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20 March 2021

Risks and side effects of coordination

What do the following have in common?

In the EU: a vaccine gets approved; then restricted to the over-65 year olds; restrictions removed; banned again; reintroduced - in France only for the over-55 year olds.

In Germany: Angela Merkel and German state premiers set a rate 50 of infections per 100,000 inhabitants as the threshold for a lockdown; they tighten the threshold to 30; relax the target to 50; raise it to 100. Today they meet again.

Continental Europe’s serial mismanagement of the pandemic constitutes a textbook example of multiple policy co-ordination failures, inside countries and across borders. The biggest failure in Germany is the lack of co-ordination between the federal government and the states. At the EU level, the failure is related to vaccine procurement. It is a great idea in theory to concentrate vaccine purchases at the EU level. It was not a great idea in practice. You don't mess with disease control.

Failure of policy co-ordination is the cause of most of our recent European crises: eurozone, refugees, and now the pandemic. The problem lies not with any one institution. The European Commission, for all its faults, is still of one Europe’s better-run administrations. Where the EU goes wrong is when it co-ordinates ad hoc. EU leaders kicked the can down the road during the eurozone crisis. Health ministers, acting on behalf of their governments, kicked the vaccine purchases up the road without thinking it through. Or for those who know Brussels, across the road.

The crisis of Europe is not a crisis of European integration, but a crisis of policy co-ordination. These are the real opposite poles in today's Europe debate. That debate in the EU is not about pro- or anti, as it was in the UK. Even Europe's right-wing populists have realised that they are better off fighting the EU from within. In the UK, the entire Brexit debate was reduced two camps, both of which opposed to European integration. One camp - Remain - was in favour of the EU as an inter-governmental union. The other camp - Leave - opposed both integration and coordination. It was not an inspiring choice.

I have been observing a similar trend in Germany too. Germany used to be a country that favoured deep integration. That changed after Helmut Kohl left. Merkel is the queen of co-ordination - a skilful manager of coalitions and of cacophonous European summits. The European Council is the epitome of modern multilateralism. The system is not focused on delivering actual solutions to problems, but political compromise. This is why crises never get resolved.

Ordinary democracies are stronger not because they avoid errors but because they correct them. You will never get Merkel to admit that she was wrong to shift vaccine procurement to the European Commission. Nobody will ever be ever held responsible for that catastrophic error.

The standard pro- versus anti-EU debate misses this point entirely. It is better to think in terms of confederal versus federal. That category also divides the current EU leaders from their predecessors of the 1950s to the 1990s. That generation pursued deep integration, and did so an irritatingly slow speed. They proceeded policy area by policy area, starting with a coal and steel community in the 1950s, a customs union in the 1960s, and a single market in the 1990s.

The monetary union, which also began in the 1990s, constituted a hybrid with an integrated monetary policy and a fiscal policy based on rules and co-ordination. This is where the problems started. There is nobody in charge. The presumption at the time was that the monetary union would eventually fuse into an economic union. This did not happen. The eurozone crisis was not a federal moment as it could have been. The way EU leaders resolved the crisis, through austerity, led to a widening of imbalances, to such an extent that an economic union is becoming less likely.

The biggest success was probably the recovery fund, but it is important to keep this in proportion. The fund is a structural facility, guaranteed by member states and thus inter-governmental in nature. It has a €312bn grants component, to be disbursed until the end of the EU's current budget period in 2027. On my calculations this makes up some 0.3-0.4% of EU GDP over the period - an order of magnitude that would normally fall under statistical noise. Compare that to the size of the recently passed US stimulus - which is approximately 9% of GDP for this year alone. That's on top of last year's stimulus, which was also bigger. 

When we look across the Atlantic, we will remind ourselves once again that the US has a government. We have rules and co-ordination.

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