On the 26th March 1995, the Schengen Area was created – an agreement to open borders and a common visa policy for those first 9 countries. On the 25th anniversary of the Agreement, Europe sees those borders, and those of the further 17 countries to join, either closed or subject to extensive checks.
Against this backdrop, EU Leaders held their third summit as their respective countries wage war against the corona-virus with populations under lockdown, health services under extreme pressure and economic devastation round the corner.
The summit chair, EU Council President Charles Michel, and the coordinators of the Budgets Committee called for a new “Marshall Plan” – bold and coordinated measures in response to the Covid-19 pandemic to protect citizens, business and economies, drawing on help from the EU budget as well as contributions from national governments, the ECB and the European Investment Bank.
The EU budget could be used to provide a common source of equipment, facilities, pool scientific research and coordinate emergency support as well as protecting investments.
There was a call on the EU institutions, in particular the European Council and Commission to “push forward a comprehensive and ambitious budgetary and financial package, providing the necessary liquidities…”
The Commission has already suspended state aid rules and limits on public borrowing to enable countries to protect supply chains and throw a life-line to businesses, but EU Leaders are divided on whether to use every economic tool in the box now or to keep some back in case the situation worsens in the Autumn with a second wave of infections.
The Leaders of 9 countries, including France and the currently worst affected nations of Italy and Spain instead wrote to Mr Michel saying “We need to recognize the severity of the situation and the necessity for further action to buttress our economies today, in order to put them in the best condition for a rapid recovery tomorrow… This requires the activation of all existing common fiscal instruments to support national efforts and ensure financial solidarity, especially within the eurozone.”
Earlier this week, Eurozone finance ministers agreed in principle to allow borrowing of up to 2% of GDP from the European Stability Mechanism – a €410bn bailout fund – for those eurozone countries in economic trouble. The 9 leaders have asked for an immediate rollout of “Coronabonds” – shared debt backed by all Eurozone countries that would allow increased borrowing at sustainably low interest rates, saying “We need to work on a common debt instrument issued by a European institution to raise funds on the market.”
There is strong resistance to such a move from fiscally conservative Germany, Austria, Finland and the Netherlands – the Frugals, who fear both the risk of being in the hole for some of the shakier economies and want to keep the big guns in reserve in case they are needed later on in the crisis.
The Frugals are likely to hold the upper hand, with an EU official stating “A real ‘euro-bond’ is the Loch Ness monster – it has never been seen and is not on the table now.” ECB head Christine Lagarde disagrees, urging the bloc to consider a one-off issue.
There are also difference of opinion on how to jumpstart the economies once the pandemic ends: some want to plan now, others prefer to see the lie of the land once the full extent of the damage is visible and has been analysed.
As the arguments continue, the European Central Bank has dropped the limit on its bond purchase stimulus of no more than a third of a country’s government bonds, allowing it to target support towards countries like Italy using the €750bn pandemic emergency purchase programme that was announced last week.
EU unity and solidarity is not currently all that Brussels might aspire to: there have been problems over border delays to supply chains and medical equipment shortages – Italy secured help acquiring PPE from China and Russia not the EU – and one shouldn’t forget longstanding and ongoing disagreements from the 2015/16 migrant crisis, the post-2008 financial crash eurozone issues and even Brexit.
The current crisis is exposing just how much small nation states depend on the EU, who may talk at length of unity, but are so far found to be wanting when it comes to action.
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