By Clara Volintiru
As national governments continue to struggle with the COVID-19 crisis, decision-makers are trying to develop an economic rescue plan fit for all of Europe. It can only be a common rescue plan because absolutely no member state, not even Germany, can fend off the coming recession by itself. If competitivity on the global market is to be preserved, it can only be achieved under the same umbrella.
The error of the people vs. economy tradeoff
It is a massively misleading framing to place people in opposition to the economy, as the economy IS essentially comprised of the people. Economic agents are smaller or larger groups of individuals and their cumulated prosperity make for the economic health of a country or a region, as in the case of the EU.
The apparent trade-off, streaming from the long history of economic theory, down from the factors of production theory, is related to the opposition between labour and capital. More specifically, the tension between policy measures that support workers vs policy measures that support capital owners. As the benefits of one category usually come at the expense of the other, political systems in the West have been essentially shaped by the representation of these two broad groups.
COVID could push half a billion people into poverty worldwide. Persistent disparities have been an important challenge in EU even before the crisis – e.g. CEE regions. Global labour force could loose up to 3.4$ trillion in income. We must be very aware of the much higher risk to increase inequality. Many will struggle with job losses and family burden.Renowned professor Theda Skocpol warns of how personal circumstances (e.g. internet-speed, home size, parental educational background, white-collar professional careers) will launch new discrepancies in equality of chances, and the risk is that the current context will make the poor poorer. Geographically, we can see the same risk, as it is only in the regions of CEE that poor regions persist (i.e. less than half the EU GDP), and it is these regions that will be most severely affected by the economic slowdown.
The EU Strategic Agenda put forth at Sibiu last year: The EU cannot afford to under-utilise the potential of a market of half a billion people. This statement comes under the heading of developing a new economic model in Europe, one that is able to deliver inclusive growth within and is competitive on the global market. As you can discern, the accent falls as much on the people comprising the European economy, as it falls on the new industrial goals such as digitalisation, further economic integration, innovation or competitiveness.
COVID-19 is only a trigger to the broader debate on the development of a new economic model. It is obvious that the current context favours those who poses liquidities – be they companies or private individuals, but it is equally obvious how much we are all inter-dependent, from markets, to economic agents involved in the global supply chains, to the national and local relationship between the private sector and society. As such, it is clear that the path forward will be to (re)construct a modern social contract, one that reflects current challenges, and places the people and the economy in a cooperating, mutually accountable relationship, rather than one of opposition mediated by the state.
EU Recovery Fund
The EU Recovery Fund is obviously needed and most welcomed. It remains to be seen how large it will be, when it will be made available, and what its nature will be. At this stage we do not know yet whether it will be 7% or 14% of the EU GDP, whether it will be available starting with the Q3 of this year or whether we are to expect grants or loans. Its impact will also depend on how it is practically developed—how accessible it is to member states with much weaker institutional capacity and poor absorption track record, such as those in CEE. Also, it matters how accessible it is to end beneficiaries such as SMEs, workers, or local governments.
Leaders aim for joint borrowing of €1.5 trillion, which would be distributed over two years, EU oversight would need to go beyond the current regime of oversight for Structural Funds, in order to be politically acceptable.
Issuing common bonds—the so called coronabonds, would have constituted a much awaited (by federalists) step forward in the form of risk mutualisation or burden sharing. Obviously, this arrangement is more attractive to member states with higher risk exposure given their lower economic growth (i.e. Southern member states) or poorer public budgets (i.e. CEE). The unsustainable level of public debts across Europe will probably necessitate a heavy involvement on the part of the ECB, but once again we do not know yet what specific form it will take. One thing is certain at this point, austerity measures are unlikely to be a credible option this time around.
The balance of views at both national and EU level is very important in this regard. At national level, politicians in Northern countries continue to face the risk of provoking national constituencies with burden sharing measures that will increase the cost domestic borrowing. On the bright side though, nationalists have no escape goat to build their platform upon, so we can see lowering public support for some of the larger Eurosceptic parties, such as AfK in Germany or Liga in Italy. At EU level the balance of viewsisdifferent from the crisis of 2009, as France is now on the side of Southern and Eastern European member states, asking for a more generous recovery package, that itself needs.
The goal of any Recovery Plan should ultimately be to achieve what is called a V-shaped recovery, one that allows the Euro Area to achieve an economic growth higher than 4% next year. This would be a strong rebalancing compared to the 1.2% economic growth level of the euro area last year, but CEE grew by 5% last year—and most of it driven by consumption. For these countries whose catching-up needs are significant, even the predicted V-shaped recovery will be felt as a slow-down.
Political management of the crisis
With democratic backsliding in some member states, many wonder whether democracy is going to be a collateral victim of the current crisis? Yes…but only if we let it!
It is incredibly important to remember that we all have agency, as empowered citizens of our countries and the European Union at the same time. While the EU is often accused of being a slowly moving massive beast, it is a functional representation ecosystem, and there are effective institutional channels of voicing national positions, such as the Council, the Parliament. We as citizens, and we as a member state, must not tolerate democratic backsliding at national level, as this will hurt terribly the European project. Without its moral legitimacy, it will disintegrate.
No crisis justifies democratic backsliding, and more so, no democratic backsliding can be helpful in the current context, when we need common action—both between the private and the public sector at national level, and amongst member states.
Autocrats all over the globe saw the health crisis as an opportunity to enforce various limitations on civil liberties in order to strengthen their hold on power. But this cannot be the way forward for a continent that is primarily glued together by values. “Europe has to be a feeling”, Bono once famously remarked.
Richard Haas signals the „lost momentum of the European project”, and that existent tendencies will only exacerbate not shift direction. While I believe existent trends (e.g. intergovernmentalism and nationalism) will be accelerated, it is important to understand that there were concurrent trends in the European project. There is no serious reason to rule out the equivalent acceleration of the tendency to restructure of EU in favour of stronger European economic action in the Single market, stronger support for technological reorientation towards a green economy and so on.
On the short-term it is only through two ways we can hope to halt democratic backsliding in any given member state (e.g. Hungary): top-down, through peer-pressure from EU member states, but more legitimately, bottom-up, through democratic resilience at city level (see Budapest stance at the end of 2019 within Free Cities Pact). The latter however, has to be supported by international solidarity.Economic recovery might be dependent on the cities’ dynamics too.
This presentation was delivered as part of the “Future of Europe after the COVID” Conference, hosted by SNSPA on the 28.04.2020, as part of the Open EU Debate Project, co-funded by the Erasmus+ Programme of the European Union.