The European project was built on the idea of rendering future war among European states impossible. The EU is programmed to avoid armed conflict among its member states, a situation that would blatantly undermine its very essence. But who could have predicted that an epidemic would shake its foundations. In the space of a couple of weeks fundamental tenets of the EU project have received a body blow and may not recover from the coronavirus epidemic.
The European Stability Pact requires member states to respect a three per cent budget deficit. France was about to breach that anyway and has used Covid-19 as a cover to go much further, as will Italy, Greece and others. The Pact also requires states’ national debt to go no higher than 60 per cent of GDP. Many of the ‘northern’ states have respected that, whereas the ‘southerners’ have not. Italy and France were already at 130 per cent and 100 per cent respectively before the epidemic, but with full lockdowns those figures will soar. On Friday, the EU bowed to the inevitable and lifted the budget cap, the first time ever. This will inevitably exaggerate the financial mismatch between the EU’s north and south that was such a feature of the 2010/12 euro crisis. Of course, it can forcefully be claimed that the exceptional European pandemic requires exceptional measures. Rightly so. But rolling back that debt when the crisis is over will not be easy without stringent austerity measures as meted out to Greece in 2012/13.
Another of the EU’s fundamental principles is control of state aid. Goodness knows what a shibboleth that has been in the Brexit negotiations. But expect states such as France, which has statism in its DNA, to go to town on re-nationalising swathes of its industry, beginning with Air France. That is fair enough in times of crisis, but getting those states to relinquish control in better times will be arduous.
The Schengen borderless EU has also been dealt a body blow.