A post-Covid19 EU

I recently spoke to Vincenzo Amendola, Italian Minister for European Affairs, on the challenges the European Union faces in the wake of the Covid19 pandemic. Here are some of the main points we touched upon. You can read the full interview in English here and Japanese here.

Challenges: The Coronavirus pandemic will change the way the world interacts and will definitively test the resilience of the 27-nation bloc. The EU is not facing a battle for survival, rather it is fighting to avoid an internal fragmentation that may result in a Europe that moves forward at different speeds. 

Lessons learned: The EU was slow to react to the crisis that followed the Lehman shock in 2008. Now it is different. Europe has understood that speed and unity are essential in overcoming the crisis and for the EU to maintain its strength. The European Commission acted very swiftly suspending the growth Stability Pact allowing member states more flexibility in their budgets and the ECB enacted the PEPP.

What is Europe doing: On top of the above measures, the European Stability Mechanism (which allows member states to borrow up to 2% of 2019 GDP) will be operational by 1 June. Other measures include the SURE program to provide financial assistance to member states to address sudden increases in public expenditure for the preservation of employment and the European Investment Bank package to alleviate liquidity and working capital constraints for SMEs and mid-caps. 

Recovery Fund: The Recovery Fund will have its legal basis in the EU 2021-2027 budget, however, as the budget will take effect on Jan.1, 2021, we are discussing a front load, or a way to use the funds as soon as possible. The Fund will not rely only on the budget, but also on debt instruments issued in the capital markets, and this is very important because it is a new path, but already foreseen in the EU Treaties.

Covid19 and global power realignment: We must be ready to spot new trends in the global relationships between world powers. It is very clear that geopolitical value chains will need to be revisited. Europe needs to affirm, together with its Western allies and in cooperation with its international partners, its sovereignty and independence. Black swan events put the global power balance into discussion. Italy will chair the G-20 in 2021. This will provide an opportunity to lead the effort to rebuild the response capability to events such a pandemic, or other global crisis within a multilateral forum.