One Victim of the COVID-19 Pandemic: European Integration

Whether or not a Spanish or Italian exit comes to pass, the coronavirus has damaged the Europhiles’ credibility.

April 9, 2020 • Commentary
This article appeared on The American Conservative on April 9, 2020.

Advocates of ever‐​closer European ties never yielded to popular resistance. Whatever the problem, the answer was “more Europe.” Until the COVID-19 pandemic swept Europe.

Italy became an early and big victim of coronavirus. So Rome desperately requested aid from its European compatriots. The answer came in the form of border closings by Italy’s neighbors. When aid arrived, it was from China.

While European Union officials might be saddened by Italy’s travails, it did not affect the rest of the continent much. No one imagined the EU cracking up because so little human “solidarity” was shown to Rome.

However, even before COVID-19 hit Italy was an economic crisis ready to happen. Its experience in the Euro has not been a happy one. Entry into the Eurozone lowered rates on Rome’s borrowing while preventing economic adjustment through currency devaluation. The predictable result was little growth in anything but borrowing.

Indeed, the Financial Times’ Tony Barber reported: “Among the eurozone’s 19 members, Italy stands out as the one that never fully recovered from the sovereign debt and bank crises that swept across the currency union after 2000. Italy’s manufacturing sector shrank by a quarter in that crisis. Many of its banks, loaded with government debt, remain fragile.”

Last year the country’s debt to GDP was 134.8 percent, more than twice the level in Germany, which possesses a far stronger and more durable economy. For comparison, in 2009 at the onset of Greece’s financial crisis Athens’ debt was “only” 127 percent of GDP. That government required multiple bailouts to avoid crashing out of the Euro.

A similar crisis in Italy would do more than impoverish Italian society. Italy’s GDP is the 8th largest in the world, ten times that of Greece, and more than a tenth of the collective EU’s total. Other European states weakened by the pandemic would neither be willing nor able to fund a bailout.

Yet when asked last month about possible support for the Italian economy, Christine Lagarde, French president of the European Central Bank and former IMF head, opined that it was not the ECB’s responsibility to “close the spreads” between Italian and German government bonds. In Rome interest rates rose and the stock market fell. The issue is tailor‐​made for Matteo Salvini, the leading figure in a brief right‐​left populist coalition in Rome and likely future prime minister. “The only help that has come from Europe has been to cause the collapse of the stock market and to make the spread go crazy,” he said in one of his many denunciations of the EU. He demanded compensation from the ECB for the financial losses it caused.

Italy’s economy continues to weaken. “Italy faces a particularly grave economic risk from the lockdown because of the prevalence of small and midsize businesses, many of which are family‐​owned and have limited financial flexibility,” reported The Wall Street Journal. The government has increased payments, loans, and loan guarantees, money it does not have.

Rome, along with Spain, which also has been especially hard‐​hit by the pandemic, proposed issuance of what has variously been called Eurobonds, Coronabonds, and European recovery bonds to underwrite reconstruction. These would be common continental debt. “Italy and Spain do not ask to share their ordinary public debt with Germany and the other northern European nations; they only seek to share the resources they need to bear the costs to fight Coronavirus,” argued Italian journalist Francesco Giubilei in TAC earlier this week.

France’s President Emmanuel Macron proposed using either common debt or EU funding to aid countries in the greatest distress. However, Germany and the Netherlands are leading the opposition. Members of an informal fiscal responsibility caucus see such debt as the first step in the full socialization of debt long proposed by a number of EU members, including France.

Instead, they point to the European Stability Mechanism, a fund created to aid members and thus preclude another fiscal crisis like the one in Greece. Rome rejected this remedy since it would add to Italy’s total indebtedness. Worse, ESM loans typically come with conditions. Austria, Finland, and the Netherlands insist that any money be limited to coronavirus‐​related expenses and based on commitment to fiscal responsibility.

In essence, Rome would be declaring bankruptcy and turning major fiscal decisions over to an outside administrator. Some Italians smell conspiracy. Giorgia Meloni, leader of the extremist Brothers of Italy, asserted: “There is a game to weaken Italy and buy its strategic assets.”

The specter of Europe standing aloof in Italy’s hour of need, with only distant, authoritarian China willing to lend a helping hand, has turned opinion against the EU. Even Salvini’s short‐​lived populist coalition avoided any direct challenge to Italy’s participation in “Europe.” But now, related Carlo Calenda, who ran for the European Parliament last year, party members are “writing to me saying: ‘Why do we want to stay in the EU? It is useless.’”

He added that, “A massive, massive shift is happening in Italy. You have thousands of pro‐​Europeans moving to this position.” The percentage of Italians saying that EU membership was a net negative rose from 47 percent in November 2018 to 67 percent last month.

Berlin and The Hague remain unmoved. German MP Eckhardt Rehberg responded: “Every country should ask itself whether itself whether it bears some responsibility for the situation it is in. Look at Italy’s health system. You cannot blame all your difficulties on Europe and Germany.” Dutch Finance Minister Wopke Hoekstra insisted that it was unreasonable to expect his nation to “guarantee the debts that others make.”

There is a growing recognition that the viral emergency could have significant implications for not just the EU, but the entire European Project. Spanish Prime Minister Pedro Sanchez, who is pushing Eurobonds, warned that “even the most fervently pro‐​European countries and governments, as is Spain’s case, need real proof of commitment. We need unwavering solidarity,” and concluded that “Europe itself is at stake.”

Andreas Theophanous of the University of Nicosia (Cyprus) warned that the failure to accept Eurobonds “may undermine the pillars of the EU.” The chief economist of Berenberg Bank, Holger Schmieding, worried: “The way in which the EU and the eurozone are perceived to react to the unprecedented emergency of the COVID-19 pandemic can shape attitudes to European integration for decades to come.”

The organization continues to struggle with the issue. For instance, the European Commission proposed an EU unemployment reinsurance system. Last week the Dutch suggested a 20 billion Euro (about $21.6 billion) “solidarity fund” to be distributed for medical assistance. However, even if approved, it would do nothing about reconstruction. Nor would it help lessen Italy’s looming debt burden.

None of this should come as a surprise. European Commission Executive Vice President Valdis Dombrovski observed that any program “has to reflect the fact that Europe is a community of nations, not a federal state.” The latter point is critical.

The vision advanced by the most expansive Eurocrats, like Macron, is what amounts to a United States of Europe (USE). That means a strong, consolidated central government in Brussels with continental control over national finances, along with a uniform foreign policy and collective European military. The Eurocrats believe Europe’s continuing political fragmentation prevents the continent from acting as a great power.

The EU began modestly, as the European Coal and Steel Community, by which six countries cooperated on industrial policy. That eventually became a broader “common market,” focused on freeing continental trade. The organization continued to expand its reach and membership, always at the behest of Europe’s cultural, economic, and political elite—and against the will of the public, if necessary.

All along the EU suffered from what has been called a “democratic deficit.” There is very little electoral connection between people across Europe and the EU. The European Parliament is elected but voters usually cast ballots based on domestic issues and political controversies. The EP cannot initiate legislation. There are three EU presidents of different bodies with different functions who are not chosen by popular vote. Few individuals across the continent, other than some bureaucrats filling EU buildings in Brussels, view themselves as Europeans first.

Although most national officials believe in a stronger EU, few really want a United States of Europe. Macron is one of the true believers. Allies for his centralizing schemes are scarce. National parliaments do not want to yield their powers to tax and spend. Europeans hate devoting resources to their own nations’ militaries, let alone to forces that would be under Brussels’ command. If there isn’t even a continental football team, there is no chance of a political union.

And that was before the coronavirus crisis. If Italy suffers a debt crisis, Rome might see an exit as the only option, which would put its EU membership in play. Otherwise, the organization is not likely to break up—despite their frustration, even anger, neither Italy nor Spain will be anxious to follow the UK’s messy exit. But sharply Euro‐​skeptic governments could take over in both Madrid and Rome. Populist parties are likely to be strengthened elsewhere. The evident lack of solidarity, from the suffering many to the embattled few will likely kill efforts to expand Brussels’ authority.

Even if the organization grudgingly offers some direct aid to Italy and Spain, the EU’s credibility is likely to remain badly damaged. While everyone might like to have greater assistance from the center, its inability to act decisively is likely to dissuade anyone from putting much faith in it in the future. Europe will continue to matter, but a unified Weltmacht it is not likely to become.

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