The coronavirus could tear the EU apart

Europe is facing another economic crisis due to the pandemic. The last one almost tore the European Union apart.

Almost as soon as the coronavirus arrived in Europe, countries began turning inward, putting their own citizens’ needs first and ignoring pleas for help from their neighbors. European Union member states closed their borders for the first time in decades, and competed against each other for vital medical supplies, including ventilators.

But the biggest rifts between the nations have opened up during recent negotiations over an economic rescue package, which pitted richer countries against poorer ones — just like during the eurozone debt crisis at the beginning of the previous decade.

The ongoing pandemic is testing the concept of European solidarity. Earlier this month, German Chancellor Angela Merkel called it the biggest test the EU has ever faced.

Many national health systems in the European Union have been stretched to the brink of collapse by the coronavirus, and the bloc’s economy could see one of its sharpest declines in history. London-based research firm Capital Economics said the disease could result in a record-breaking 15 percent quarterly drop of eurozone gross domestic product in the second quarter — the previous record was 3.2 percent in the first quarter of 2009.

This has led to questions about the EU’s future. While the full extent of the fallout remains to be seen, many observers and experts are worried that the pandemic could upend more than seven decades of European integration.

“Everybody is very much focused on the national situation,” Stefan Lehne, a visiting scholar at the Carnegie Europe think tank, told me. “This doesn’t mean that the EU will be at an end, but it might end up weaker.”

A widening of the EU’s north-south divide could lead to a new financial crisis on the continent

The European Central Bank (ECB) reportedly warned eurozone finance ministers earlier this month that financial stimulus measures of up to €1.5 trillion ($1.6 trillion) may be required to counter the economic crisis caused by the coronavirus. The ECB further estimated that the bloc’s economy could contract by 10 percent this year. Those dire predictions came after the ECB launched a temporary $750 billion debt-buying program in March to keep borrowing costs low.

This isn’t the first time the European Union has dealt with a financial crisis. The eurozone crisis, which was in part caused by the 2008 financial collapse, resulted in years of austerity for many southern European countries, including Greece, Italy, Spain, and Portugal, and caused a serious rift between the continent’s fiscally more conservative northern nations and their southern counterparts.

Thomas Lohnes/Getty Images

Even though the eurozone crisis and the economic downturn caused by the coronavirus pandemic are very different, it’s once again Europe’s southern countries that are bearing the brunt of it. Italy and Spain have not only endured some of the highest infection numbers in the world, they’ve also suffered some of the highest death tolls, according to data from Johns Hopkins University.

Furthermore, closed borders, travel restrictions, and the shutting down of bars and restaurants throughout most of Europe will be more severely felt across its southern countries, where tourism accounts for a higher share of the countries’ gross domestic product.

With countries like Italy and Greece still recovering from the lingering effects of the eurozone crisis, the coronavirus pandemic is taking another heavy toll on their domestic economies. This could not only widen the economic disparity between Europe’s northern and southern countries, but, depending on how long the pandemic lasts, could lead to a new eurozone crisis, Lehne warned.

“This would turn the EU into some kind of a transfer union, where the countries in the North would have to permanently fund those in the South, which some believe are not fiscally responsible,” he said. “I think this is the most important dividing line at the moment.”

To avoid a further deepening of this divide, the EU has to reach a compromise that doesn’t unfairly target any members

Knowing that solidarity among EU members is key to the alliance’s survival, Germany’s Foreign Minister Heiko Maas and Finance Minister Olaf Scholz advocated for swift and united actions to combat the crisis.

“We need a clear expression of European solidarity in the corona pandemic,” they wrote in an article that was published on April 6 in newspapers in France, Italy, Spain, Portugal, and Greece. “What we need is quick and targeted relief.”

The Eurogroup, which includes the 19 finance ministers of all eurozone countries, agreed on a €540 billion ($590 billion) rescue deal on April 9 to help the bloc’s coronavirus-stricken economies.

The deal includes €240 billion ($261 billion) made available through the European Stability Mechanism (ESM), a bailout fund that was created during the eurozone crisis. Countries will be able to access up to 2 percent of their respective gross domestic product until the Covid-19 crisis is over, the Eurogroup said in a press release.

The deal was only made possible after the Netherlands softened its demand that economic reform and external, independent oversight be tied to financial aid. There are no conditions attached to the ESM loans as long as the money is spent directly or indirectly on Covid-19 measures.

Dutch Finance Minister Wopke Hoekstra described the agreement as “reasonable,” but reiterated his country’s opposition to so-called “eurobonds” or “coronabonds” — jointly-issued debt that’s being considered as a financial instrument to respond to the pandemic. France, Italy, Spain, and six other EU countries would prefer these as it would show solidarity among the EU nations and keep the worst-affected countries from being drowned by new debt.

Using the ESM option, on the other hand, means that countries like Italy will add to their debt burden. Italian Prime Minister Giuseppe Conte on Friday criticized it, calling cheap loans from the EU’s bailout fund a “totally inadequate tool.” He also said that Italy had no intention of applying for such a loan.

Yet German politician Jürgen Hardt expects Italy will take advantage of the ESM, despite Conte’s initial rejection. “I think it was maybe an emotional decision not to use the 39 billion euros reserved for Italy,” he told me.

Europe’s southern nations “are the ones that need to borrow most, but they’re in the worst position to do so,” Simon Tilford, director of research and management at economics think tank New Forum, told me. “That’s why people are worried about whether this crisis can lead to a break in the eurozone or even member states being forced out.”

Ludovic Marin/AFP via Getty Images

Hardt, who is a member of Chancellor Merkel’s Christian Democratic Union (CDU) Party, agreed that this crisis is threatening the European idea. He said that Germany, the Netherlands and others with economic and financial power need to step up and do for Europe what the US did after World War II.

“Germany benefited very much from the European recovery program (also known as the Marshall Plan), which was financed mainly by the US and helped us back on our feet after the Second World War,” he said. “I think we need something like that now from the economically stronger European countries. It would be a strong signal to those countries who doubt the EU right now.”

EU leaders are expected to hold a teleconference on April 23 to sign off on the finance ministers’ recommendations. Last month, they failed to reach an agreement on the best economic response to the pandemic, leading French President Emmanuel Macron to issue a warning: “What’s at stake is the survival of the European project,” he said.

HJ Mai is an award-winning journalist. He currently works as an editor for NPR’s Morning Edition.

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