THE WARSAW INSTITUTE REVIEW
Date: 31 August 2020
How do you protect yourself from a knockout?
The European Union resembles a severely beaten boxer standing up to the next round with a dangerous opponent. At the beginning of 2020, this organization faced two consecutive blows: the immigration crisis and the coronavirus pandemic. The third blow – economic – is yet to come.
Author: Tomasz Grzegorz Grosse
In 2015, the European Union opened up its borders to a million refugees and economic immigrants. In early 2020, when the migration crisis returned on the Greek-Turkish border, the EU’s response was quite different. The Greek government closed its borders and periodically suspended the reception of asylum seekers – which was tacitly welcomed by EU representatives. To support the Greek authorities in the immigration crisis, the presidents of the three largest EU institutions – the European Council, the Commission, and the Parliament, flew to Greece in solidarity with Greece’s political agenda. Meanwhile, they criticized the Turkish authorities for opening their borders and using immigrants as political pressure in relation to the Syrian conflict. At the time, President Recep Erdoğan needed EU support to stop the offensive of Russian-backed Syrian government forces in areas near the border with Turkey. Another aim of Erdoğan was to receive increased EU financial assistance for the refugees in his country.
The sealing off of the EU’s external borders by the European Commission in March 2020 as part of special measures against COVID-19 had a positive impact on stopping the immigration crisis through blocking the inflow routes of immigrants from outside the European Union. Most Member States and European institutions have also supported this strategy since the beginning of the dispute that broke out in early 2020 between Turkey and Greece. The support was expressed even more willingly because Erdoğan used immigrants and refugees as instruments of geopolitical blackmailing of the European Union. The reluctance of EU’s national politicians towards illegal immigrants was understandable – most societies were not ready for such a massive influx of culturally foreign people. In turn, at least part of the Brussels elite understood that stopping the wave of immigration was necessary to stop the erosion of the “European project”.
The coronavirus crisis seems much more dangerous for integration. In the first months of the epidemic, the European Union took a number of measures to support its Member States in this crisis: additional funds were allocated to medical research, the use of cohesion policy funds was facilitated, and fiscal criteria, as well as state aid rules, were relaxed. What is more, as part of the European Stability Mechanism, it was decided that the EU loans would be provided to cover COVID-19-related expenditure in the countries of the euro area.
In addition, the European Commission also launched tenders for medical equipment which could be used by all EU Member States. The crisis also has been an opportunity to show solidarity between countries, for example, through providing medical assistance or hospitalizing infected patients from other countries.
Nevertheless, there have been more negative tendencies, harmful to the current integration processes. Above all, politicians of EU Member States have become accustomed to the fact that Brussels took decisions on key issues, or the initiative belonged to Berlin and Paris, particularly with regard to extraordinary situations involving non-standard measures. This resulted in the delayed response to the crisis in some capitals. In addition, governments feared the negative economic impact of overly radical measures introduced to tackle the spread of the virus. The reason is the very weak economic recovery in the euro area after the 2010 crisis and persistent dysfunction of this system.
The coronavirus epidemic led very quickly to quarrels and animosities between the Member States. An example of this was the decision of some countries, including Germany, France, and the Czech Republic, to limit the export of medical supplies to other EU members. More importantly, however, the crisis forced the countries to act out of the ordinary, sometimes against European law and the current political practice in the EU. The internal borders were being closed, one by one. Governments were forced to rebuild their own infrastructure and restore border controls. This is how they regained their former powers, self-confidence, and even the courage to disobey, i.e., acting regardless of the EU law in an emergency situation. An example of this was the Italian government, which announced the nationalization of Alitalia, and the French government, which allowed the nationalization of the largest national companies at a time in danger of the economic collapse. It was only later that the European Commission had to adapt to these measures and approve, post factum, the decisions of individual governments regarding state aid in the EU internal market. At a time of reviving national sentiments, the tendency to infringe European law in the name of national interests may continue.
The epidemiological crisis has also increasingly changed the approach to the internal market. Recurrences of coronavirus or other security threats may increase the frequency of periodic closures of external and internal EU borders. Bruno Le Maire, French Minister of the Economy and Finance, announced that dependence on the supply of certain strategic products from China should be reduced. Following the experience of the coronavirus crisis, the economy of the European Union will increase its productive autonomy, especially regarding medical and other crisis-relevant products. Moreover, each Member State will need to be able to have its own industry in areas of strategic importance for national security. This means either supporting national production and research capacities or even setting up state-owned corporations in certain sectors. Greater diversification or decentralization of supply chains in the internal market, i.e., on a regional or even national scale, will also be necessary. The pandemic opens up an opportunity to rethink the integration model and change it towards more flexible governance, thus leaving more room for Member States.
Another consequence of the pandemic may be the loss of faith in integration, even among its greatest supporters. During the crisis, it turned out that EU institutions are passive and look to the national authorities. This was due to the division of competences in healthcare between the EU and its Member States. However, for many of the integration enthusiasts, usually driven by a rather ambitious vision of the EU, Brussels’ passivity or ineffectiveness was a disappointment, especially because this scenario is repeated in successive crises. In a survey conducted for the newspaper “Il Giornale”, only 30% of Italians expressed confidence in European integration. Around 70% felt that integration was damaging to them. Only 20% of French people considered that the EU’s response to the epidemiological crisis was sufficient.
Preparations for the Great Recession
The return of the recession in the monetary union will be yet another blow that will probably hinder European integration. Speculation about the disintegration of the euro area, the introduction of alternative currencies, or the temporary restoration of national currencies in the countries most affected by the crisis, may return. Will these sort of problems lead to reforms towards a transfer union and open the way for federalism to progress in the EU? This is doubtful.
A political signal of this was the May 2020 ruling of the Constitutional Court in Germany. It challenged one of the European Central Bank’s (ECB) anti-crisis programs (the so-called Public Sector Purchase Programme), launched in 2015 – during the previous euro area crisis. The German court held that the ECB’s purchases of sovereign bonds were too large, unjustified in the light of the principle of proportionality laid down in the Treaty; and they did not give assurance to the German authorities that there was a rational strategy for exiting the excessively high ECB-funded sovereign debt. This was a clear signal that the German authorities would be looking for a legal possibility to limit excessive or permanent fiscal transfers within the monetary union, including those issued on an unlimited period or on a large scale of the joint debt. In this context, maintaining monetary union in its current form may turn out to be extremely difficult.
Already at the beginning of the pandemic, the split between the northern and southern parts of the euro area, known from the crisis that started in 2010, has reappeared. The dispute concerned mainly common debt securities called ‘coronabonds’. The more affluent countries, mainly Germany, the Netherlands, Austria, and Finland, strongly rejected this form of solidarity with the indebted South. Commission President Ursula von der Leyen said in an interview with a German news agency that the proposal under discussion was a slogan that the Commission would not pursue. The Dutch Finance Minister was even blunter when he demanded a report explaining why the countries of the South had not prepared a financial cushion for the crisis. This caused bitterness and protests in the South. Voices were heard reminding Germany that they had their debts canceled after the Second World War, and the Italian Prime Minister suggested that if the EU is useless, then one should think about leaving it. Moreover, the divisions between the countries have spread to the Commission itself, as demonstrated by the public support for coronabonds by the French and Italian Commissioners against the official position of their German leader.
Under these circumstances, Angela Merkel proposed to use ESM loans, which are known for the restrictive conditions imposed on the lender in terms of budgetary savings and structural reforms. The loans for health care spending were supposed to be exempt from these restrictions. Experts considered that the funds from this mechanism (around EUR 500 billion) are still insufficient to save Italy. The support from the monetary policy may also be insufficient, despite the expansion of a project of ECB to purchase bonds from, among others, Southern European countries. In response to the crisis, the ECB announced a new quantitative easing program of 750 billion euros. The biggest challenge, however, was that as early as in the autumn of 2020, the possibility of buying the bonds covered by this policy was expected to be exhausted.
Ursula von der Leyen also announced other measures to reassure politicians in the southern parts of the euro area. It seems that their aim was primarily to put aside the discussion on coronabonds. The President of the Commission announced, among other things, transfers of unused funds from cohesion and agricultural policy and the creation of an instrument providing loans to EU members to combat unemployment (SURE). This was to base on voluntary government guarantees, preferably of EUR 25 billion in total, to generate loans worth around 100 billion. Besides, the European Investment Bank was to provide loans worth around €200 billion. The EU budget was to provide €3 billion to support health systems in EU countries, of which €300 million for the procurement of medical equipment.
This idea started a very emotional discussion in the European Union about the new Multiannual Financial Framework for 2021-2027. It was linked to a new instrument called the ‘recovery fund’, the proposed idea of which was issuing bonds by the European Commission (guaranteed by the Member States or the EU Multiannual Budget). It was a form of communitarization of debt in line with the expectations of Southern European countries. However, the wealthiest countries in the northern part of the EU tried to limit the scale of financing of this program and its length. Consequently, it allowed for granting such loans from this fund that will sooner or later have to be repaid by the Member States. In this way, they tried to protect themselves from the possibility of introducing solutions similar to the so-called transfer union.
At the EU summit in July 2020, decisions were finally taken on the recovery fund (also known as Next Generation EU). It has been split roughly in half between grants (EUR 390 billion) and loans (EUR 360 billion) to stricken countries. At the same time, strict economic conditionality, i.e. preparation of national recovery and resilience plans were demanded from the countries receiving financial aid. They will be the basis for introducing the fiscal reforms that the northern states were demanding from the southern states. A mechanism for controlling the implementation of reforms by other countries was also introduced, which may refuse financial transfers if the recipient state does not meet expectations of other members of the EU. This could lead to an escalation of political tension between the rich north and the indebted south. The recovery fund is not dedicated to the euro area, but to all EU countries, but Italy, Spain and France were among its largest beneficiaries. It is a one-off instrument and therefore not a permanent redistribution mechanism to the south of the EU (and the monetary union). The fund will probably not solve the biggest problems of the euro area, which are the huge debt of the southern part of the monetary union, as well as their low economic competitiveness. It certainly does not fulfill the dreams of the politicians of the South of introducing Eurobonds or a transfer union.
A symptom of Western Europe’s observed new approach towards Eastern Europe was the criticism of Hungarian Prime Minister Viktor Orban. In 2020, he introduced the possibility for his government to issue decrees to react faster to the pandemic. Other governments have also restricted civil liberties, business activities, closed their borders, and entire social activity areas on an unprecedented scale. Experts considered the Orban’s decision necessary to defeat the virus and thus the lives of Hungarian citizens. However, thirteen EU countries have warned the Hungarian Prime Minister that the country is restricting democracy, the rule of law, and human rights. The same countries did not react when, even before the emergence of the health crisis, French President Emmanuel Macron introduced socially controversial reforms through decrees and avoided debate in parliament. Not a single country from the eastern part of the EU was among those concerned about Hungary’s situation. The only politician from this region who expressed criticism of the government in Budapest was the former Prime Minister of Poland and former President of the European Council Donald Tusk. In a German weekly, he compared Victor Orban to Nazi activists. His remarks caused outrage both in Hungary and Poland.
Meanwhile, the EU Court of Justice ruled that Poland, the Czech Republic, and Hungary violated EU law by refusing to participate in the relocation of refugees between 2015 and 2017. The ruling was received with satisfaction by most Western European countries, although it treated the Member States unequally as almost all EU members had not fulfilled their obligations in this case. The most interesting example is Germany. In 2015 Angela Merkel allowed the inflow of about one million immigrants to the Schengen area without the consent of other countries, and in violation of EU law. Furthermore, Germany not only failed to fulfill its obligation to relocate refugees from Greece and Italy but also sent many of those who did not meet the conditions for asylum back to both countries.
Despite all this, only three Central European countries have been placed on the accused stand by the European Commission. Moreover, the relocation mechanism in question is long over, so the issued ruling concerned a non-existent law. Therefore, it was primarily of political significance and was about stigmatizing the countries that blocked one of the proposals of dealing with the immigration crisis. While the countries of Western Europe vetoed other mechanisms, EU institutions were more tolerant. For example, Italy (with the support of Austria) prevented Operation Sophia in 2019 from being carried out in its main scope, namely patrols of European ships in the Mediterranean Sea. The intention was to fight criminal organizations involved in human trafficking but was better known for facilitating the transport of immigrants to Italian ports. That is why Matteo Salvini called the ships participating in this mission “sea-taxis for illegal immigrants”.
Both examples show a clear political trend. The West still has not stopped its patronizing treatment of the “new states” from the East. When the countries of Central Europe tried to manifest their distinct positions, they were subjected to various types of warnings and threats – especially financial ones. They were under verbal attack – accused on the EU forum that they did not respect EU values, violated solidarity, and the rule of law. This took place even when the EU changed its policy, for example, concerning immigrants. Unfortunately, with the intensification of the crisis in Europe, it is expected that similar actions resembling the search for a “scapegoat” guilty of integration problems will be multiplied. These events will only deepen the gap between the western and eastern parts of the EU.
In the first phase of the 2020 crisis, Southern Europe was treated differently from the eastern part of the EU. This dissimilarity was mainly due to rhetoric. The unfortunate statements of politicians from Western Europe were followed by a real cascade of apologies and declarations aimed at alleviating the reactions of the South’s politicians. However, in reality, the South of the euro area could not feel safe. Italy, with its debt forecasted at 180% of GDP at the end of the year, was a threat to the monetary union. Italy was also the target of a geopolitical offensive from Russia and China: countries providing aid to combat the epidemic. The stakes for Western Europe were therefore high. The aim was to preserve the euro area and geopolitical influences in Southern Europe.
The proponent of the region’s interests was Paris, which sought a number of financial concessions from Berlin. However, Germany and other countries described in EU jargon as “frugal” wanted to maintain the cohesion of the euro area – and at the lowest possible cost. All the more so because they organized substantial financial resources for their own use. Compared to the previous economic crisis, however, the countries of southern Europe were more assertive and solidary in showing their expectations. They did not allow the wealthy North to suppress their demands on a rhetorical level, by accusing them of a lack of financial discipline or “living beyond their means”. However, there was no indication that the geopolitical and economic crack between North and South in the EU would quickly be overcome.
Since the beginning of the pandemic, many conflicts have arisen in the EU, which are hard to conceal behind official calls for European solidarity. The two cracks seem to be particularly pronounced with regard to the EU: the first between the rich North and the indebted South, and the second between the western part of the EU and the new Member States. These conflicts had already existed before, but they re-emerged forcefully and with a high disintegration potential in the first half of 2020.
Jean Monnet believed that the crises were an opportunity to develop integration. However, the experience of previous crises at the beginning of the 21st century proves that the transfer of competences to the EU or the formation of new EU institutions has only progressed to a limited extent. Member States blocked a number of postulated reforms both in the euro area and in the case of the immigration crisis. Therefore, the EU turned out to be ineffective, causing frustration among societies. In addition, the unresolved crises accelerated the disintegration process. The belief that during the period of Europeanization, the worry that EU countries would lose their importance was rendered untrue. Societies very quickly began to assemble around their own governments during the crises, or at least require them to be effective, while at the same time rejecting politicians unable to cope with extraordinary situations. Simultaneously, the willingness to show solidarity with other nations diminished so that there were attempts to improve individual welfare at the expense of politically weaker Member States.
Two answers to the question of the future of integration have emerged on equal footing. The first one calls for a more ambitious type of integration – preferably federal. This is a demand that probably cannot be met, although much depends on what changes are made to the monetary union. Nevertheless, the ambition to build the European state has raised hopes, potentially leading to bitter disappointment and a shift away from European ideas. The second answer is more realistic. It is based on the cooperation of states, as part of which the EU institutions would not force their own policies, but rather support actions taken by EU countries. It is a vision of a European Union supporting national communities and their structures. This vision is an antithesis of centralizing power in Brussels in the hands of technocrats, judges, or the most influential countries. Brussels may limit the powers and potential of individual Member States, but as the crises show, they are the last line of defense in emergencies. Taking into account the possible successive blows potentially falling on the continent, the vision of a subsidiary and flexibly managed Europe appears much more secure in the long-term prospects of integration.
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