The EU promotes solidarity as a fundamental part of policy in a myriad of areas. The term appears 11 times in the Treaty on the EU, which is also one of the bloc’s foundational documents. The European Commission in the past has stated that “solidarity is part of how European society works and how Europe engages with the rest of the world.” But while other cornerstones of the European project like economic integration can be measured by trade flows and cross-border workers, solidarity is harder to quantify. It is thus more difficult to evaluate whether the EU is living up to its promises. This task is nonetheless important, because the EU’s failure to do so could very well spell the end of the Union.
In the early days of the pandemic, EU members were criticized for not standing in solidarity with those harder-hit, like Italy and Spain: Germany issued export bans on medical equipment that was badly needed in Europe’s south while Poland and the Czech Republic closed off borders and temporarily suspended Schengen’s freedom of movement. This further hindered the flow of supplies between member states and stranded thousands of EU citizens trying to return to their home countries.
EU officials condemned these unilateral actions, appealing once again to solidarity: European Parliament President David Sassoli said in mid-March that “the rapid spread of COVID-19 shows that cooperation and solidarity are needed now more than ever” and “attempts to fight [the virus] alone will fail.” In response to the rising death toll in the early days of the crisis, the EU created a medical stockpile mechanism which continues to facilitate the quick delivery of equipment to member states and coordinated the repatriation of some 60,000 EU citizens from abroad, both as part of its Civil Protection Mechanism.
Two and a half months since Italy became the world’s first country to impose a nationwide lockdown, countries across the continent have begun to lift restrictions and reopen borders. Yet as life returns to the so-called “new normal,” it is clear that the pandemic’s “second wave” may not necessarily be a repeat tide of infections, but rather political and economic crises of monumental scale. Economists predict the EU’s GDP will contract -7.7% GDP this year (the downturn of the Great Recession in 2009 was ‘just’ -4.3%). Should this materialize, the European project may face a crisis of legitimacy greater than Brexit and the Eurozone crisis; the only way to circumvent this is for European leaders to agree on policies that put the ideals of solidarity encoded in the EU treaties to practice.
Actions in recent days across EU capitals give reasons to be hopeful. On May 18, German Chancellor Merkel and French President Macron, the leaders of the EU’s two largest economies, unveiled via videolink an ambitious proposal for the creation of a €500 bn EU “recovery fund” to facilitate economic rebuilding in a post-COVID Europe. Under this plan, the European Commission will borrow money and distribute it over three years to those countries hardest hit by COVID-19. Common borrowing in response to the crisis is the first step towards the greater fiscal integration that comes with raising common EU debt. Merkel herself acknowledged that the proposal was a “short-term response” and that “long-term solutions” included institutional reform at the EU-level.
On May 27, the European Commission unveiled its own proposal echoing the Franco-German plan. In the €750 bn so-called Recovery Fund, which is equivalent to 5.3% of the EU’s GDP, the Commission is to borrow on the market — backed by the €1 trillion 2021-2027 EU budget — and then distribute the funds to those hardest hit. €500 bn of the promised €750 bn will be grants, while the other €250 bn are expected to be loans. The grants will need not be repaid, and the debt raised will be paid by EU members over decades, in proportion to their contribution towards the EU budget. Thus, a country like Spain which will be the EU’s 4th largest donor in the 2021-2027 EU budget, but which was hard-hit by COVID-19, should expect to receive significantly more from the EU’s Recovery Fund than it contributes.
Interestingly, another mechanism through which the Recovery Fund will be financed is the creation of new revenue streams for the Commission, including environmental taxes or levies on multinationals. The Recovery Fund comes on top of €540 bn pledged by the Commission in April as part of the European Stability Mechanism. These funds are conditional on macroeconomic reforms and investments aligned with EU priorities, such as green energy or digitization.
The stimulus package proposed last Wednesday requires unanimous approval from the EU’s 27 member states. Several have already expressed reservations: Austria, the Netherlands, Denmark, and Sweden publicly announced their opposition to mutualized debt, and instead are pushing for aid exclusively in the form of loans and conditional on investment in certain sectors, similar to the European Stability Mechanism. Other EU members like the Czech Republic and Hungary are also reportedly in favor of loans rather than grants for Europe’s recovery. Negotiations will inevitably water down the current proposal.
But the gravity of the current situation means that now is not the time for financial frugality. The Corona crisis threatens to drive a further wedge between Europe’s north and south. Southern European states have been harder hit by the pandemic and will be more affected by the economic downturn. Spain and Italy have had the highest infection and death toll numbers, while border closures and quarantine measures will mean a dramatic fall in revenues from tourism — an important component of their economies. Their industries have also been harder hit, with factory closures lasting longer than in most northern nations.
At the same time, Europe’s south has the weakest fiscal instruments to tackle the economic fallout, with some of the highest debt-to-GDP ratios and costs to borrowing. The inability of these countries to enact domestic stimuli that increase consumer confidence will increase the intensity of the economic downturn. As a result, it is expected that Spain and Italy’s GDP in Q4 of 2021 will be 7.7% and 9.2% lower than in Q4 of 2019, respectively; the corresponding value for Germany is lower, at 2.5%.
A correction for the ‘two-speed’ European recovery in the form of grants is needed if Europe is to remain committed to its promise of solidarity. However, this does not mean that countries should be given complete free rein in their use of the recovery funds. Some level of oversight and coordination must be undertaken in order to ensure that money spent is aligned with the strategic goals outlined in Commission President von der Leyen’s Agenda for Europe, including furthering Europe’s Green New Deal and its push for digitalization and technological innovation.
Funds should also be conditional on rule of law adherence. Many countries implemented states of emergency to combat coronavirus in the early days of the pandemic. For example, the Hungarian parliament approved legislation allowing its Prime Minister Viktor Orban to rule by decree indefinitely. The European Parliament in April issued a statement saying such actions were “incompatible with European values” of democracy, while Commission President von der Leyen expressed “concern.” Recovery funds may therefore act as a powerful mechanism towards enforcing adherence to democratic principles — something that the EU has lacked so far.
The leader of the Socialists and Democrats in the European Parliament, Iraxte Garcia Perez, said last week that recovery “is not only a matter of solidarity,” but a matter of “survival.” With support for the EU falling in states that have traditionally been pro-European, bold action in aiding the Corona recovery will not only ensure that Europe survives, but will also galvanize enthusiasm for the European project and set it on a course towards a future that is greener, more democratic, and more integrated than ever before. And that is something worth fighting for.