EconomyEuropean UnionPolitics

The EU Is Going To War Against Coronavirus

Here's How We're Going To Win It

The coronavirus pandemic is an unprecedented threat to the world. Not since the Influenza outbreak has human civilisation faced such an existential menace. We are now in uncharted territory as we try to limit the spread of the disease, develop treatment, and research a vaccine.

The Effects Of And Strategies Against The New Coronavirus

The medical aspect of this fight is best left to sources that can make qualified statements. But the dangers of coronavirus are clear: it’s a very contagious disease that is mild in most cases, but extremely threatening to the elderly and people with pre-existing conditions. Besides the lopsided mortality rates, which increase significantly with age, the new coronavirus also causes a very high number of hospitalisations, usually due to severe pneumonia. These hospitalisations greatly exceed what any healthcare system on Earth can handle at any given time – in terms of ICU beds, ventilators, doctors required to staff the units etc. Once hospitals collapse, the mortality rate skyrockets – both because coronavirus patients who could be saved in an ICU are left without medical care, and because people getting injured or sick from other ailments would have no access to medical help. Ultimately, the “do nothing” and “mitigation” strategies would result in millions of people dying. Should you wish to dig into the data, we can warmly recommend this fantastic piece by Tomas Pueio.

This only leaves one workable strategy: suppression. That is to say, extreme social distancing to deprive coronavirus of the opportunity to spread quickly, ideally bringing the number of sick people at any given time below ICU bed capacity. While of a more uncertain impact, this could also place selective pressure on the virus to favour less lethal and less noticeable strains. In order to work, however, suppression requires participation from the whole of society, as well as extensive economic mobilisation. The fight against coronavirus will not be won by doctors alone – the entire world will have to mobilise in order to sustain them.

fight against coronavirus
Stay home to save life – help the fight against coronavirus!

We are at war. This is not just a metaphor: suppressing a pandemic is functionally very similar to fighting a war. Just like in wartime, there is a physical space of concentrated effort – in this case, hospitals, where loss of life is the norm. Just like during a war, sustaining this physical effort requires a complex logistical supply chain that includes coordinated production and distribution of essential equipment, like ventilators and face masks. The civilian population is also asked to make sacrifices – in this case, by staying indoors and following government directives. There is one major difference between a war and a pandemic, however. During a war, industrial production is maximised. The opposite happens during a pandemic, because the lockdown inevitably results in lower output.

The European Union has introduced a sweeping set of countermeasures – which are a good start, but only a start. As we look into what has already been done, remember that this is just the beginning of a drawn out effort that can only work if we act together. Suppressing coronavirus will change the European Union (and likely the world) in ways we cannot fully anticipate, and the pandemic is expected to trigger the worst economic recession since 1945, further increasing the complexity and fluidity of the situation. This is a world-upending, historical moment of rare magnitude, and we must all rise up to the challenge. Make no mistake: this will be a very long fight – but it’s one we can win together.

What The EU Has Already Done Against Coronavirus

The EU has a checkered record when it comes to dealing with crises. This is a product of its institutional set up and small mandate: the EU is built as a leadership avoidance scheme, which gives every Member State the breathing ground they need to come to bargains with one another, and have confidence that such bargains will be respected. This is great for wider European integration, but terrible in times of crisis, where clear leadership, fast decision-making, and an unequivocal chain of command are essential to response coordination.

However, the EU has learnt its lesson since its abysmal handling of the Euro debt crisis in 2012, where only the help of the Federal Reserve kept the Eurozone away from the abyss, as we detailed here. The measures being undertaken today at a European level are the right ones, and compatible with the small mandate of the Commission, they also display a refreshing dynamism.

First, the EU set up a Corona Response Investment Initiative, freeing up €25 billion that will shore up national healthcare systems, and shield workers and companies from the economic fallout of the suppression measures. It also allocated funds to vaccine research, as well as research of treatments that might make the pandemic more manageable. Additionally, the Commission has triggered the Stability Pact’s General Escape Clause, and greatly relaxed State aid rules. This will allow Member States to pump as much money into the economy as needed in order to fight coronavirus, bail out companies, and shield workers from the economic fallout.

Coronavirus vaccine
The EU has allocated funds towards the search for a vaccine

These financial measures are paired with logistical and industrial interventions: the European Commission is coordinating, and massively ramping up, joint industrial production of all essential medical equipment, like face masks and ventilators. It has also forbidden exporting these products to third countries – with the exception of the United Kingdom, which is great news for London, since Britain only possesses 5,000 ventilators and lacks the domestic capacity to build more. Brussels is also setting up a common stockpile of all this essential equipment, to hand out to Member States to make sure that no one runs out. Once treatment and a vaccine are available, these will also be made a part of this common stockpile.

Further, the EU is also moving to ensure that the 300,000 EU nationals currently stuck outside the EU can make it back home safely, by pressuring other countries into keeping a select few airports open for emergency return flights, and ensuring the smooth functioning of the internet at a time of surging traffic through deals with Netflix, YouTube, and others.

However, the real centerpiece of the wider European effort to fight the new coronavirus comes from the ECB. It’s the so called “bazooka”.

Deploying The Bazooka

Following an embarrassing gaffe by Christine Lagarde, and after the global nature of the threat became evident, the European Central Bank introduced the so-called Pandemic Emergency Purchase Programme, also known as PEPP or, informally, the bazooka. This is the single largest measure so far at a European level. It’s an emergency €750 billion package to buy government and  company debt across the Eurozone. What this means in practice is that the ECB will guarantee Member States’ liquidity, so that whatever amount of money they spend to fight coronavirus will be backed up by the might of the ECB. The extension to private debt also means the ECB will be playing a hands-on role in protecting companies and ordinary people from the inevitable economic recession that will result from suppression measures.

the European Central Bank
The European Central Bank is taking a set of unprecedented measures to help the fight

There is no time-frame from when this will end, except that it will in any case last to the end of 2020 at a minimum. The timing of the maneuver is up to the ECB’s judgement. Ultimately, the pace of the fight against the pandemic, as well as the stimulus required to kickstart the economy after the outbreak , will determine how long this massive purchase of assets will go on. One thing is certain – this is a watershed in the history of the European Central Bank. Not even Draghi’s famous “whatever it takes” statement extended this far. In all the doom and gloom about the slow progress of European integration, we must also acknowledge that the progress done since 2012 is clearly on show here. This level of interventionism places the ECB much closer to a traditional central bank. There is free talk now of the PEPP helping guarantee jobs and companies as well as currency stability, after all. This may not have formally expanded the the Bank’s mandate, but in practice, it already has.

The Central Banks To The Front

This is a global pandemic, and as such it naturally warrants a global response. We have already witnessed a number of efforts at international cooperation against the new coronavirus, with varying degrees of success. For example, countries are trading doctors and task forces, ventilators and face masks, and the global scientific community is focusing on vaccine research. But what about financial and economic mobilisation?

Here, too, the EU does not operate in a vacuum. The ECB’s bazooka, in particular, is not an isolated measure: it is part of a wider effort by several central banks to guarantee that the global economy will survive the pandemic, and keep the machine of health and research running. The US Federal Reserve, the ECB, and the central banks of Japan, the United Kingdom, Switzerland, and Canada, are coordinating financial action in this respect. The reader might ask, why these central banks in particular, and what it is they are doing exactly. The answer lies in the lessons learnt during the Great Recession of 2008, and the Eurozone debt crisis of 2012. In that occasion, the Federal Reserve provided liquidity to other central banks – and in the latter case, particularly the ECB. These are currency swap lines, so called because the liquidity is denominated in multiple currencies. In effect, the Federal Reserve acted as the lender of last resort for other central banks. This was part of a “backroom deal”, and not widely publicised – American public opinion was vehemently against it, pushing the Obama administration to operate discreetly.

Today, these currency swap lines have been expanded. The same central banks that tried them out in 2008 and 2012 are now leaning on them even more strongly. What consequences this will have on world finance in the long term is hard to foresee, but in the immediate, the strategy is clearer: these measures prevented a heart attack of the world economy both in 2008 and 2012. The hope is that they will do so again.

European Coronabonds

Talk of coronabonds has also greatly intensified over the past week, with Commissioner Gentiloni quite open that the proposal is on the table. Fiscally conservative countries like the Netherlands and Germany have opposed any sort of financial risk-sharing at a EU level for years. They remained so even at the height of the Euro debt crisis in 2012, with Merkel famously saying that risk-sharing would not happen in the EU “for as long as I live”. This opposition to joint bonds has not dissipated, but the reality of the pandemic has significantly weakened it. Merkel is allegedly open to the idea of coronabonds. The Netherlands are still looking for an alternative solution they could table. However the rapid evolution of the pandemic makes the adoption of coronabonds increasingly likely. Italy and Spain are the hardest-hit countries, but almost every Member State is weeks behind them in the curve of contagions. As such, things will get worse at a European level before they get better.

Total War Against The Coronavirus

As should be apparent from everything we have outlined thus far, these are extraordinary measures that might have appeared radical only a short time ago. Now, they have become widely accepted – to varying degrees – as the correct measures to fight the global pandemic. But what happens after the world emerges victorious from the pandemic – however long that might take?

the war effort against the coronavirus
We are at war – the civilian population is also asked to make sacrifices

They will likely roll back some of these measures, though perhaps not all the way. Others will remain in place. Every major crisis in the past century or so has resulted in fundamental changes at an institutional and policy level. It was the Great War that first introduced the managerial State we are familiar with in the 21st Century, introducing a level of government intervention in the economy that would have been unthinkable before 1914. The Great Depression fundamentally reshaped the way statesmen thought about world trade, and the Second World War provided the shock that ushered in the contemporary global order. The Great Recession of 2008 has defined early 21st Century political culture, from the rise of the far right to the quasi-institutionalisation of currency swap lines between central banks. It is hard to see how a global pandemic of this magnitude could fail to do the same. It’s a historic moment that will lead to a profoundly changed conception of European institutions and their mandate. For better or for worse, we do not yet know. What we do know is this: there’s no going back.

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Tullio Pontecorvo

Student of political science and international relations, co-founder of My Country? Europe. Aspiring sci-fi author. Believes shooting aliens in the face to be the ultimate form of gaming.

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