Responding to COVID-19 at national and European level

The COVID-19 virus has disrupted our lives and economies for the last couple of months and most likely will continue to do so for quite some time. At the national level, authorities have taken unprecedented measures. Some measures, such as different forms of lockdowns, explicitly aim at preventing contagion to spread too quickly or too widely. Other measures are more economic in nature and aim at preventing mass unemployment and mass corporate default. These latter measures require an enormous increase in government expenditures.

On top of national responses, there has been a call on Europe, and not without reason. First, EU countries are bound together by strong cultural, geographical and historical ties, and the EU is set up as an economic community, for the benefit of all. Second, neither the virus itself nor its societal and economic effects stop at national borders. So, a forceful EU response feels like a no-brainer. However, the institutional form we have chosen in the past for the EU makes such forceful joint response difficult. In the end, we have decided each country is on its own to solve its own economic problems. Because of this attitude, attempts to design cross-country adjustment mechanisms through insurance or transfers have always met strong resistance.

COVID-19: a threat as well as an opportunity for Europe

COVID-19 in that sense offers both a threat and an opportunity. Let's take the opportunity first: the shock is clearly exogenous - no single country is to blame -, it potentially has strong negative spill over effect across borders, some countries are hit much more than others and some countries can afford to respond on their own much better than others. It is the ideal scenario to show the benefits of a united Europe. It could form the basis for a narrative that allows Europe to jump over its own shadow. The threat is that each country digs into its own position, tries to solve the crisis on its own and sees the rest of Europe as a burden. Ultimately, it could lead to the dissolution of the EU.

Success or lost opportunity?

So what did Europe do? I would say it does what it usually does, it muddled through. Obviously, we failed to seize and exploit the opportunity provided by this crisis to strengthen trust and belief in Europe as a meaningful institution. On the other hand, we managed to avert a complete meltdown by designing a rescue package of considerable size. On top of all national stimulus, there now is a €540 billion support package for jobs, workers, businesses and worker states. In addition, the ECB stands ready to buy €750 billion of European debt, and discussions on a new fund of €1,500 billion or more are ongoing. In pure monetary terms, Europe for now has done what it needed to do. Unfortunately, the process through which this has been achieved has cost a lot of negative energy instead of generating significant positive energy. The money may be enough to fight COVID-19, but this has not brought countries or citizens closer together. A lost opportunity.