The Economist - USA (2020-05-16)

16 BriefingEurope under strain The EconomistMay 16th 2020

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governments had shifted: the introduction

of the euro and the expansion of the bloc to

include former communist countries in

eastern Europe.

These changes had visible effects. A

mass movement of people from central

and eastern Europe to richer countries in

the west made clear that freedom of move-

ment was not just a nebulous concept, but

one which affected people’s daily lives;

mostly for good but, in the perception of

some, for ill. In 2010 the euro-zone crisis

was a potent reminder that the fate of the

currency in a Belgian’s wallet was in part

determined by the actions of governments

in Athens, Rome and Madrid. European

voters became painfully aware of the eu’s

price, and that led to increasingly anxious

questions about its purpose.

The world keeps revolving

Today a common goal is hard to find. The

challenges that the eunow faces—on fiscal

policy, foreign policy, defence and migra-

tion—cut to the heart of sovereignty.

Dreams of the euas a superpower require a

strategic unity not easy to find among a 27-

member bloc that stretches from Lisbon to

Tallinn. Even attempts to turn the euinto

an advocate of liberal democratic values

fail to inspire everyone. In the past, dis-

agreements on direction could be settled

by standing still. Now, the forces that held

the eutogether risk pulling it apart.

Take the single market. According to the

European Commission, allowing the free

movement of labour, capital, services and

workers adds between 8% and 9% to the

eu’s collective gdp. Because all companies

in the eucan access each other’s markets,

the bloc has strict rules on how much help

a government can give to domestic compa-

nies. When covid-19 hit, the commission

loosened them, allowing governments to

hand out cash to industries they feared

might go under. Such aid, in the form of

guarantees or wage supplements, has

amounted to €1.9trn ($2trn) so far. German

guarantees for German businesses account

for just over half of this figure.

Once a reasonably level playing field,

the single market is now lopsided. In the

downturn to come, Spain and Italy will en-

dure deeper recessions than Germany,

leaving them even less financial muscle to

help domestic businesses. Both the Span-

ish and Italian economies will contract by

more than 9% this year, predicts the Euro-

pean Commission. By contrast, Germany’s

gdp will fall by 6.5%. Not for the first time

in the bloc’s history, the burden falls heavi-

est on those least able to bear it.

To rebalance the eu’s economy, an alli-

ance of countries led by Spain suggested

grants totalling €1.5trn, paid for with debt

backed collectively by the euas a whole. It

would be in the self-interest of all eucoun-

tries, argues Luis Garicano, a liberal Span-

ish mep. Collapsing southern European

economies would wreck the cozy eco-

nomic settlement that has been so benefi-

cial to the likes of Germany and the Nether-

lands. The euro has enabled Germany to

run huge trade surpluses without being

hindered by an appreciating currency. Fis-

cal transfers from north to south would be

a small price to pay. Without such a com-

prehensive recovery fund, the single mar-

ket risks entrenching inequality rather

than spreading wealth.

However this plan was staunchly op-

posed by small, rich, mostly northern

countries, several of which have also had

slightly fewer covid-related deaths than

others (see map). The Netherlands, De-

mark and Sweden all pooh-poohed the

idea. The Dutch government offered a one-

off grant of €1bn, about a tenth of a percent

of the sum demanded by the Spanish gov-

ernment, as a gesture of goodwill.

The German government, meanwhile,

will stretch only to modest grants, arguing

that any eurecovery fund should consist

mainly of loans. In the middle, the Euro-

pean Commission is tasked with devising a

scheme that keeps both sides happy. It will

propose a mixture of grants and loans to in-

debted countries, paid for out of the eu’s

budget. Countries will spend much of the

year haggling over it.

The argument over how to respond to

the economic crisis reveals another fault-

line that has long run through the eu: a

shared currency but no shared spending

policy. This was originally a feature of the

euro’s design, not a bug, argues Jan Techau

of the German Marshall Fund, a think-tank.

The euro’s creators “wanted this tension to

be there”, he says. Given the obvious pro-

blems of running a currency without a uni-

fied budget or transfers between richer and

poorer members, fiscal union—considered

a step too far when the euro was intro-

duced—would eventually have to follow.

What the euro’s designers did not envisage

was that Europe’s leaders would balk, re-

peatedly, at that deeper integration, thus

endangering the currency’s survival.

They say the next big thing is here

Economic integration has failed to provide

the euwith a compelling common pur-

pose. Other, less tangible goals have taken

on greater importance. A Europe based on

shared values looms large in the imagina-

tion of Europhiles. Today Eurocrats are

more likely to discuss ways of protecting

and promoting the “European way of life”

than the merits of close economic ties.

This view taps into a long memory of

the euas a civilising force. “Spain is the

problem, Europe is the solution,” declared

José Ortega y Gasset, a Spanish writer, in

1910. If his phrase has become a cliché of his
      country’s political life it is because after the
      end of the long dictatorship of Francisco
      Franco in 1975, most Spaniards wanted
      their country to become a normal Euro-
      pean democracy. It is a view shared in Ger-
      many. “German problems can only be
      solved under a European roof,” declared
      Konrad Adenauer, West Germany’s first
      chancellor, in 1962.
      However, this view is not universal.
      Memories of authoritarian regimes may
      linger in the politics of most eustates. Yet
      no such memory concentrates minds in,
      say, Sweden, meaning that supranational
      shackles can be seen as an affront to sover-
      eignty rather than a necessary constraint
      on the state.
      Shared values matter to a continent
      coming to terms with its past. They also
      matter for a continent that increasingly

France

Italy

Spain Turkey

Swi.

Ukraine

Norway

Russia

Belarus

Britain

Austria

Denmark

Est.

Lat.

Lith.

Czech

Rep.

Cyprus

Hungary

Slovakia

Romania

Bulgaria

Greece

Ireland

European Union

Neth.

Portugal

Poland

Sweden

Finland

Belgium Germany

Slovenia

Lux.

Malta

Croatia

Sources:JohnsHopkins

UniversityCSSE;PHE/NHS

Covid-19, confirmed deaths

Per 100,000 population

To6amGMTMay14th 2020

1 4 8 16 32 64