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6th Jun 2020

Coronavirus

Merkel: Virus is biggest challenge in EU history

  • Commissioner Paolo Gentiloni on Monday warned about the state's increased role in the economy - and how it could destabilise democracy (Photo: Council of the European Union)

The EU is facing the biggest challenge since its foundation, German chancellor Angela Merkel warned on Monday (6 April) on the economic and political consequences of the coronavirus pandemic.

"Everyone has been hit equally by this and it must be in the interest of everyone, and of Germany, that Europe emerges stronger from this test," Merkel said in a press briefing.

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"The answer can only be: more Europe, a stronger Europe and a well-functioning Europe," the chancellor said.

The 65-year-old Merkel herself only emerged from self-isolation on Friday, after she tested free of coronavirus three times.

The chancellor reiterated her support for the use of the EU's rescue fund, the European Stability Mechanism (ESM). She also said Europe will need a plan for reconstruction after the pandemic.

Merkel's comments came a day before eurozone finance ministers hold a videoconference on Tuesday to hammer out plans to tackle the economic shock from the outbreak.

Italy, Spain and France have been arguing for debt-mutualisation to tackle the economic fallout - which has so far been rejected by Germany, Austria, and the Netherlands, who fear it would create loose financial policies.

"I consider the debate about eurobonds as a not so serious one, because everybody knows that you would have to change the fundamental contract of the EU," Austrian finance minister Gernot Bluemel told Bloomberg on Monday.

Southern members and France are however, less enthusiastic about using the ESM, as its loans had been tied to tough austerity measures. But those conditionalities could now be redesigned to be linked to the recovery.

Finance ministers could agree on Tuesday to using the ESM, and other existing instruments, but any joint debt instrument and more ambitious measures to rebuild the EU's economy continue to divide member states.

No to 'old' debates

"Please avoid a discussion that is exactly the same we had in the previous 10 years," economy commissioner Paolo Gentiloni said on Monday in an online event with the Brussels-based Bruegel Insitute think tank.

"We shouldn't discuss in the last 10 years this country or this group of countries did the right thing or wrong thing, they should have been more serious with their debt, they should have used their fiscal space, etc," the Italian commissioner said.

"But providing that nobody is proposing of the mutualisation of the former debt, but the mutualisation of commitments that we have for the next months and years, we need a discussion that goes towards the future," he added.

"This crisis will do considerable damage, so we must all be able to restart at the same speed," French finance minister Bruno Le Maire said on Monday.

"Nothing would be worse for Europe than some countries being able to recover faster because they are richer," he said.

Gentiloni also said that asymmetric economic consequences would put the the existence of the EU at stake.

"We should not emerge as 'winner' or 'loser', either we succeed as an EU or we fail," he said.

Italy and Spain have been pushing for radical recovery plans, and calling for a jointly-financed Marshall Plan, referring to the US-financed rebuilding of western Europe after the Second World War.

Gentiloni said, however, that the EU would need a grand recovery plan in weeks and months, recalling that the original Marshall Plan took two years to design.

Other ideas are in the pipeline too: the Dutch have come up a €20bn emergency fund, but that is likely to be small compared to the needs.

France is proposing a temporary economic recovery fund for 5-10 years, involving joint debt issuance.

EU Commission president Ursula von der Leyen has been arguing for putting a beefed-up EU long-term budget at the heart of recovery plans, while the EU Council president has been working on plans for a special short-term EU budget to boost the bloc's spending.

Stronger state

Gentiloni said the crisis should be used as an opportunity for "correction" of environmental sustainability, innovation and digitalisation.

Gentiloni also said one of the key challenges will be "how to preserve our democratic model in a system where state will be stronger than it is now". He warned authoritarian capitalism models from outside and inside Europe could gain attraction.

EU leaders at odds on virus-hit economy

Italy, with the backing of France and Spain, call for substantial EU economic help, others want to see how long the outbreak will last before committing to big plans.

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