June 09, 2020
The EU and the re-emergence of the state
The pandemic brought the state back as a prime actor. In the EU framework this is bound to end up in conflicts: about the role of the EU itself, and in terms of divergence amongst member states. After the lockdown, citizens expect the state to make the economy more resilient and to deal with external shocks. The rules-based EU has been set up for a different purpose: to limit the role of the state in markets. The EU is not set up to handle the current task. It will need to reform.
A new paper for Chatham House by Pepijn Bergsen and others argues that the shift from markets to state would need a different EU with more focus on welfare, solidarity and reduction of inequality between states. But how to get there is not obvious. It is one of those I-would-not-start-from-here moments.
EU member states could not even agree on a crisis response, so how will they find a consensus for deep structural reforms of the EU? In the past decades the EU renewed itself through treaty change to reflect a political consensus among member states. This consensus is no longer there. Working around treaty change, as was done throughout the eurozone crisis, may be possible in areas where the treaties have no say. But it is a lot harder when the problem lies within the treaty. Under EU rules, the current interventionist fiscal policy will eventually require a drastic return to fiscal balance. Restrictions on workers imposed during the pandemic may continue, increasing tensions between member states and threatening the principle of free movement in the EU. State-aid rules are clearly challenged by member states' moves to protect their industries, and will have to change to allow a more strategic industrial policy to emerge for the single market. And the eurozone has seen a re-emergence of the north-south divide, increasing the risk of a popular surge against the eurozone itself.
Member states may agree on small changes that can be integrated into the existing EU framework, such as exemptions of investment from deficit calculations. Or they can find consensus for a large structural change of the EU itself. If no consensus can be achieved, which is the most likely scenario, frictions between the single market and single currency on the one hand, and political preferences of individual member states on the other, will increase. The pandemic brought about a shift from markets to states. This needs to be addressed in the EU framework either way.