1 May 2020, NIICE Commentary 4418
Shreya Sinha
With the exponential spread of the disease caused by Coronavirus, the World Health Organization (WHO) declared COVID-19 as a pandemic. Although the outbreak has somewhat stabilised in China and South Korea, there has been a sudden spread of the disease across Europe, which has now become the new epicentre of the pandemic. After the initial description in Wuhan and China, Italy and Spain were hit first in Europe, and the impact has been immense. The virus spread so rapidly that 2 weeks from the first cases were diagnosed, 1000 patients tested positive. The region of Lombardy in Italy was the most profoundly affected, and the local institutions were forced to reset the entire healthcare system to brace the challenges, while the Italian government ordered a nationwide lockdown. Other nations followed – for example, Spain declared a state of emergency in mid-March and announced similar lockdown and healthcare measures to be taken.
According to the German Chancellor Angela Merkel, 70 percent of the German population is likely to be infected as the pandemic progresses. British Prime Minister Boris Johnson said that this is the “worst public health crisis for a generation” and “many more families are going to lose loved ones before their time”. COVID-19 continues to spread across Europe with Italy leading in the number of confirmed cases after China. The European Union has identified four priorities: limiting the spread of the virus, provision of medical equipment, promotion of research, and dealing with the socioeconomic consequences. The importance of strengthening solidarity, cooperation, and exchange of information between member states has also been reiterated.
The COVID-19 pandemic, though a public health emergency, is now also beginning to take its toll on the real economy – primarily because the lockdown measures that were taken to protect lives have severe consequences for businesses and their employees. With economic activity in many sectors reaching a standstill, many businesses are struggling to uphold their financial obligations. And with uncertainty looming at large, many companies are considering adjustments in their workforce. This could potentially put millions of jobs at risk, through reductions in working hours or pay, temporary furloughs, or permanent layoffs.
The European Commission estimates the economic impact of the Coronavirus outbreak could be greater than what was caused by the global financial crisis of 2008. In order to keep the economy running, the EU executively introduced flexibility for funds and national expenditure, while the member states have approved a safety net of liquidity for countries, workers and companies. In Europe’s major economies, non-essential services closed by the government account for about one-third of outputs, which would consequently mean that each month as these sectors remain closed, it will translate into a 3 percent drop in their annual GDP. Based on occupation-level data, various surveys estimate that the COVID-19 crisis could leave up to 59 million jobs at risk in Europe, which is a staggering 26 percent of the total employment in the 27-member countries of the European Union (EU-27), plus the United Kingdom (EU-28).
All countries in Europe will need to respond aggressively to the crisis, in a manner that is both bold and commensurate to the scale of the pandemic. The member states must act to utilise the available buffers. Policymakers in the advanced economies have made good use of their policy spaces and institutions, putting in place large monetary and fiscal expansions to blunt the impact of the crisis. Fiscal rules and limits are rightly being suspended to enable large-scale emergency support, and fiscal deficits are being allowed to surge.
Similarly, central banks have launched massive programs for asset purchases, and financial regulators have eased requirements to allow banks to continue to support customers in distress, thus helping the economy as a whole. In the Euro currency area, the large-scale interventions by the European Central Bank, and the European leaders’ calls for the European Stability Mechanism (ESM) to provide support to national fiscal efforts, are particularly critical in ensuring that countries with high public debt will have the fiscal space they need to react forcefully to the crisis.
Since all European countries are affected, French President Emmanuel Macron suggests it needs a ‘European response’, which would require the European borders to be closed. The EU believes that a global crisis of this nature requires cooperation rather than unilateral actions. The European approach focusses on the need to act collectively in coordination by protecting vulnerable citizens and slow down the spread of the Virus.
Despite high level political commitment from the EU, the ongoing spread of COVID-19 exposes various challenges to developing a comprehensive European response to the infectious disease outbreak, and other future outbreaks. Member states often choose to act autonomously in their health system operations and tend to prioritise their national interests, even if it means undermining solidarity with other members of the supranational structure. For instance, France, Germany, and the Czech Republic have introduced limits on exports of protective medical equipment such as face masks, despite severe shortages elsewhere. This recalls a similar self-interest evident during the H1N1 influenza pandemic in 2009, when several member states stockpiled vaccines and antivirals, refusing to share them with other countries. Since pathogens do not respect national frontiers, the EU faces a major problem in tackling such serious cross border health threats.
The need of the hour is a more cohesive pan-European response to COVID-19, requiring the UK government to abandon its ideological hostility towards the EU. This action should include a better coordination of efforts to acquire and distribute personal protective equipment (PPEs), medicines and vaccines to countries most in need, and should attempt to remove the legal obstacles concerning the sharing of data among member states. It would also include encouraging wealthier countries with strong health systems to support those countries that are struggling in order to limit spread across their own borders. Perhaps the European solidarity, and the proactive engagements among members countries, can set an example for international cooperation everywhere in the world.
