proposals ignored. For example, in 2017 he outlined plans for a “long-term economic and political strategy” for the eurozone that would include harmonisation of corporation tax and social benefits such as unemployment benefits. No-one bit.
A year later France and Germany made the Meseberg Declaration, including proposals for a common corporate tax base, but this is a long way from the desired single EU-wide corporation tax rate.
Meanwhile, the declaration’s language on the ESM, the EU’s key mechanism for ensuring eurozone members are supported through economic crises, was wordy and reiterated the importance of “debt sustainability analysis”.
Today, with Europe facing the worst economic crisis in its history but the EU-split down the middle on how to respond, it’s little surprise that the bloc is not winning plaudits.
Polls reporting rises in eurosceptic sentiment should be approached with caution – but they also cannot be ignored.
Back in 2016 France was polling as the second most eurosceptic country in Europe, much to the amusement of Brexiteers across the Channel. The truth is, though, that there are different kinds of euroscepticism in different European countries (a fact that should be self-evident to Brexiteers, but is rarely remarked upon).
Danish euroscepticsm has always tilted left, for instance, and the UK is the only country that has shown significant appetite for quitting the bloc.
Now, however, there is the case of Italy. League Party leader Matteo Salvini may no longer be in government, but recent polls show ‘leave’ support is swelling in his country.
Striking a hopeful note, European Council president Charles Michel said the EU would come out of the situation strengthened. “There will be a before and an after,” he said.
But it really does feel like make or break time for Europe, admittedly not for the first time. And Macron no doubt has his hands full persuading the European Union to act like an actual union. Still, writing off the man who shot from technocratic obscurity to the highest office in France is quite the risk.
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