Implications for the EU
Where will these potential clashes leave the EU? The section below focuses on the implications forthe two fundamental projects at the heart of the EU: the single currency and the single market.
The eurozone
Perhaps the most vulnerable element of the EU, and the most discussed since the coronavirus pandemic hit, is the eurozone. While Germany has shifted position to support one-off transfers from north to south through the mechanism of the recovery fund, the fault line on policy – also roughly between north and south – that characterized the euro crisis from 2010 onwards has broadly re-emerged.25 Indeed, the recent argument about ‘coronabonds’ is to a large extent a continuation of the argument about solidarity and debt mutualization that has been taking place over the past decade. However, because of the human cost of the health emergency and the scale of the expected economic recession, the 2020 crisis has a much greater urgency and moral potency. It represents a fundamental challenge to European solidarity. As political scientist Jonathan Hopkin has put it, ‘You can’t just talk about mass death the same way you talk about unemployment.’26 In Italy, one of the member states hit hardest by the pandemic, many already feel betrayed by the EU.27
At first the anger in countries such as Italy focused on the lack of immediate support from the EU in dealing with the public health crisis, despite the EU’s very limited competence in health policy. But the real political dispute in the eurozone erupted when questions were raised around how to finance the policy response. Following several weeks of tense negotiations, a compromise package was reached, which includes cheap loans for any member state asking for them and an unspecified expansion of the EU budget to fund investment during the recovery. These measures are being facilitated by the ECB expanding its balance sheet, but they continue to fall short of outright debt mutualization – which remains a highly controversial subject.
This lack of deep fiscal integration, and the resulting lack of manoeuvring space for fiscally weaker member states, has several potential consequences for the post-coronavirus eurozone. Firstly, it means that countries such as Italy and Greece will grow and recover from the crisis much more slowly than those, such as Germany, that can afford to provide more of the temporarily allowed state aid. Secondly, it means that fiscally weaker economies will be much less able to support investment in the way that, after the experience of this crisis, citizens may demand. A prolonged recession in such countries, combined with the sight of other European economies performing relatively better and a sense of the EU response being deficient, could reinforce popular demands to leave the single currency – particularly in Italy – and create wider political dangers for the union.
The four freedoms and the single market
A shift to a more interventionist policy paradigm by a number of European governments could clash in several ways with the requirements of membership of the single market. There is the potential for all four freedoms that underpin the single market – that is, free movement of goods, capital, services and people – to be affected.
The movement of goods could be impaired by attempts to increase national resilience, as was demonstrated early in the coronavirus crisis when several member states applied export controls to medical equipment. Although the EU subsequently worked to keep its internal borders open, it temporarily put in place export controls on vital equipment destined for markets outside the bloc. The European Commission has warned of political frictions if the exit from the lockdown is uncoordinated; the risks associated with this will only increase if emergency measures become permanent or if companies move supply chains closer to their consumers. The EU could also become more selective or demanding in its role as a champion of trade liberalization, which could in turn have knock-on effects on global trade.
The free movement of capital could be hindered by national-level attempts to curb tax optimization, build national champions, or keep out certain types of foreign investment deemed undesirable. The free movement of services could be affected by efforts to preserve domestic social contracts as governments provide more income protection. More ‘protective’ states might also seek to ignore EU procurement rules and favour domestic suppliers over those from other member states.
Free movement of people and the open borders of the Schengen Area could be affected in several ways. Labour mobility could be reduced by shifting national social contracts, as discussed above. Meanwhile, the swiftness with which borders – some of which were still being controlled in the wake of the European refugee crisis – were closed in the initial phase of the COVID-19 response could set a precedent. Particularly in the case of potentially repeated outbreaks of COVID-19, and thus repeated border closures, disruptions to the movement of people could start mounting. This could lead to a ‘new normal’ of systemic opt-outs from Schengen provisions, disrupting the proper function of the borderless zone and potentially emboldening unilateral action on issues unrelated to disease control.
Consequences for the EU
Overall, the consequences for European integration of a shift from market to state within EU member countries are likely to depend on the depth and extent of demands for a new economic settlement. If most states push for a modest adjustment, for example some flexibility in the fiscal rules and an increase in investment, this might be incorporated within the EU’s existing framework relatively straightforwardly. In other words, the COVID-19 response would be seen in retrospect as a minor course correction rather than as an inflection point.
Similarly, if there is a new and broad consensus on the need for a radical approach, this would create the conditions for a genuine paradigm shift in the EU’s political economy, a recalibration of the state–market balance that could be led and achieved with significant reform at the European level. This could herald a third phase in the post-war evolution of the relationship between state and market in Europe – and a new phase in European integration.
However, if the shift in approach is uneven across the EU, as seems likely, it will make consensus on major reforms difficult to achieve. While it would clearly not be impossible under current EU rules to implement many of the policies associated with a more statist model – as demonstrated by variations in the size of the state across the EU pre-coronavirus – the room for policy manoeuvre would be more limited. This would open the door to increased friction between, on the one hand, the framework of the single currency and single market and, on the other, the preferences of individual member states. This could create serious political stand-offs if the political programmes of particular governments clashed substantially with what was achievable within the EU system (which itself would be difficult to amend), or if there were a widespread perception that EU institutions or unsympathetic member states were an impediment to the realization of a new economic settlement. It could also heighten the vulnerability of the EU to external shocks, such as a renewed migration crisis, further exacerbating political divides.
25 See Tooze, A. (2020), ‘‘Coronabonds’ and Europe’s north-south divide’, International Politics and Society, 13 April 2020, https://www.ips-journal.eu/regions/europe/article/show/coronabonds-and-europes-north-south-divide-4256/.
27 See, for example, Johnson, M., Fleming, S. and Chazan, G. (2020), ‘Coronavirus: Is Europe losing Italy?’, Financial Times, 6 April 2020,
https://www.ft.com/content/f21cf708-759e-11ea-ad98-044200cb277f.