The European Response to the Coronavirus: Health Union and Anti-Crisis Plan

Domènec Ruiz Devesa
Member of the European Parliament; member of the Executive Bureau of the UEF. Vice President of UEF-Spain

On March 11, 2020, the World Health Organization called the outbreak of the coronavirus originating in China a pandemic, given its spread over more than three continents, affecting no less than 100 countries. This disease is easily transmitted and has a death rate significantly higher than that of influenza.

It is therefore urgent to limit the increase in cases, even if the expansive wave of the disease has a longer duration, in order to avoid the collapse of hospitals due to the lack of intensive care units to treat the most serious patients.

The coronavirus also highlights the fact that the European Union has not equipped itself with sufficiently strong instruments to deal with a typically transnational emergency such as the spread of an infectious disease, which by definition knows no borders. We need to quickly set up a Health Union which, as a fundamental part of the much-trumpeted Social Europe, encompasses and goes beyond existing mechanisms, and makes it possible to coordinate the response at European level, thereby directing the necessary resources, whether material (masks, respirators, medicines, etc.) or financial, in a spirit of solidarity, to where they are most needed. At present, for example, the European Solidarity Fund, which deals with natural disasters, does not include public health crises in its scope. This is one more reason to address the essential reform of the Treaties within the framework of the planned Conference on the Future of Europe.

In any case, beyond the health aspects of the problem, the coronavirus pandemic has already generated a considerable economic crisis, which is compared to the Great Recession that exploded in the summer of 2007 in the United States with the sub-prime mortgages. The losses in the stock markets on 12 March 2020 were historic. The Ibex-35 fell by 14 percent, the Milan Stock Exchange by 17 percent, and the Frankfurt Stock Exchange by 12 percent. In the United States, the Dow Jones lost 10 percent, the S&P 500 9.5 percent, and the Nasdaq 9.4 percent.

The International Monetary Fund (IMF), in its preview of Spain's annual report, concludes that the effect of the coronavirus on tourism, trade, domestic consumption and supply chains will have a very negative impact on Spanish economic growth. The Organization for Economic Cooperation and Development (OECD) reduced the growth forecast for 2020 for the Eurozone from 1.1 to 0.8 percent. Depending on the duration and intensity of the pandemic, the OECD warns, the coronavirus could reduce global GDP growth to 1.5 percent from the 2.9 percent initially projected for 2020. In any case, the economy is expected to shrink in the first two quarters of this year. Parallels with the 2008 crisis are inevitable, and the IMF chief economist believes that the decline in supply and demand resembles those seen during the more acute phases of the global financial crisis.

Against this background, the European Council met by videoconference on 10 March 2020. The Heads of State and Government agreed to allow for higher national deficits resulting from the public expenditure needed to tackle the crisis, thus relaxing the Stability and Growth Pact as foreseen for these cases. The door was also opened for companies and sectors in need to benefit from state aid. Finally, it was agreed to allocate EUR 25 billion to support health systems, facilitate liquidity for small and medium-sized enterprises and combat the possible effects of the virus on labour markets. The European Commission proposed on 13th March to increase this amount available to the States to 37 billion from the unused Cohesion Funds. But this is in any event funds that have been budgeted for other purposes and not additional funding.

Instead, a European anti-crisis spending plan is needed, as proposed by President Macron and Commissioner for Economic Affairs Gentiloni, mobilising the resources of the European Investment Bank and the European Stability Mechanism. Let us hope that at the Eurogroup meeting, scheduled for 16 March 2020, an expansive fiscal position for the Eurozone will be agreed, together with a series of extraordinary and coordinated fiscal measures, as the echo of past mistakes reverberates not only in the lack of ambition and decision on the part of the leaders, but also in the lack of coordination and the adoption of disparate measures in each of the Member States, putting the internal market at risk.

The same North-South gap that already emerged between creditors and debtors with the eurozone crisis seems to be reproducing itself. The North is so far less affected by the virus, and their economies are much less dependent on tourism than those of the South, so they do not seem willing to increase resources and mutualization of anti-crisis spending.

But it is unthinkable that in this situation of health and economic emergency that is the coronavirus, the Multi-annual Financial Framework (MFF), the European budget for the period 2021-2027, is limited to 1% of the Community GDP, as claimed by the governments of the Netherlands, Denmark, Sweden and Austria.

It should be remembered that the current MFF proposal was drawn up before the election of Mrs. Von der Leyen as President of the Commission. Therefore, the proposed amount of 1.11 percent of the EU's GDP is not in line with the Von der Leyen Commission's Six Priorities, and in particular with the plan to finance the economy's ecological transition (known as the Green Deal), which requires between 300 billion and one trillion euros per year. The Commission must withdraw the current proposal and present a new draft MFF in line with the threshold approved by the European Parliament of 1.3 per cent of EU GDP.

The European Central Bank (ECB) announced on 12^th March new liquidity injections via credit addressed to companies, and the purchase of government and corporate bonds up to the end of 2020 up to a total of 120 billion additional - this should enable the increase in public deficits not to lead to a new sovereign debt crisis. The ECB's room for manoeuvre is certainly not large, after years of negative ratings and massive liquidity injections, but it could resort to buying shares, and direct money transfers to Eurozone households to avoid a collapse in demand and mass unemployment.

We must urgently recover the lessons learned during the management of the Great Recession, when the citizens paid dearly for the lack of solidarity at European level and the policy of extreme fiscal adjustment. The scale of the health, financial and economic challenge posed by the coronavirus pandemic cannot be underestimated. The full range of options available to us should be used, through a combination of expansionary fiscal and monetary policies, as part of a comprehensive European response covering both the health and the economic dimensions.