The COVID-19 crisis could lead to a wider rethink of Europe’s political economy. This paper explores what such a model might look like, and what it would mean for the governance of the European Union.
Summary
- The COVID-19 pandemic has created a health and economic crisis without modern parallel. The scale of its effects could prompt a far-reaching re-evaluation of the role of the state in relation to the market in Europe. This paper is a thought experiment examining the consequences of a change in Europe’s political economy and the potential implications for the European project.
- The current form of the European Union, centred on the single market and the single currency, evolved during a period of economic liberalization. If the COVID-19 crisis leads to a larger role for the state and a move away from market-oriented policies, the EU will face a challenge in accommodating that change.
- In particular, attempts by member states to pursue more interventionist approaches could lead to clashes within the EU – especially around fiscal policy and taxation, labour markets and redistribution, and industrial policy.
- Given sufficient consensus between member states, the EU could conceivably be the driver of collective change in these areas. But because of existing political differences and the fact that the health and economic crisis has had asymmetric effects within Europe, it is more likely that the pandemic response will lead to an uneven shift in economic policy across the EU.
- The danger is that the EU may become trapped in a suboptimal status quo without a consensus on how to change it, and could therefore be unable to make the shift towards a more state-centric political economy that citizens may now demand.
- The EU could reform itself to accommodate a more interventionist economic model. But for this to happen, European leaders will have to avoid thinking of European integration as a linear, one-way process in which it is impossible to change course or reverse policies that have long been considered part of the EU’s liberalizing vocation.