This week, Rory Montgomery, former Second Secretary General of the Department of Foreign Affairs and Trade and a Public Policy Fellow at the Trinity Long Room Hub, outlines how European solidarity is being tested as a result of the pandemic and what role the EU can play.
The European Union has been heavily criticised for what many see as the slowness and inadequacy of its response to the Covid-19 pandemic. Rory Montgomery, Public Policy Fellow at the Trinity Long Room Hub
Is this fair? And if so, how can the EU perform better? In answering those questions, it is necessary to distinguish between its role in addressing the pandemic as such and its role in limiting the economic damage and fostering eventual recovery.
It is important to understand what the EU can and cannot do. While it has some limited functions in the area of cross-border health threats, health, including public health, is essentially the responsibility of individual Member States – it’s not an EU competence, to use the jargon. So national governments have been making the decisions and taking action on all the big issues, such as social distancing, testing, the definition of essential services, and so on. Governments are also responsible for the organisation, management and funding of their health services. Maintaining public order is also for them alone. So neither the Commission nor the Council – where Member States meet together – can issue instructions, for instance to a policy outlier such as Sweden.
Unemployment is soaring at an extraordinary rate, and governments will rack up enormous debts in supporting business and workers.
Where the EU can play a central role is in the management of the unprecedented economic and financial effects of the crisis, which are worsening day by day. Unemployment is soaring at an extraordinary rate, and governments will rack up enormous debts in supporting business and workers. The EU’s normal rules on government support for business and on budget deficits were quickly suspended – there is no way they could have been obeyed or enforced in any case.
The most important player so far has been the European Central Bank. Its role is to ensure that financial markets and the banking system continue to function. It is determined to apply the lessons of the euro crisis. After an early gaffe by its President, Christine Lagarde, it has stepped up to the mark, cutting already low interest rates further and boosting the money supply by committing to buy close to €1 trillion of government bonds. Like other central banks internationally, it may well have to do more.
Member States are responsible for their own public spending. Massive rescue and stimulus packages have been announced by several of them. But they have not so far been able to agree on how the EU can or should support weaker countries – again, above all Italy for the moment. The aim is to ensure that all governments can borrow sustainably and at similar low rates. While so far bond markets have functioned quite well, and there is no immediate threat to any country, that is not guaranteed to continue. It was Ireland’s eventual inability to fund itself at affordable rates which drove us into the 2010 bailout.
There seems to be broad agreement that the €500m European Stability Mechanism established in the eurozone crisis can be used to back national borrowing. But the key question is whether the EU needs to go further by issuing bonds in the name of all Member States, for which they would be collectively liable – debt mutualisation. In simple terms, in effect, whether financially stronger member states should directly support some spending by weaker ones.
This blow to European solidarity outraged public opinion in Italy and some other countries...
This debate first flared up during the euro crisis. Issuing so-called “coronabonds” is now supported by a group led by France, Italy and Spain, and including Ireland – which incidentally has reverted to its position during the euro crisis after a period aligned with more hardline governments. But this is anathema to more fiscally conservative countries, which would pick up most of the tab, including Germany and The Netherlands. They argue that such an initiative is not necessary at this time, is legally prohibited, and would be opposed by their own publics. Even if introduced temporarily in a crisis, they fear that c’est le provisoire qui dure.
The failure of leaders to agree on this issue at last week’s European Council, and the reopening of eurozone crisis fault lines, made the European Union seem impotent and divided. This blow to European solidarity outraged public opinion in Italy and some other countries, to the point that the very future of the Union has been questioned. This may be hyperbole, but it shows just how acute the situation is, and how inflamed emotions are. The Dutch economy minister did not help matters by blaming more vulnerable countries for imprudently having failed to improve their public finances post-crash. He has apologised. But tensions remain high. A compromise is being worked on, and may well be agreed next week, but what will be seen as a further lack of solidarity at a moment of crisis will not be forgotten.
Perhaps the EU’s greatest challenge will be to contribute to economic recovery after the pandemic. Again, most of the heavy financial lifting will have to be done nationally. The bills will eventually have to be dealt with in one way or another by governments and citizens. But the EU can play its part. The Commission has already proposed that the future EU budget should be larger and refocussed on productive investment (this could have serious implications for the Common Agricultural Policy, if it were agreed – but it may well not be). It is also proposing to raise credits to guarantee a portion of extra national spending on unemployment. The European Investment Bank (which mostly lends money to support infrastructure investment, but also through intermediaries to small business) has considerable capacity.
Belief in the EU, already damaged in many countries over the last decade, cannot be allowed to ebb away.
Really fundamental questions will need to be confronted sooner or later. The debt mutualisation debate will not go away. It will be extraordinarily difficult to agree how quickly and how fully to reinstate the rules on state aids to business – where the State will have intervened massively - and on budget deficits and public debt - which will have exploded. The EU will also need to ensure that the single market in goods is fully functional, and that barriers to movement are lifted. The consequences of the crisis will dominate EU business for years. Many of its core achievements – the single market, competition policy, the euro, and borderless travel – will be under at least some pressure.
The pandemic is, for now, a public health crisis first and foremost. Even if it cannot play a leading role, there is more the EU can do. But its main responsibility will be to help to staunch the economic bleeding, and to help create a basis for recovery. It can only do so effectively if institutions and member states work together in a spirit of mutual responsibility and solidarity, and are seen to do so. Attitudes and words matter, as well as policies. Belief in the EU, already damaged in many countries over the last decade, cannot be allowed to ebb away.
Rory Montgomery recently retired from the Department of Foreign Affairs and Trade. Prior to his retirement, he served as Second Secretary General with responsibility for EU issues, including Brexit. Before that he was EU adviser to Taoiseach Enda Kenny (2014-16), Ambassador to France (2013-14), Permanent Representative to the European Union (2009-13), and Political Director, dealing with foreign and security policy, (2005-9). He was a member of the Irish team which negotiated the Good Friday Agreement and the establishment of North/South institutions. He graduated from Trinity (1981), where he was a Scholar and Gold Medallist in History. He later obtained an MBA. During his term as a Public Policy Fellow in Residence, Rory Montgomery will focus on the place of Ireland in the European Union, and on future relationships on the island of Ireland and between Ireland and the UK.
Recent posts in the COVID-19 Crisis Blog:
Art in a time of Pandemic with Rita Duffy (1 April 2020)
Leadership in a time of Crisis with Mary Doyle (25 March 2020)