The day after #9 - Covid-19 crisis, a catalyst for change and strengthening the EU
Amundi Institute, Investment Talks
Covid-19 is asymmetric shock with asymmetric impacts. It exacerbates tensions within the EU — and outside the union as well. Geopolitical tensions, which involve Europe directly or indirectly, are rising across the globe. Cracks developing between the US and China are affecting Europe, which itself is changing strategy concerning relations with China. The outcome of the US elections could also have significant impacts in the upcoming four years. Re-election of President Trump would bring further tensions on trade, defence, sanctions, etc. Obviously, Brexit opens a new era for the union, the epicentre of which is now the Eurozone (EZ). It is therefore in a complex and strained context that European institutions have to deal with such a large and significant economic shock.
Crisis pressures in the past have been the main catalysts for change in Europe. Although tensions between member states seem to lead to a renationalisation of the decision-making process, it is actually the opposite that prevails, with a European response eventually emerging. One could actually hypothesise that the more severe the crisis, the more significant the policy reform. This chaotic path historically led to more integration, the strengthening of institutions or the emergence of new ones, and the transfer of competencies. However, it is unlikely that Europe will evolve differently or according to a pre-set plan simply because when there are no reasons for change, change just does not happen.
The Conference on the Future of Europe, planned earlier this year, will probably open in September in a very different context than initially expected. Who will chair it and whether a new treaty for the union will be on the agenda remains unclear, but the need to address repositioning Europe post the Covid-19 pandemic is clear. Indeed, the EU is suffering from a risk of fragmentation along several lines that could deeply undermine its ability to deal with the challenges to be seen in the next decade. The asset purchase programs (APP) of the European Central Bank, the emergency package via the ESM, and now the European Commission (EC) proposal ‘Next Generation EU’ are powerful tools to address these risks.
