EU leaders meet to salvage union

European prime ministers and presidents agreed on Friday to revamp the EU’s long-term budget to set up a big recovery fund to combat the economic fallout of the corona crisis. Yet, despite this, the political impact of the crisis continues to rock the bloc in what could yet be an existential challenge.

The pandemic has already wreaked havoc across much of the continent in the past few weeks with the official death rate on the continent now over 100,000. The scale of the damage has exacerbated the bloc’s vulnerabilities that in the past decade have been driven by the Eurozone crisis, an influx of migrants, and growing Euroscepticism, including Brexit.

Moreover, the last few weeks of corona chaos has seen many of the EU-27 act alone and in their own interests, including intensification of a long-standing economic schism between several southern European states, especially Italy and Spain, which have been worst hit in Europe by the health emergency, and a number of northern countries, especially the Netherlands. Earlier this month, Italian Prime Minister Giuseppe Conte asserted that Europe’s leaders are “facing an appointment with history”, and that “if we do not seize the opportunity to put new life into the European project, the risk of failure is real”.

Friday’s financial packages are likely to be only one of the key decisions taken this year which will help define the longer-term economic and political character of the bloc for years to come.

- Andrew Hammond

While the words of Conte were designed, in part, to put pressure on northern Europe to agree Friday’s deal, other leaders have shared his bleak assessment. Take the example of German Chancellor Angela Merkel who said last week that “the EU stands before the biggest test since its founding”.

In the immediate-term, tensions will be eased by the new recovery fund, plus a separate, new €500 billion stimulus package. The cornerstone of that latter deal, which French Finance Minister Bruno Le Maire said is the most important economic plan in EU history, is to employ the European Stability Mechanism (ESM), the euro area’s bailout fund, to offer credit lines worth as much as €240 billion.

Yet, these financial packages aside, it is increasingly clear that the corona crisis could catalyse a debate that has been brewing in Europe about its future, especially as the continent goes into a deep recession. Issues in play include Eurozone reform, where ideas on the table include a potential Eurozone common budget, and a possible expanded role for ESM, through to the future of the Schengen area in which the continent has officially abolished border controls.

The previous European Commission President Jean Claude Juncker had a clear preference for greater integration among member states, including the creation of a European Defence Union (a scheme also favoured by his successor, Ursula von der Leyen). Yet, there are still a multitude of views across the continent.

The futures that could unfold in the early 2020s range from the worst-case for Brussels of the bloc imploding through to a new spurt of much greater integration in the way that Juncker favoured. The latter scenario, in which EU countries would do much more together would see states sharing more power, resources, with decisions agreed faster and enforced much more quickly.

This, however, is probably not the most likely future for the union, nor indeed is its complete disintegration given the significant support for the EU across much of the continent. Yet, this latter Armageddon scenario cannot be completely dismissed given the build-up of challenges now facing the 27-member state, including the growth of Euroscepticism across the bloc.

Between these two outlier scenarios is where the reality of the next few years is likely to lie. Perhaps the most likely outcome is where the bloc ‘muddles through’ whereby it would follow a similar trajectory to the last few years.

However, further major setbacks — which cannot be ruled out the next few years — could instead see a retrenchment whereby the current scale of EU functions are rolled back with attention and limited resources focused instead more on a smaller number of policy areas, including the Single Market. Indeed, this scenario may even see the EU retreating, post-Brexit, to no more than the current economic Single Market which seeks to guarantee freedom of movement of goods, capital, services and people.

Conversely, if the next few years brings more stability than current anticipated, it is possible that European integration might be reignited. Yet, Juncker’s vision for the 27-member states to do much more together, which is also favoured by French President Emmanuel Macron, may still prove unrealistic.

If so, the EU could see more ‘coalitions of the willing’ emerging in select policy areas to take forward integration on a flexible, rather than across-the-board basis. A precedent here could be the Eurozone itself where some 19 of the 27 EU members have entered into a monetary union with the euro as the single currency.

Taken overall, this debate underlines why the corona crisis has the potential to transform the trajectory of the EU well into the 2020s and potentially beyond. Friday’s financial packages are likely to be only one of the key decisions taken this year which will help define the longer-term economic and political character of the bloc for years to come.

— Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics