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March 24, 2020

Lock-down extends to three more European countries

European countries are entering total lock-down one after the other. Most have the same set of basic social-distancing practices, but differ in how far-reaching their confinement rules are. What worked and at what price will be up for the experts to evaluate once this crisis is over. It is a balancing act between following scientific advice and weighing the economic costs.

The UK and Greece were the latest to join in yesterday, with all non-essential shops closed and strict rules of household confinement. The Netherlands have their version of selected lock-down, still allowing meetings of three and shops to stay open if they allow for a distance of 1.5m between customers. The Netherlands has imposed a total lock-down only on families where one member has the virus.

Greece followed with rules similar to the French and British. People are not allowed to leave their homes other than for medicine, basic food, or exercising with a pet or one member of the household. The French yesterday tightened the rules for outdoor activities, allowing only one-hour walks within 1km of the home. They also ordered the closure of food markets where social distancing is not possible. 

For all countries the aim is to lengthen the period over which the virus spreads so that health systems can cope. In Greece an additional concern is raised by the 118,000 asylum seekers waiting in camps on the Aegean islands and on the mainland. Poor hygiene conditions in these camps would help the virus to spread easily. Confinement measures have been in place at the camps since last week.

How long will these lock-down measures last? This is a moving target. France and Spain initially ordered strict confinement until end of March but they are now likely to prolong until mid-April. The UK ordered an initial term of three weeks. The length and severity of the measures will determine the costs to the economy and the state. In France the budget committee of the senate is already predicting a public deficit of 6.3% this year under the current set of measures. Each week costs the French unemployment insurer €2-2.5bn for partial unemployment measures alone. Some companies are restarting production, albeit at a reduced pace. Airbus started partial production yesterday after a temporary shutdown to deep-clean its factories and adjust working practices to the need for greater distance between staff members.

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March 24, 2020

EU accession talks to start for Albania and Northern Macedonia

Despite the Covid-19 pandemic taking over as the overarching theme and priority in politics and public life, business as usual continues in the background. Today foreign and Europe ministers will meet by video to sign off on a compromise deal on EU enlargement that has overcome French-led resistance, writes the FT. This is five months after the first attempt to open accession talks with Western Balkan countries was vetoed by Emmanuel Macron. 

Last year France blocked the start of accession talks with Albania and Northern Macedonia on the grounds that the enlargement process needed to be overhauled first. The compromise to be adopted today takes on board what the French suggested in their earlier non-paper, including reversibility of the process. Today's compromise also includes extended conditions for Albania on electoral and judicial reform, action against corruption, amending its media law and taking tougher action against irregular migration. 

Northern Macedonia was particularly hard-hit by the French veto last October. Prime minister Zoran Zaev had just solved the long-standing name issue with Greece despite fierce resistance at home. After the veto Zaev resigned and called new elections, as his government had pledged progress towards EU membership in exchange for public support for the unpopular name change. These new elections, originally scheduled for April 12, have been postponed indefinitely because of the Covid-19 pandemic. 

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March 24, 2020

Return of the German professors

We have been waiting for the German professors to wag their fingers, or to threaten legal action against the ECB or national governments. But so far it has been mostly quiet on that front. This morning, however, we saw an article by Otmar Issing in FAZ, in which he argues that emergency was no excuse for law-breaking. He accuses the ECB of monetary financing and says that a mutualised eurobond is illegal unless formally accepted by national parliaments. As an addendum from us: in Germany the hurdle may be much higher. The German constitutional court has ruled that a political and fiscal union requires that Germans holds a referendum to abolish national sovereignty and formally transfer sovereignty to the EU. They obviously didn’t put up such a high hurdle in the hopes that somebody would jump over it.

Issing’s comment is likely to matter not only only because of his former role at the ECB. He carries enormous weight among German conservatives. 

Issing argues that, if countries had followed the EU fiscal rules and built up fiscal surpluses in good times, they would not be in the position to needed a bail-out now. It is not the role of the ECB to prevent a collapse of national public finances. And Art 125 TFEU, the no-bail out clause, is still there. It says the union must not take over the liabilities of member states, and that member states must not take over one another's liabilities. Even as advocates of a mutualised eurobond ourselves, we must acknowledge that there is no firm legal basis for it under EU law. 

Issing’s article is likely the beginning of a legal discussion about the future course of policy. We saw it during the euro crisis. The legal fall-out from that period is still not over. The German constitutional court has yet to rule on the legality of QE. We expect the next phase of legal arguments to arise before the old one has come to an end.

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