Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
It is still too early in the Coronavirus pandemic to grasp its long-term implications for international politics.
Two visions of international relations are being put forward, often reflecting the prejudices of their advocates. We are either headed for a future with a greater focus on national self-sufficiency, potentially leading to more international political conflict.
Alternatively, this is the moment for increased international cooperation that reflects the interconnected nature, for good and ill, of the world in which we live.
The eventual reality is unlikely to be so binary, since the crisis will reinforce both instincts and the policy response will require a bit of each. National borders may become thicker in response to the crisis, and yet the development and dissemination of a vaccine will be a global endeavour. Supply chains may need to be more resilient in future, but autarky clearly isn’t the answer.
Nowhere is this tension between the national and transnational more evident than within the EU, and the eurozone in particular, since it is both a collection of nations and in effect a quasi-state.
In my previous column, I noted that the initial response to the crisis – border closures and the stockpiling of medical equipment – had been characterised by uncoordinated national measures, with the EU institutions struggling to ensure that Europe’s internal borders remain open and that medical goods continue to be traded freely across the single market.
Over the last two weeks, the political and economic dividing lines exposed by the eurozone crisis nearly a decade ago have loomed large, with leaders at odds over how to finance a common economic response.
The European Central Bank (ECB) has once again been called on to do the heavy lifting, as countries increase national deficits to deal with the crisis. Its new Pandemic Emergency Purchase Programme (PEPP), a bond buying programme of up to €750bn, is more flexible and has less strings attached than previous ECB schemes. It has already had some success in reducing borrowing costs for countries, such as Italy, which are most in need.
However, the relaxation of the ECB’s usual restrictions under the PEPP is testing the boundaries of what is legally and politically acceptable in the so-called “frugal” member states, chiefly the Netherlands, Germany and Austria.
Under current rules, the ECB is unable to take a direct role in helping individual governments, unless a wider bailout programme has first been agreed by other member states.
In 2018, following legal cases brought in by Germany, the European Court of Justice specifically pointed to previous limitations on the ECB’s bond-buying activities when ruling that it was not breaching the ban on direct financing.
Eurozone leaders are therefore examining other means of collective action, rather than relying solely on the ECB. The politics of this are fraught. As the eurozone crisis eased and took the pressure off to enact further reforms, there was much unfinished business.
Supporters of a common eurozone treasury see this crisis as their chance to further the cause. Last week, nine EU member states, including France, Italy, Spain and Portugal, called on fellow governments to develop a common debt instrument – so-called “Coronabonds” – to increase the eurozone’s fiscal firepower and display European solidarity.
However, German and Dutch politicians are loathed to enter into mutually guaranteed financing instruments with governments with debts that already amount to near, or well over, one hundred per cent of GDP.
Wopke Hoekstra, the Dutch Finance Minister, sparked a major row after reportedly calling for an audit into why some countries did not have enough fiscal room to cope with the economic impact of the crisis.
The Dutch and German preference is that, if further action is required, the eurozone’s bailout fund – the European Stability Mechanism (ESM) – should be the vehicle.
The problem with this, from an Italian point of view, is that an ESM programme carries the stigma of asking for a bailout and usually has strings attached, such as external budgetary oversight.
This is political dynamite in Rome. After Coronabonds were rejected at last week’s EU meeting, Italian opposition leader Matteo Salvini, whose Lega party tops opinion polls, tweeted, “A far cry from being a ‘union’, this is a den of snakes and jackals.” Italy may have to say “goodbye” to the EU, he suggested. A fudge may well be found in the coming days that can calm things down for now, but the fundamental structural and political challenges facing the eurozone have been exposed once again.
The EU will also have to confront another question posed in the wake of the Coronavirus crisis: how much is too much centralised state control and will the freedoms we take for granted be restored? Many countries are experiencing unprecedented limits on civil liberties to contain the virus, but these restrictions sit uneasily with liberal democratic traditions.
The UK’s emergency powers were passed with the proviso that MPs would vote every six months on whether they should be renewed. However, the Hungarian parliament this week approved a controversial law that will extend the state of emergency and allow Prime Minister Viktor Orban to govern by decree for an indefinite period of time.
Among other things, the law means that individuals who publicise untrue or distorted facts, in the eyes of the government, potentially face several years in prison. European Commission President Ursula Von der Leyen did not mention Hungary by name, but in a statement said: “Any emergency measures must be limited to what is necessary and strictly proportionate. They must not last indefinitely.”
The Commission says it will “closely monitor” the situation but this is a long-running story. In 2018, the European Parliament voted to pursue action against Hungary under Article 7 of the EU Treaty, which allows the EU to give a formal warning to any country accused of violating fundamental rights.
The EU may impose sanctions, such as suspending voting rights. However, these sanctions require unanimity, and Poland, which is also facing an investigation under Article 7, has said it will veto any action against Hungary.
We can already see that the global public health crisis is having profound economic consequences. The political implications of the coronavirus are far less clear at this stage but will also be hugely important for all liberal democracies as they navigate the geopolitics of the post-virus world. As recent developments within the EU illustrate, crises tend to amplify and accelerate trends that are already underway.