Coronavirus: A Test For Europe

The European Union will not survive coronavirus unless it evolves. To do that it must break its own rules.

During the build up to the Brexit negotiations, the EU talked about solidarity and working together as a community. However, with the breakout of the coronavirus pandemic it looked as if that was all talk.

On 5th April, Spanish Prime Minister Pedro Sanchez wrote to Europe, via several national newspapers, saying that the pandemic was “putting the future of the European project to the test”. He then told them that Spain needed ‘unwavering solidarity’ in a time when the country’s citizens were dying.

Sanchez stated that “Solidarity between Europeans is a key principle of the EU treaties. And it is shown at times like this. Without solidarity there can be no cohesion, without cohesion there will be disaffection and the credibility of the European project will be severely damaged.”

Whilst we should hold the PSOE (Spanish Socialist Workers Party) and Podemos to account for any perceived mismanagement of the covid-19 crisis, we need to remember that they have only been in power since the beginning of 2020 and have yet to even pass their first national budget.

History is linear, and the current coalition government inherited a very stripped back healthcare system, and the country has always had a lopsided welfare system. The austerity started by the PSOE and furthered by the Popular Party (PP) in 2012, which was also reinforced by the EU’s own fiscal rulings, left Spain’s healthcare system crippled and barely able to care for its citizens during this pandemic.

Bankia, a conglomeration of Spain’s smaller regional banks that fell into trouble, needed a bailout from the EU in 2012. Part of the bailout conditions were meeting reduced deficit targets as dictated by the European Stability Mechanism (ESM).

Austerity was implemented further and deeper by the PP Rajoy government, essentially to avoid being told to do so by the EU. These were the cuts that depleted healthcare staff numbers and hospital beds across the country. One of the worst hit regions by the austerity was Madrid. The region with more coronavirus infected patients in the country at the peak of the pandemic. The Madrid regional government (PP) shut beds in other hospitals and opened up privately funded, but for public use, hospitals, adding more debt.

Progressive Spain reported that since 2010, the number of health care workers in Madrid fell from 75,489 to 72,193 in 2018. With job prospects looking poor in Spain, many healthcare professionals went abroad where they found better conditions and pay. In 2012 alone, the Spanish Medical Association issued 2,349 certificates to medics, these certificates allowed them to work in the EU.

Back in the EU

Photo by Branimir Balogović on Unsplash

On the 26th March the European Council held its first remote meeting of the country’s leaders regarding Covid-19. The purpose of the meeting was to discuss the EU’s social and economic response to the ongoing health pandemic.

France, Italy, Spain and Portugal were supporting the creation of a new financial mechanism named ‘Coronabonds’. This alternative system would have allowed countries to borrow finances to see out the storm. Instead of incurring debt on a country-by-country basis, it would be mutually owned. This would not affect the country’s ability to borrow in future and would not subject them to the same rules that they were made to follow in 2012.

During the meeting fiscally conservative countries, Germany, Netherlands, Austria and Finland were against the creation of coronabonds. They wanted countries to use the ESM that remains in place from the last financial crisis. This would make individual countries responsible for their debts and deficit, without the financial leavers to manage their own economy as interest rates and other decisions that are taken by the European Central Bank (due to the Euro). Countries obviously have oversight of their spending, but this is within the EU’s framework which tightens with the ESM.

The meeting, which went on for 6 hours, ended without consensus.

Many in the European South saw this as the difference between fighting the pandemic, and the economic fallout which had already started, together as a united Europe or alone as individual countries. Although, there is a consensus between the nation states that it would be in their interests to avoid another Eurozone crisis.

Finding away forward after the clash at the EU council meeting seemed slim with countries digging in their heels in opposite directions. Some hope shone through at the meeting between finance minsters on the 9th April. After two meetings within three days, one lasting 16 hours, they agreed to disagree. However, this time they came up with some measures. They agreed on loans for small businesses and for the country’s unemployment schemes. Short term measures to what will become a long term problem.

Funding for healthcare expenditure would be given to countries to fight the spread of Covid-19. The catch is that the money, up to 240 billion euros, will come from the controversial ESM. If countries are using it for things other than healthcare, they will have their monetary status reviewed by the EU. This could lead to countries having to impose austerity over again.

One barrier of the ESM is that it requires countries to maintain a deficit, the difference between the amount it borrows compared to the taxes it collects, of 3% of its GDP. This along with a debt of less than 60% of its GDP. However, these rules have been relaxed during the crisis.

The last time entire countries’ economies stopped was following the Second World War. The UK having a debt of over 260% of GDP. Yet, the NHS was born, and the economy survived with the help of the Marshall plan, huge loans to allies from the Americans. EU leaders say coronabonds is the modern-day equivalent to the Marshall plan. However, the finance ministers shied away from deciding over coronabonds and would let the EU leaders discuss this at their EU council meeting at the end of April.

On the 20th April, 4 days before the EU council meeting, Spain made a suggestion of a mutual fund of 1.5 trillion euros, roughly 1% of the EU GDP, the size of Italy’s economy. This would avoid any awkward votes in national parliaments to change EU laws as it would work within existing legislation. It was also seen as a middle way between the ESM and coronabonds. The fund would give countries grants and it would avoid the archaic rules of the ESM. This plan would also put a limit on how much money the EU would create and share between the nation states. France and Italy made a similar suggestion but never put a figure on it publicly.

The Union grows, reluctantly

Europe’s habit of avoiding tough decisions, and the nation states acting in their own interests rather than taking a leap of faith and pooling resources, could be its downfall.

With the currency already in a hard spot because of the UK leaving, tensions between member states needed to be tranquilised for the EU to have a future. Pedro Sanchez and Angela Merkel took the initiative to talk over this issue and were said to make significant progress before their next meeting.

On Thursday the 23rd April the EU leaders agreed to Spain’s suggestion and have told the EU Commission to draw up plans for the mutual aid fund. Whilst this minor victory is a step in the right direction, the EU are not out of the dark clouds yet. The battle of how to manage the fund and what form it will take has started.

An earlier vote in the EU Parliament, the branch of the EU that rubber stamps the Commissions plans, voted against coronabonds with economically conservative groups voting against more left leaning groups. The voting was along party lines and not national ones. Thankfully, this was a motion of resolution and acted more as a thermometer more than having any meaning. Let us see how they react to the Commissions’ new plans.

As the Spanish PM said:

“Solidarity between Europeans is a key principle of the EU treaties. And it is shown at times like this. Without solidarity there can be no cohesion, without cohesion there will be disaffection and the credibility of the European project will be severely damaged.”

Europe has preached solidarity since Brexit threatened the fragile union. People in over Europe applaud workers nightly to show their appreciation. Europe must break free of its conservative financial approach and help the member states that are struggling, let’s see those messages of solidarity, and claps, turned into actions.

%d bloggers like this: