This Is What European Disintegration Looks Like

The European Council decided during a summit organized to address the COVID-19 crisis on 23 April to confirm a European Commission program to support national insurance systems. They also approved a program by the European Investment Bank to support lending to small and medium-sized enterprises, and another by the European Stability Mechanism to make loans available to national governments to pay for health care expenses related to the pandemic. Finally, the Council asked the Commission to set out a roadmap for the creation of a ‘recovery fund, which is needed and urgent’. Supporters of the decision hailed it as an unprecedented leap toward a Europe of solidarity; critics decried it as vague and insignificant. They are both wrong and right at the same time.


Everyone wins and loses

The mistake is to believe that European integration – or any integration, for that matter – is either yes or no, forward or backward, progress or regress. Integration and disintegration both take place at the same time. That explains how you can tie the British economy ever more tightly into European supply chains, or British universities every more closely into wider European research networks, and yet leave many British people feeling left behind.

You do not deny the merits of the European project by admitting that fact, any more than you deny the virtues of free trade by acknowledging that trade liberalization imposes costs as well as benefits. On the contrary, it is dangerous to insist that integration and disintegration are somehow mutually exclusive and therefore dichotomous. Focusing too much attention on the success of integration without considering what else may be happening at the same time only leads to unpleasant surprises.

So, when we consider the decisions reached at the European Council on 23 April, the issue is not whether the glass is half full or half empty. Everyone can see that it is half. The important question is what is lurking on the empty side. That is where the forces for disintegration are most likely to reside. And it does not take much effort to see they are significant.


Watch out for economic divergence

Start with the most obvious indicator, which is the cost of borrowing. At the moment, Italian ten-year government bonds yield approximately 230 basis points (or 2.3 percentage points) more than German ten-year bonds. The Italian bonds also have a lower Standard & Poor’s credit rating (BBB) than their German counterparts (AAA). The implication is that Italian banks and firms face higher borrowing costs than German banks and firms face. Moreover, the gap between the two countries is gradually widening, despitedramatic efforts by the European Central Bank to bring their respective borrowing costs back together.

A loan-based stabilization program like the one provided by the European Commission to backstop national unemployment systems or the one provided by the European Investment Bank to support small and medium-sized enterprises can alleviate some of the relative pressure in the very short term, but it cannot reshape the financial context. Neither can an emergency loan to national governments in support of financing for health care from the European Stability Mechanism.

Such instruments release some of the pressure that could make matters worse. But the fact remains that it will be harder for Italian firms to survive the shutdown than it will be for their German counterparts, just as it will be more expensive for Italian firms to finance their eventual recovery. Economic conditions across the two countries will diverge, and the two economies will work less closely together, as a consequence of these financial differences.

Meanwhile, any efforts by the Italian state to rebalance its fiscal position to make Italian government finances look more like those in Germany will only exacerbate the divergence. There may be strong arguments for why these actions are necessary and explaining how Italians should pull themselves up by their own bootstraps, but those arguments do not change the fact that this is what disintegration looks like – particularly when viewed from Italy.


Look for divergence in perceptions as well

Another, more subtle indicator is time. The conventional practice is to separate the last crisis into two separate events, a financial crisis that runs from 2007 to 2009 and a sovereign debt crisis that runs from 2010 to 2015. The Northern European countries were hit hard by the financial crisis, while the Southern European countries largely escaped significant damage. The sovereign debt crisis was predominantly Southern rather than Northern.

This periodization is useful insofar as it reflects different theories about responsibility. The financial crisis came from the United States to Europe; the sovereign debt crisis was distinctly European. But the periodization is unhelpful insofar as such theories distract attention away from fundamental questions about timing.

If we treat the period from 2007 to 2015 as a single event, the point to note is that the Northern European countries have had longer to rebuild from the last crisis than their Southern counterparts. This time around, the Southern European countries are at the leading edge. The initial shockwave is just as confusing and unfamiliar as it was at the start of the last crisis. Similarly, the need to craft some kind of effective response is just as urgent as it was when large banks were collapsing across Northern Europe.

The difference is that the sense of urgency is not shared in the same way it was when Lehman Brothers collapsed. Those countries least affected by this crisis feel better prepared and so more cautious about moving quickly. The longer the process of crafting a response drags on, the more those countries that emerged late from the last crisis and fell early into the current one, express a sense of desperation. It is small wonder, therefore, that Italian prime minister Giuseppe Conte insisted on inserting the phrase ‘needed and urgent’ into the Conclusions of the Presidency of the European Council.

Italy and Spain can hardly wait until the start of June to receive initial assistance or for 2021 to begin funding their economic recovery. They do not have those reserves and neither do the small firms that provide most of the employment in both countries. Of course, there are good reasons to take time in crafting well-institutionalized responses. Integration is a deliberate process. But time is not perceived in the same way across countries. For those with smaller buffers to draw upon, deliberation looks more like foot-dragging. Again, from the Italian standpoint, this looks more like disintegration than integration.


Solidarity is an attitude, not a gift

Perhaps the most subtle indicators lie in patience and understanding. These indicators are hard to measure, although there is excellent work done both by scholars of public opinion polling (like Sara Hobolt and Catherine De Vries) and those who focus more closely on narrative framing in public discourse and popular media (like Matthias Matthijs and Kathleen McNamara).

Perhaps the best way to approach this more subtle area is to ask whether any of Europe’s leaders – or any European population – is as satisfied with what other leaders have brought to the latest agreement as they are with their own contribution. If they are not, it is worth asking how much they regard their own contribution as a concession to the group more than as a solution to the problem. Most important, they should ask themselves how much they believe ‘the’ problem is really ‘their’ problem. Real solidarity – as opposed to declarations of solidarity – lies in the difference those two letters (ir) make.

Europe’s heads of state or government have agreed on a series of short-term measures and they have agreed to look more closely at how to finance their recovery from the current crisis. These are important accomplishments. They may even push forward European integration as a project. But Europe’s leaders should be under no illusion that they have addressed those important differences that will widen divisions across member states or even that they are moving ahead at a pace that matches every member state’s requirements.

At this stage it is essential that Europe’s leaders should ask themselves whether what they have accomplished is more important than what they have left unaddressed. Integration on its own is not enough. It is possible to strengthen European institutions and lose both the coherence of the internal market and the support of Europe’s national populations at the same time. Disintegration is not always easy to see in the words of summit declarations or presidency conclusions but being out of sight does not make it any less worthy of attention.

This piece was originally published on the Survival editors’ blog at the IISS. For the edited version, go here.


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