After a period of hesitation, governments in Europe have reacted forcefully to the Covid-19 pandemic with various strategies combining social distancing, testing/quarantining, and lockdowns. During a pandemic, however, coordination is key, and in responding to the current crisis European coordination has proved as painful as ever. A new eBook brings together Vox columns analysing the three axes of European-level support – monetary policy and banking, state aid and fiscal rules, and funding – and identifies the main difficulties that will appear down the road. It concludes that the EU Recovery plan that is taking shape looks promising and could represent a significant sign of European solidarity and unity.
There is no doubt that the Covid crisis represents a challenge for European unity and another crash test for the euro. A small positive observation in this crisis has been the degree of engagement of economists in an intense debate with policymakers on the appropriate responses to ‘flatten the economic recession curve’ and to safeguard the most impacted groups from the economic fallout of the health crisis.
A new VoxEU eBook offers an illustration of the intense effort of the academic community. It collects a selection of columns, analysis and policy proposals that were published on VoxEU between the end of March and the middle of May 2020. Within each section, the columns are sorted by their date of appearance, which gives the reader a sense of how the debate progressed over a short period of time.
Part I collects columns that discuss how Europe can to help protect lives, firms, workers, the Single Market, banks, national budgets and sovereign debt. Although most of these proposals involve building new institutions and mechanisms, it is remarkable that a high degree of convergence and consensus emerged in this area.
Part II collects contributions that have been, and continue to be, much more controversial. They relate to the form of funding, including Coronabonds, credit lines from the European Stability Mechanism (ESM), EU borrowing backed by contributions to the EU budget, and the role of monetary policy. Some of these debates relate back to the financial crisis and the pre-Covid fault-lines opening up again. However, in the light of this deep crisis, there are also many that call for the breaking of old taboos and to ensure that Europe and the euro area have the firepower to respond adequately to this novel and external threat. With this deep economic crisis unfolding, the fault lines of the euro area are once again laid bare. The optimistic view is that we should not lose the opportunity to complete the economic architecture and make the euro area resilient. After all, it took several decades for the United States to succeed in monetary unification.
In the first chapter of the eBook, we present our view on the ‘State of the Union’, giving an overview of the debate, an analysis of announced policy measures and a discussion of the necessary further steps. Our main conclusion: at this time, there is reason to be hopeful that the immense challenge that this crisis presents for Europe could really become an opportunity to strengthen the Union.