Europe is being ravaged by the coronavirus pandemic. There have been more than
10,000 deaths in Italy.
In the grimmest of league tables, Spain comes second. Normal life has
been suspended across the continent and the hit to the economy is
immense. France’s output is running at two-thirds of what it was last
year. Germany has abandoned fiscal rectitude and – along with the rest –
adopted a “whatever it takes” approach.
Border controls have been erected to stop the flow of people even
though this contravenes one of the founding principles of the single
market. Rules on state aid to struggling companies have been relaxed.
The
European Central Bank has embarked on a gigantic asset purchase scheme in an attempt to flood the eurozone economy with cheap money.
If ever there was a time for the EU to act as one, for the richer
countries to show solidarity with those less fortunate, then this is it.
Yet when Italy pleaded for fellow countries to send it medical
equipment such as masks, France and Germany not only failed to respond,
they placed export bans (since lifted) on the export of the kit Italian
hospitals were crying out for. In the end it was left to China to show
EU how to respond to a country in dire need.
Another problem for Italy is that because of its slow growth and high
levels of public debt it has to pay a higher rate of interest on the
money the government borrows than is the case for Germany and, when the
hospitals in the cities of Lombardy started to fill up with Covid-19
cases, this gap – or spread – started to widen. It was therefore
deeply unhelpful for Christine Lagarde, the president of the ECB, to say that it was not the job of her institution to “close bond spreads”.
Lagarde, to her credit, quickly recanted and the ECB is now doing its
utmost to help Italy and the wider eurozone economy. But the crisis has
highlighted the weaknesses of the eurozone: the lack of coordination
between monetary policy run by the ECB from Frankfurt and fiscal policy
under the control of member states; the lack of a sizeable, single
budget; the absence of financial tools that would make a collective
approach easier.
Last week’s
virtual meeting of EU leaders
was supposed to come up with a joint approach to the crisis but was
instead a complete car crash. One group of countries – including Italy,
Spain and France – wanted the creation of corona bonds, which would be
issued collectively by all eurozone countries.
The thinking behind a corona bond is simple. By pooling risk,
hard-pressed countries such as Italy and Spain would benefit from the
reputation for financial probity of countries like Germany and the
Netherlands. Of the money raised, the lion’s share would go to the
countries at greatest need and at lower rates of interest than they
would have to pay if they were issuing their own national bonds.
Read more at: The coronavirus crisis has brought the EU's failings into sharp relief | Larry Elliott | Business | The Guardian
