A Covid-19 counterfactual for Europe – Project Syndicate

10/04/2021 by

Imagine that the coronavirus pandemic, rather than undermining confidence in the European Union, had strengthened it. Imagine that Covid-19 had persuaded EU leaders to overcome years of acrimony and fragmentation. Imagine that it had catalysed the emergence this year of a stronger, more integrated bloc to which the world looked for global leadership.

Imagine. It isn’t hard to do.

At the end of February 2020, two weeks before the World Health Organisation declared a pandemic, the EU Council had already instructed the European Commission to coordinate Europe’s war against the coronavirus. Within days, the Commission compiled a list of essential gear in short supply across Europe, from protective equipment to intensive care units, and placed orders with manufacturers. It also convened Cov-Comm, a committee of top epidemiologists and representatives of EU public health systems to offer daily guidance. Liberated of the need to procure essential supplies and work out optimal travel and social distancing strategies, national governments concentrated on implementing the emergent EU plan.

By the time, a month later, the pandemic had shown its teeth in northern Italy, truckloads of protective gear, oxygen canisters, intensive care machinery, and even doctors and nurses began to arrive from across Europe, all coordinated by Brussels. While the European Parliament debated the finer points of balancing civil liberties and public health, the Commission continued to map out, in cooperation with national governments, the needs of health-care systems across the EU.

In March, Cov-Comm recommended lockdowns, with rules varying from region to region. The European Council backed the Commission’s plan for a quarantine rollout, to be reviewed daily. As Europeans entered quarantine, a network of mass testing centres was erected across the EU. Regular testing in every neighbourhood, near every school, and at or close to every workplace would enable a coordinated, safe exit from horizontal lockdown.

April being the cruellest month, the number of casualties spiked, but at least hospitals coped well, thanks to the pooling of equipment and human resources across Europe. Asked by journalists how visiting foreign doctors and nurses communicated with their Italian and Spanish colleagues inside the intensive care wards, a German anesthesiologist replied, ‘In the face of death, medical professionals communicate by osmosis.’

With the lockdowns pummeling both consumption and production, Europe’s economies entered the worst recession in memory. Unlike the euro crisis a decade earlier, the pandemic dragged down economic activity throughout Europe. The common foe, along with the spirit of solidarity in health care, engendered a new mood, which soon permeated official circles. The result was a ground-breaking resolution, approved in early May by the Eurogroup of finance ministers, and then by the European Council. Next Generation Europe, or NGE, was then launched immediately.

Four pillars made the NGE a prelude to Europe’s proper unification. There was a common mechanism to absorb the inevitable rise in public debt as states struggled to support businesses and employment. A central health fund would now pay for the fight against Covid-19, including vaccination procurement. A cash payment to every European would lift all boats at once. And a proper investment programme would finance the Green Energy Union Europe so badly needs.

To build the NGE’s four pillars, EU leaders had to clear the hurdle that had blocked them during all previous crises by figuring out how to simulate a federal government without violating the letter of EU laws and treaties. The solution on which the NGE project turned was ingenious. At the crucial April 2020 Council meeting, Germany’s lame-duck chancellor, Angela Merkel, reportedly said: ‘As our only common institution with real firepower, the European Central Bank was always going to bear the burden. Let us at least put it to good use.’

European leaders did just that. To absorb the inevitable rise in public debt, all member states’ primary budget deficits (net of debt payments) since March 2020 would be financed by 30-year bonds issued by the ECB. The bonds’ long maturity meant that Europe’s leaders were giving themselves 30 years to form a proper federal government, complete with a common Treasury, lest the ECB be forced to print the money to repay bondholders. ‘If Europe cannot unite within three decades,’ said French President Emmanuel Macron in the May European Council meeting, ‘maybe we do not deserve our Union.’

EU leaders had crossed the Rubicon, and now the NGE’s solutions to other problems emerged. For example, to fund vaccine research and development, and pay for local production under license across Europe, the ECB promised to purchase zero-coupon perpetual bonds issued by pharmaceutical companies. Nothing in the ECB’s charter prevents it from purchasing corporate bonds, so the EU could use this mechanism to fund a successful vaccination programme as well as other basic health goods to be shared among all Europeans. Even better, the EU used this mechanism to procure hundreds of millions of vaccine doses for distribution to neighbouring and developing countries free of charge.

Then there was the NGE’s cash injection programme, the equivalent of the federal government checks that US households received during the pandemic. EU leaders discovered that nothing in the ECB’s charter, or in any EU treaty, prevented the ECB from crediting every European adult’s primary bank account with €2,000 ($2,350), at a total cost of no more than €750 billion. With every European, whether German or Greek, Dutch or Portuguese, receiving the same amount, the EU treaties’ prohibition of fiscal transfers and bailouts of one member state by another was never violated.

Lastly, the NGE directed the European Investment Bank to issue bonds roughly equivalent to 5 percent of Europe’s total income, also to be backed in the bond markets by the ECB. This funded a new European Green Works Agency to develop the EU’s Green Energy Union and, more generally, to finance Europe’s Green New Deal.

While infection rates rose and fell, by December 2020 the coordinated rollout of Europe’s vaccination programme arrested the virus’s spread. Europeans celebrated the arrival of 2021 with tangible expectations of shared, green prosperity. Meanwhile, Europe’s global standing improved, including in post-Brexit Britain. Shipments of vaccines donated by the EU played a role, but not as large as Europe’s demonstration that unity and solidarity had, at last, prevailed across our continent.

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