The European Union is fundamentally failing to manage the coronavirus crisis. Much of the continent remains locked down, member states are furious at the European Commission and 2021 looks set to be as difficult as 2020 across much of the Eurozone. The southern EU member states also risk losing the crucial summer season while the continent as a whole will now likely not see a return to any sense of “normalcy” until 2022.

Off to a Poor Start

From the very beginning of this crisis, it was abundantly clear that the only way out of it would be through the effective distribution of vaccines. This required moving fast and working with private-sector companies and experienced businesspeople. But the European Union quickly fell behind other major powers, including both the United Kingdom and United States.

By the first week of February, these failures had become visible to the wider world. While Israel had delivered 59 doses for every 100 people, “Brexit Britain” had delivered 15 doses and the United States 10. But the European Union had delivered less than 3. It is now widely accepted across the EU that this has been a colossal failure.

The Failures of the EU Commission

These failures reflect internal failures within the European Union or, more specifically, the European Commission.

Rather than employing an experienced businessperson to oversee the vaccine deals with the pharmaceutical companies, as Brexit Britain did, the EU employed trade negotiators. This led them to focus overwhelmingly on the price of vaccines rather than the question of when the vaccines would be delivered. When it became apparent that the pharmaceutical companies were distributing vaccines to other states that had moved more quickly, Ursula von der Leyen sought to blame the pharmaceutical companies rather than the poor decision-making process inside the European Union.

This dispute then escalated and, along the way, exposed the failings of the Commission. In a bizarre overreaction, the European Commission briefly considered triggering emergency provisions in the Brexit deal that would have established a border between the Republic of Ireland and Northern Ireland so as to block the export of vaccines to the United Kingdom. While the European Commission later backtracked from this decision, serious political damage had already been inflicted on the organization, undermining its global reputation.

Remarkably, the dispute then continued with both Ursula von der Leyen and Emmanuel Macron openly questioning whether the UK vaccines were effective. Ironically, the people who warn the loudest about “post-truth” politics and “fake news” were now encouraging people to distrust the vaccines that were saving their lives. Research from the University of Oxford quickly undermined the claims of both von der Leyen and Macron.

One of the EU’s Worst Moments

This was an incredibly low moment for both the European Commission and the European Union, and one that has pulled back the curtain on deeper problems at the heart of the project. In a “normal” democracy, von der Leyen would have been held to account by an elected leader of the opposition and would be fully accountable to the people below. But in the European Union, where the President of the European Commission is nominated rather than democratically elected, no such mechanisms are possible.

For the British, the crisis is a powerful reminder of why they voted for Brexit. When the country first joined the European Community in 1975, the people’s main reason for joining had been economic pragmatism – the belief that European integration worked. But today that is a much harder argument to make.

Growing Division Between Member States

Over the past twenty years, northern Eurozone states like Germany and the Netherlands have moved increasingly ahead of the southern states. Living standards, wages and growth have stagnated in the south, particularly for lower-income voters. And while the European Union recently committed to a €750 billion recovery fund, representing around 4 per cent of GDP, almost every expert knows that with much of the continent still in lockdown and the vaccines being poorly managed, this will simply not be anywhere near enough money.

If anything, the crisis looks set to pour gasoline on the existing inequalities at the heart of the Eurozone and in time that will have political effects.

For the Brexit voters, this confirms their belief that the EU expanded beyond its means, is insufficiently democratically accountable and lacks both the political and fiscal powers that would otherwise be required to resolve these big crises. Coronavirus has underlined this view – indeed, in the midst of the pandemic only 30 per cent of British people said they had a “favorable” view of the EU. Before coronavirus, some people wondered if the British would change their minds and try and rejoin the EU. Nobody is saying that anymore.

COVID-19 is the EU’s Third Crisis in a Row to be Poorly Managed

Coronavirus is the third crisis in a row that has been poorly managed by the EU, after the sovereign debt crisis that followed the Great Recession and the refugee crisis which erupted in 2014, and which has still not really been resolved. Nor have the lingering ‘rule of law’ issues between east and west -with the governments in Poland and Hungary stronger than ever. And if you look beneath the surface then you will find widespread public distrust in major EU institutions. For example, according to the latest Eurobarometer data only 38 percent of Italians trust the European Parliament (compared to 55 percent of Germans).

The beneficiaries of this will be the populist parties, which remain a visible force in many EU member states. While there is no doubt that some populists have struggled during this crisis, others like the Party for Freedom in the Netherlands or Brothers of Italy seem to be doing better in the polls. Already in 2021, we have seen the Chega movement in Portugal poll well at presidential elections while a recent poll on the forthcoming presidential election in France next year puts Marine Le Pen on 48 percent against Macron at 52 percent – the highest level of support on record for Le Pen. The more recent arrival of Prime Minister Draghi in Italy will also likely encourage a backlash among voters in Italy who want democracy not technocracy. Just as there was a backlash to Mario Monti, which paved the way for Five Star, there will likely be a backlash to Draghi. Amid the latest crisis to have rocked Europe, it is already not hard to see the seeds that will blossom into the next wave of political revolts against Brussels.

L'articolo The European Union is Fundamentally Failing to Manage the Coronavirus Crisis proviene da InsideOver.

The European Union and the United States are seeking to impose new sanctions on Turkey. Ankara has been behaving like an adversary and not an ally of the West and now it will feel the consequences.

Why are the EU and US Sanctioning Turkey?

At the EU summit, the Europeans decided to seek sanctions against Turkey due to Turkey’s ongoing illegal oil and gas drilling off the coast of Cyprus and Greece. For the US, meanwhile, Erdogan’s anti-Western conduct has gotten out of hand and led them to pursue sanctions.

The US government meanwhile, wants to impose individual sanctions against Ankara before President-elect Joe Biden’s inauguration and due to the fact that Turkey put its Russian-built S-400 air defense system into operation despite vehement warnings from Washington not to do so.

The US and Europe rely on both individual and targeted sanctions. The EU, for example, is considering punitive measures against Turkish companies involved in the gas drilling, and also against their ships. They could also hit individuals involved in illegal test drilling and include entry bans and property freezes. However, so far, this is only a declaration of intent. Details are to be set out by March in a report from the EU’s foreign representative.

American Sanctions Will Soon Hit Turkey’s Defense Industry Secretariat

Meanwhile, American measures are much more imminent. These will be directed against the Defense Industry Secretariat, which reports directly to the Turkish President, and its chairman Ismail Demir.

After the planned US sanctions became known, the Turkish lira promptly slipped on the stock exchanges. However, both Europeans and Americans remain reluctant to make Erdogan himself a target for sanctions for the time being. US President Donald Trump, like the EU, held back for a long time. However, the Americans had warned Turkey against purchasing the Russian S-400 defense system for years because it could offer Moscow important insights into NATO technology and how to cripple its fighting forces and jet fighters.

Ankara Keeps Crossing Red Lines

Turkey acquired the system last year nonetheless with the result being that the US removed Turkey from the list of countries that are allowed to purchase the modern F-35 stealth bomber from Washington. In October, Ankara crossed another line when they put the S-400 system into operation. This seems to have upset the long-suffering Trump administration in such a way that it wants to react with sanctions.

“We are concerned about Turkey’s behavior,” said the American ambassador to NATO, Kay Bailey Hutchison, before meeting the NATO foreign ministers the previous week. “The idea of ​​setting up an air defense system made in Russia in the middle of our alliance is beyond acceptable limits.”

One sees it similarly in the EU. “Unfortunately, Turkey resorted to unilateral actions and provocations and escalated its rhetoric against the EU, against EU member states and European leaders,” said the summit’s final communique. “Turkish unilateral and provocative activities in the eastern Mediterranean continue, including in the special economic zone of Cyprus.”

Turkey Reacts Angrily to Sanctions Announcements

Turkey reacted with sharp opposition to the sanctions announcements and threatened that they would jeopardize US and European relations with Turkey. The punitive measures are also an expression of growing frustrations among Europeans and the US with the Erdogan regime. It has not only become more and more repressive and undemocratic over the years.

While Turkey remains a NATO member and closely linked to the EU, Erdogan has been spreading anti-Western propaganda for many years and boosted Islamist sentiments and policies throughout Turkey. He often acts more as an antagonist than the West’s friend on crucial geostrategic issues such as Syria.

NATO’s Difficult Balancing Act With Turkey

The West has been practicing a tricky balancing act. Europe still needs Erdogan to curb the flow of refugees towards Europe. Simultaneously, the European community does not want to watch as Turkey destabilizes the Mediterranean area, from Greece and Cyprus to Libya, according to a neo-Ottoman agenda.

The same applies to America. There is a non-partisan consensus in Washington that Erdogan must be put in his place. However, due to Turkey’s geostrategically important location on the Bosphorus between Asia, Europe and the Middle East, Washington wants to prevent Turkey from being driven out of NATO and into the Kremlin’s arms.

Erdogan has so far played cleverly with this ambivalence that arises from Turkey’s strategic importance for Europe and NATO, however he has increasingly strained Western partners’ patience. His shenanigans and cynical calculations have now reached the limits of his partners’ patience.

L'articolo Enough is Enough: US and EU to Impose Sanctions on Turkey proviene da InsideOver.

Ever since Washington’s war on terror, drones have become increasingly important in modern warfare. Powerful actors are investing in drone technology and using it on the battlefield.

Europe, however, has a lot of ground to make up.

Turkey’s Growing Drone Power

More and more modern weapons are used in the conflict zones surrounding Europe. Turkey, in particular, has made giant leaps in offensive and defensive drone technology.

Ankara’s surging drone power was seen recently in Nagorno-Karabakh, during Azerbaijan’s war against Armenia. Azerbaijan benefited enormously from its strategic military partnership with Turkey. Armenian armed forces in Nagorno-Karabakh were suppressed in their trenches by the enemy’s superior drone technology and were forced to depend on classic approaches such as tank warfare. Armenian tanks were easy targets, and, accordingly, 185 were lost.

In addition, multi-purpose aircraft from Soviet production were converted to fly over Armenian positions at low altitude by remote control. Their positional data was registered by other drones at a higher altitude and switched off Armenian air defenses.

Drone Dominance Let Azerbaijan Outpace and Outgun Armenia

With their outdated anti-aircraft systems, the Armenian armed forces were unable to detect the drones and shoot them down. Azerbaijani armed forces thus cut off Armenian reserves from the battlefield, while they were able to keep their losses low even without direct contact with the enemy.

While the Armenians could not increase their forces, the numerically superior Azerbaijanis could always determine the fighting time and place.

Exhaustion and especially kamikaze drones had a demoralizing effect on the Armenians. Nagorno-Karabakh President Araik Harutjunjan said shortly after the fighting ended that some volunteer fighters and reservists had fled the fighting area, while various Armenian special forces soldiers refused to fight at the front.

Russia’s Development of Drone Warfare

As the protective power linked to Armenia, Russia eventually intervened on the side of its ally. Russian drones were used for reconnaissance purposes for Armenian artillery systems and by Krasukha-4 jamming systems to shoot down enemy drones from Azerbaijan.

Russia’s armed forces have ample experience of drone attacks at the Hamaimim airbase in Syria, as swarms of armed drones have attacked them there in the past. In fact, Russia is currently presumably superior to the Turks in the field of electronic warfare.

However, in Armenia and Syria, Russia only protects its own troops and bases with its own air defense systems and jammers, while its allies have to be content with inferior export versions of the systems.

Europe Lags Far Behind in Drone Combat Readiness

Meanwhile, European states would be highly vulnerable and struggle against these aforementioned technologies. For instance, the air defense systems of Poland or France’s armed forces are only designed to resist aircraft assault. Small attack drones would easily slip through the surveillance systems and overcome current defensive measures in massive number. Electronic disruptive measures could also blind the defensive systems.

Air defense and electronic warfare have even been phased out in many European countries in recent years. In many places, there are hardly any mechanisms at all to disrupt military communication and objects in flight.

Europe Isn’t Ready to Fight – Especially in Electronic Warfare

Smaller European armies are even lacking core capabilities such as anti-tank weapons and artillery. For instance, Germany’s Bundeswehr has only a few very short-range drone jammers and anti-aircraft cannons with programmable ammunition and it cannot protect mobile units due to severely outdated systems.

It is no wonder that many military experts assess European armed forces as almost defenseless against attacks in the immediate area.

For the majority of European countries, it once again appears as if defense equipment continues to be an afterthought, particularly when it comes to modern technology.

Meanwhile, other nations like Turkey are surging ahead. Modern drone technology is also spreading in many conflict areas because drones are useful for arms trafficking. For example, Turkey routinely breaks the UN arms embargo on Libya by escorting freighters to Libyan shores with its warships using drone guidance.

In an environment where more and more actors are actively modernizing their weapons arsenals constantly and innovating in electronic warfare, Europe needs to at least find its way towards parity and defensive readiness.

L'articolo The EU is Behind in the Drone War proviene da InsideOver.

As a lesson from the coronavirus crisis, the EU Commission is calling for a European pandemic plan for future cases. In addition, the Commission is seeking to expand the competencies of the EU health authorities European Center for Disease Prevention and Control (ECDC) and the European Medicines Agency (EMA).

What Does von der Leyen Want?

EU Commission President Ursula von der Leyen wants the European Union to learn from the COVID-19 pandemic and improve its capacity to respond. It is one of the primary reasons she is inclined to form a European health union. Recent vaccine deals with the pharmaceutical companies BioNTech and Pfizer are strong signals of the beginning of this union.

“We must and will deal with cross-border health threats differently,” von der Leyen said Wednesday in Brussels in her announcement of the creation of a “European health union.”

Paradigm Shift for the EU

What was considered largely inconceivable until March 2020 could now mark a paradigm shift. So far, social and health policy legislation has mainly been a matter of the EU’s individual member states. With the pandemic and the weaknesses within the EU it exposed, however, von der Leyen is determined to make changes.

To that end she has already heralded the start of real action with the deal with vaccine manufacturers BioNTech and Pfizer. The EU Commission approved these agreements on Wednesday in a deal for 300 million vaccine doses. Once fully approved, these will be distributed across the EU, and in accordance with population size. Wealthier countries will not have an advantage over economically challenged ones.

How Will EU Member States React to the Vaccine Rollout?

It remains to be seen whether all the member states will regard von der Leyen’s plan favorably. After all her plan means nothing more than the fact that the EU Commission wants to have a say in European national vaccination strategies in the future.

In recent months, the EU vaccination strategy developed by the Commission stipulated that no EU country should buy vaccines unilaterally. Even before the epidemic, it was a rule that no EU country could approve vaccines on its own but only with the approval of the EMA. The EMA does still has to examine the vaccine proposed by BioNTech and Pfizer and approve it.

Moreover, and in line with von der Leyen’s vision, there are already calls for additional funds and influence to be made available for the EMA, as well as for the ECDC.

A New, Stronger Mandate

According to the Commission’s ideas, both EU authorities should receive a new, stronger mandate. The ECDC could then successfully monitor an epidemic across Europe and in real-time. It would also have the authority to send a newly established EU health task force to the centers of an epidemic.

In the future, the EMA would be entitled to monitor the supply of critical drugs across the EU to no longer face supply bottlenecks like that which occurred at the beginning of the COVID-19 pandemic. However, the costs would amount to €600 million over the next seven years, which seems relatively modest in view of the EU’s total investment volume during the pandemic.

Will von der Leyen’s Vision Come True?

Nevertheless, whether von der Leyen’s vision can be implemented or whether national strategies will prevail.

What is already striking, however, is that the EU appears to be united once again. Such a unified scenario as this was non-existent – especially at the beginning of the pandemic – made many within the EU doubt that the solidarity that the EU so likes to pretend exists actually shows up in real crises.

However, while it is quite possible that the EU Commission has found a successful strategy with its vaccine deal, and one must applaud von der Leyen for the willingness to create better preparedness for future pandemics, the willingness of all member states to agree to even more power for Brussels is far from a certainty. In fact, Dutch Prime Minister Mark Rutte already commented on the project by stating that he could not see “any value” in the plan – and he’s not likely to be the last.

L'articolo Von der Leyen’s European Health Union proviene da InsideOver.

Washinton seeks to reimpose sanctions against Iran at all costs. America’s weapon of choice, the snapback option, is opposed by the Europeans. Nevertheless, the White House could have more leverage when it comes down to resolving the matter.

Washington’s Plan

Secretary of State Mike Pompeo followed up on his announcement and recently submitted a complaint to the UN Security Council arguing that Iran failed to meet its obligations under the nuclear deal. Pompeo attempted to trigger the snapback, with which all sanctions against Iran suspended in 2015 would come into force again.

Washington believes that no other nation can stop Iran’s nuclear ambitions. The American government differentiates between the regulations in the Joint Comprehensive Plan of Action, known as the Iran nuclear deal and those in UN Resolution 2231, with which the agreement became part of international law.

The JCPOA’s dispute settlement mechanism calls for phases of dialogue before the UN Security Council gets involved. On the other hand, Resolution 2231 provides every “participant” to the agreement to reinstate the sanctions unilaterally.

Can the US Still Trigger the Snapback Option?

The snapback mechanism sets a legal precedent as it removes a state’s right to veto the Security Council. If a “participant” claims the right to trigger a snapback, only a new Security Council resolution can ensure that the sanctions remain suspended. However, Washington would veto such a resolution.

After the United States existed the deal in 2018 and reinstated its sanctions against Iran, opinions differ as to whether Washington remains a “participant” and can trigger a snapback. Paragraph 10 of Resolution 2231 names the signatories to the 2015 agreement as “participants.” The United States sees itself as such, even after its withdrawal.

Most importantly, paragraph 10 does not contain any provision that this status can change due to future behavior. Thus, it is more probable than not that the United States continues to be a “participant” from a legal point of view. Meanwhile, the Europeans continue to claim that no legal basis for the snackback exists, as, in the eyes of London, Paris, and Berlin, Washington is no longer a “participant.”

Washington also argues that even after withdrawing from the nuclear agreement, they insisted on unreserved compliance with Resolution 2231, which — in contrast to the agreement as a political agreement — is binding under international law. This also applies to the question of how to proceed if Iran fails to meet its obligations. Washington rules out that procedural maneuvers in the Security Council could block the snapback initiation and that the countdown of 30 days could be stopped.

However, the USA failed on Tuesday with its application to resume sanctions via the snapback. With the law arguably being on the US’s side, however, it seems inconceivable that Pompeo will concede to the defeat. The US could now draft its own resolution, which could create even more confusion.

Europe’s Perspective

In Berlin, the actions of the Trump administration continue to be viewed with great concern. During the entire dispute over the nuclear agreement, the Federal Foreign Office has always attached great importance to the fact that the three European participants in Germany, France, and Great Britain, should appear in a coordinated and uniform manner. They are cognizant of the issues the American position, as well as China’s and Russia’s position regarding Iran and understand the challenge this poses.

Therefore, the three Europeans wanted to develop a “smart alternative” and want to put particularly offensive types of weapons under an extended embargo period. Considering Washington has made now made sanctions its sine qua non, the European leaders are convinced that Trump’s administration’s ultimate goal is to bring the nuclear deal to a standstill before the election in America. One can almost be certain that secretly one hopes for an occupancy change at 1600 Pennsylvania Avenue.

The Europeans want a new President in office for good reason.

In the worst case, the ongoing diplomatic dispute could lead to a split in the Security Council over the question of whether the old sanctions against Iran will apply again or not. Most countries could essentially ignore a snapback triggered by a unilateral US approach, which would lead to drastic distortions between Europe and the USA and, most importantly, could establish a precedent with severe consequences for the UN, its members, and international law itself.

L'articolo Why Europe Fears Snapback Sanctions for Iran proviene da InsideOver.

For the first time in its history, the EU has committed itself to joint debts to fund the €750 billion coronavirus aid recovery package. Three hundred ninety billion euros of it will be paid in grants, which is less than suggested by Germany, France and the EU Commission, but arguably still sufficient to merit the label epochal. However, the summit was a struggle and it may have changed the EU’s future.

Transfer Union

The compromise made is a paradigm shift in two ways. The capital that the EU Commission is supposed to acquire on the financial markets is more than ever before. It also marks the begin of the – at the very least – partial transfer union. Partially as, unlike the corona or euro bonds discussed at the beginning of the crisis, individual states are now not liable for everyone’s debts. Liability is instead limited to the share of payments into the EU budget. In addition, only €390 billion of the total amount are to be paid as grants that do not have to be repaid. The remaining €360 billion will be distributed as loans that will be repaid by the recipient states themselves over a period of 38 years.

Two issues arise here. First, a lot can happen in 38 years. If one only took the previous decade, it is fair to assume that new crises are inevitable. It hence seems somewhat inconceivable that the total of these loans will ever be repaid in full by every recipient state. And with a Commission no national government appears to be afraid of, skipping out on the tab is not unrealistic. Second, history has taught one that newly introduced EU measures often set a precedent and hence become part of the repertoire. Joint fiscal responses to a crisis, thus open the door widely for future grants in lieu of loans.

New Self-Confidence From the Frugal Four

Besides the newly introduced fiscal modus operandi, the summit has also sharply increased the self-confidence of certain member states. Austria, the Netherlands, Sweden, Finland and Denmark, the frugal four, have discovered the art of the deal for themselves and indeed their power within the union. The summit has proven that cooperation between them allows for own agendas to be realised – even if these agenda are in opposition to Franco-German plans. The Nordic-Alpine coalition has the potential to change the dynamic in Europe in the long term while putting its fiscal-conservative, liberal and free-trade-oriented stamp on it.

The Rule of Law

Prior to the summit, the EU Commission and many countries in Northern Europe had demanded that money from the EU budget and therefore also from the recovery plan ought to be paid if recipient states uphold the rule of law, a mechanism aimed primarily at Hungary and Poland. However, it was evident that the rule of law was only a second or third priority, even for the northerners. And while the heads of state and government agreed on the rule of law mechanism, it remains almost unenforceable and thus only a symbolic gesture. Sanctions are only possible if a qualified majority of the EU member states agree, which, at this stage, seems inconceivable. Moreover, even if a majority to enforce the mechanism was found, depriving Hungary and Poland of funds may violate EU law. The summit compromise hence hampered every opportunity to force Hungary’s Viktor Orbán and Poland’s Jarosław Kaczynski to adhere to the fundamental European values. The corona package thus comes with a hefty price tag: the failure of the rule of law in Europe’s prestige project.

The Future of the EU

However, it is not only the rule of law that will suffer. To finance the aid package, the EU budget for the next seven years will be far less future-oriented than the Commission would have preferred: Investments in science, cybersecurity or health have been scratched. These cuts can conceivably have very negative long-term consequences for Europe if the money is only sufficient for the traditional areas of agriculture and structural policy.

All in all, the compromise was necessary for Europe’s stability and subsequent recovery. However, the way it has been facilitated raises several new questions particularly in regard to future crises. With a transfer union in the making, any new crisis has now become an opportunity for division — particularly if member states start failing to repay their debts. It is thus a compromise that raises more questions with regard to the EU’s future than it provides answers.

L'articolo Lessons From the EU Summit proviene da InsideOver.

So far, the EU summit in Brussels has not made any progress. Austria and the Netherlands continue to oppose the current COVID-19 aid proposal worth 750 billion. Particularly Austria’s Chancellor Kurz is not inclined to transform the European Union into a transfer union – and rightfully so.

Real Disagreements Won’t Disappear Easily

The gap between the member states in the question of how the funds ought to be paid and whether stipulation ought to be attached to them remains substantial. Netherland’s Prime Minister Rutte and Austria’s Chancellor Kurz have proven to be hardliners, who are prepared to accept the failure of the plans rather than succumbing to a plan that, could turn out to become rather expensive of the member states.

That plan envisages that the total amount of Corona aid of € 750 billion will be taken up as joint debts of the member states by the EU Commission in the financial markets. The money will be paid to EU countries hit particularly hard by the pandemic, especially in southern Europe. Only € 250 billion are to be granted as loans that would have to be repaid by the recipients.

What Does Rutte Want?

Rutte rightfully seeks to tie the funds to the implementation of reforms. Moreover, he has advocated for a mechanism that requires a unanimous decision of the EU countries for any payment. Southern states such as Italy and Spain categorically reject the latter.

From an economic point of view, there is a strong argument for the package on the table. It would be a sign of European solidarity and nobility. However, the current circumstances are unique. One currently cannot predict the economic impact of the pandemic on the individual countries. Nevertheless, first indications have been witnessed on the labour market. With unemployment rising across the continent, governments have to find answers for people, answers that will not be cheap. Balanced budgets and reserves will thus be essential.

At the same time, the current situation shows one of the biggest fiscal problems in the European Union. While it has a common monetary policy, it does not possess a transfer system to support countries that are victims of an isolated event, such as COVID-19. Although the latter is a pandemic, it has had different effects on the individual states to date. For example, while Germany has been able to weather the crisis well so far, the Italian and Spanish economies are suffering severely.

The Austrian and Dutch Perspectives

For Austria and the Netherlands, payments are only fair if the European Commission monitors the quality of the respective proposals and only distributes the money if a country adheres to its commitments. However, this cannot be achieved under the current rules. In addition, and the Netherlands and Austria have this in mind, a country could not meet its requirements and still receive further financial injections later – based on the principle of solidarity. Their caution is hence justifiable, particularly as some countries are apparently inclined to utilize corona payments to balance budgets that had been handled inaptly for years prior to the COVID-19 occurrence.

It is not merely a question of whether or not the EU transforms into a transfer union. The latter de facto – albeit in infinitesimal form – is already in existence as transfer mechanisms are part of the current EU budget, i.e. in the EU’s structural funds. The issue is thus, to what extent the EU is willing to solidify the principle of joint debts amongst the member states.

Given the investment, the EU is about to make, certainty regarding subsequent use of the funds is a necessity. Corona payments must not be spent on a country’s crumbling structures. Governments that have not demonstrated a proclivity to balance their budgets should not receive funds without stipulations and enforceable guarantees. And thus Rutte and Kurz comprehend, perhaps better than any other European leader, that solidarity needs to work both ways.

L'articolo Rutte and Kurz Versus the Transfer Union proviene da InsideOver.

The EU has already pledged itself to a €540 billion bailout to rescue the eurozone from the economic effects of the coronavirus, but the President of the European Commission (EC) Ursula von der Leyen, announced on Wednesday that she will pledge an extra €500 billion on top of the sum the bloc is already willing to spend. Altogether, that means Brussels is spending €1 trillion to aid the eurozone’s recovery.

On top of killing 172,000 people across Europe so far, the coronavirus has brought the continent’s economy to a grinding halt, with businesses gradually reopening and tight controls being imposed on borders that were once wide open for trade and travel.

France and Germany Support von der Leyen

The EC President intends to help the countries most affected by the pandemic such as Italy and Spain, and she already has the support of France and Germany. The latter countries announced their own joint initiative last week to raise €500 billion on financial markets to begin fixing the eurozone’s problems.

But von der Leyen’s proposal on Wednesday is likely to encounter some obstacles. COVID-19 has also revealed the EU’s inability to agree upon appropriate fiscal measures to lift the bloc’s economy out of a recession. There is an argument over whether the EU’s funds should be loans or grants. The “frugal four,” which consists of Austria, Denmark, Sweden and the Netherlands, are against joint debt in the form of coronabonds and favor loans. Italy and Spain have suggested that loans would not be sufficient to help them recover from the economic effects of the virus.

Coronavirus Has Exposed the EU’s Deep Divisions

The reason why the frugal four oppose grants is because they would require net contributors who pay into the EU’s budget to fill the financial black hole caused by the UK’s exit from the bloc. Before Brexit, Britain was Brussels’ biggest contributor. On the other hand, funding the continent’s recovery through loans would result in nations like Italy being saddled with more debt.

Mujtaba Rahman, Managing Director for Europe at the consultancy Eurasia Group, told CNN that without German opposition, the frugal four will struggle to convince enough member states to block the EU’s recovery fund. This will make it slightly easier for von der Leyen’s plan to be approved.

Nevertheless, that does not mean Germany will be footing the entire bill. The German Government has not agreed to provide the capital guarantees to procure relief funds before 2021.

An Agreement Won’t Come Easy

But time is tight and because the EU consists of many layers. This makes it harder for the bloc to come to a decision sooner. The European Council, which brings the EU’s leaders together twice a year to make important decisions, is meeting in June or July and they will need to negotiate a final deal then. The European Parliament would then need to provide an affirming vote in early September.

The political consequences of failing to reach an agreement would be substantial. The markets would panic and the EU’s credibility would be in tatters.

Timing is Everything

Even if all the EU’s member states manage to agree what a final stimulus package would look like, the eurozone’s survival depends upon the scale of recovery in the southern European states, particularly Italy. The Daily Express reports on one survey which suggests that 50 percent of Italians support an “Italexit,” or Italy’s exit from the EU, whilst 27 percent of Italians prefer to remain within the bloc. If the Italian economy continues to stagnate, these numbers are only likely to increase.

With Germany’s support, von der Leyen will more than likely win the European Council’s approval for her stimulus in June or July, but she should anticipate that her plans will more than likely be watered down. Like with all the crucial decisions the EU makes, timing is everything, and if the member states fail to agree on anything, Europe’s recession will be deeper than expected.

L'articolo Can von der Leyen Unite the EU Behind Her Coronavirus Stimulus? proviene da InsideOver.

A discussion is currently taking place on the European continent regarding the best way to economically salvage its future. However, these debates are being framed in the wrong way. The matter is as much political as it is economic. The discussions need to include – honestly and in a transparent way – the roots of the macroeconomic malaise that have befallen most European countries in order to understand the way to recovery.

The EU Can’t Defer Core Questions Any Longer

It has been clear that for the past decade that the EU has been unable or unwilling to discuss these hot topics, because then it would have had to make a mea culpa together with its member states. This would mean accepting that for almost a decade they have been at a crossroads: either destroy this Union and reform it to be more in line with what the founding fathers had envisioned, or part ways and return to the pre-WWII Europe. There can be no other way, mostly because all the member states have allowed the Union to fall into decay while pretending things were all right. Some have gotten richer as a result, while others have suffered.

COVID-19 is Forcing Key Issues to be Addressed

If there is one good thing the COVID-19 pandemic has done is bring everything out in the open. The political rivalries, deep divisions, opposite mentalities, bitter resentments that had been hidden for more than two decades, are now seeing the daylight, for everyone to see. Bureaucrats and national politicians have done their best, especially throughout the last few years, to present the image of a Union existing in harmony and cohesion, united and strong. The current emergency is proving this to be a farce. There are deep divisions between the northern European countries, which consider themselves richer and more responsible, and the southern Mediterranean ones that believe to have been mistreated and wronged.

The Reality of EU Divisions and Crises

The truth is that for most of the decade starting in the year 2000, countries like Spain, Italy or Greece increased their debt levels driven by unchecked government spending. Real estate bubbles, unsustainable deficits caused by obscene government expenditures and yes! the Euro caused the southern European countries to be hit hard by the global financial crisis and instigated the sovereign debt crisis. In this aspect, many countries in Northern Europe are right to voice their concerns about allowing these countries to access more debt, and going further by mutualizing it, because even after a decade they have not been able to recover. The management of the southern governments has been inefficient and deadly for their economies. Bad policies ensued even after the 2012 sovereign debt crisis, adding to the debt, but leaving productivity stagnated.

After the crisis, Spain made a remarkable recovery, gaining more than half of the jobs lost during the crisis, reduced its deficit by half and managed to reach 3% growth in the first quarter of 2018, proving that the supply side policies work. Government revenue actually increased due to the tax cuts implemented by the government of Mariano Rajoy. However, during the last couple of years of Rajoy and in the course of the current socialist government this amazing recovery is being threatened by a return to excessive spending, high taxes and more regulations. The same thing that has happened in Italy with unelected governments spending billions of euros in unproductive policies year after year.

The Northern Bloc Has Reasons to be Skeptical, but They’re Also Hypocritical

In this context, countries like Germany or the Netherlands are right to be sceptic of debt mutualisations. Why should a citizen in a country whose government has been sensible with respect to its policies share the risk for a country with bad management history? It is a valid question worth discussing. Why should some countries get a blank check from others?

However, the hypocrisy of the so-called Northern bloc rests in the fact that they and everyone else knew what countries like Italy, Spain and Greece were doing. Yet, they did nothing. It would be naivety to believe Brussels had no knowledge regarding how bad the situation was; still it did not raise any issues with the national management of these states. It is much worse than that. All these richer countries enabled it. They financed the debt and frenetic spending with their investments. When the music stopped, so did the capital.

Under the guise of austerity, they controlled Greece and as the former Italian Prime Minister Massimo D’Alema explained a few years ago, took its money straight to the German Banks. Now, the Union’s better-shaped countries are trying to use Italy’s past and present bad governance and policies as an example that Italy is unable to manage its own money, pushing it towards a similar scenario as Greece. Something similar was tried before when Silvio Berlusconi was Prime Minister, before his ouster not by his citizens through an election, but by European Elites.

More Challenges to Consider

Not all the woes of these Mediterranean nations come from bad governments. We should not forget that barely a month ago, Christine Lagarde’s reckless declaration about the ECB and the spread caused the sharpest ever decline in Italian stock market. Moreover, the concern is that accessing European funds and mechanisms will come with strings attached will actually dampen growth, instead of encouraging it.

Another issue that arises concerns the weight each country in the EU should have in discussions. Why should a country that contributes less have the same vote weight as another that contributes much more? Why the Netherlands’ opinion should matter more policy wise compared to Italy, when Italy’s contribution is many times higher? It is further evidence that the Union does not work in a fair way.

Missing: Smart Economic and Fiscal Policies

Overall, it is now indisputable that after a decade of low growth and high unemployment, national governments and Brussels have been unable to implement the right economic policies. Moreover, the Union is faced with the impossibility of a common fiscal policy.  It relies today, as it has over the past decade, on monetary policy. Yet, even that reliable institution seems to be losing its effectiveness with the departure of Mario Draghi and the simple fact that more liquidity from a stronger quantitative easing will not be enough.

Maybe the Italians are right and the centuries’ old divisions, prejudices and rivalries are the reason why the EU abandoned the Apennine country in its hour of need.

However, leaving bad policies and old resentments aside, Italy is right to require at least the money it has contributed over the years. Nevertheless, the problems Italy or Spain face will not disappear with the sums Brussels may give them, with or without strings attached, because it will depend on how the money is used.

What Needs to be Done Next?

What Europe – through its various member countries needs – is to produce. Its productivity falls considerably behind its international competitors due to rigid labor markets, high taxes, regulations and bureaucracy. For technological innovation as well, it falls behind the US and China. If Europe continues down the path it is on, it will soon be a zombified continent. Merely spending money from the government is not only inefficient, but also problematic. If the supply curve is not pushed up, the unproductive policies will lead the new lower demand to create its own lower supply. That is why European countries have had a long deteriorating recovery.

In the US, the Obama administration left the economy growing at 1% using the same policies as Europe. The supply side reforms aimed at increasing productivity pushed the GDP to close to 3%, by lowering taxes and removing regulations that were killing the small and middle enterprises. Greece is trying to focus on the supply side with the economic reforms introduced by the new center right government. Spain tried it during the past decade successfully and should return to the path it started in 2011 and abruptly stopped in 2016.

Companies in the EU are not incentivized to produce. Labor markets in countries like France and Italy are highly inflexible. Bureaucracy is choking the private sector. France and Italy were already in contraction during the fourth quarter of the last year. The pandemic made all the existent economic hardships more evident.

Italy’s Next Economic Steps

The Italian government and all the others that find themselves in a similar situation should prepare an economic program with considerable tax cuts (even considering a flat tax), reductions in government spending, structural reforms, cutbacks in inefficient government programs and subsidies, focus on small and middle enterprises and drops in regulations and bureaucratic procedures. These will allow the economy and its engine, the private sector, room to breathe. The discussion should not be solely framed around the positive or negative aspects of corona bonds or the European Stability Mechanism. Italy and other national governments should discuss how to use these funds.

The money coming from the European Union should be focused on the backbone of the economy, which are the small and middle enterprises, so they are encouraged to hire more and invest in their businesses. It can be through corona bonds, the funds already made accessible by the EU or even debt in the market at record low rates with other friendly international actors. It is acceptable to increase the debt and deficit when it will be used to finance the resurrection of productivity, because that higher productivity will lead to a decline in debt in the medium and long run. The problem in Europe has been using debt to finance universal income, welfare plans, bad subsidies or government programs that contribute nothing to the economy, leaving aside the ways and means that encourage employment.

The EU’s Incompetence is No Longer in Question

It has been proven especially throughout the past decade that this EU cannot lead. It has driven a once great continent towards economic catastrophe, political incompetence and social divisions. Now, it can step aside and allow national governments to implement sensible and efficient policies capable of saving their economies.

This is the path to go forward and prove Germany, the Netherlands and all the skeptics that through sensible, productive policies the economy can be reawakened, debt can be sustained and even reduced in the middle run. Afterwards, Italy can open the discussion on the future of the EU, if so wishes, but from a position of strength.

I am quite aware that to do this, Italy will need to head towards early elections first. However, if it waits until the next elections then it will be too late. Until the moment comes that the center right can win the elections and implement the supply side policies it has promised, public pressure must increase so that this government is forced to undertake the necessary reforms.  Spain, and every other country, should follow this example as well.

L'articolo European Economic Salvation Won’t Come from Corona Bonds or the ESM proviene da InsideOver.

The coronavirus has taken many governments by surprise and nowhere is that more apparent than in the EU. Brussels’ response to the pandemic has been both chaotic and uncoordinated. This has resulted in the bloc’s 27 member states initiating a request to the European Commission (EC) on March 26 which request that the EU’s executive should draft guidelines that all member states should follow.

The guidelines have been unveiled by EC President Ursula von der Leyen, who warned that a failure to coordinate could eradicate the progress made from the tough measures that have been in place over the past month.

How will the EU determine whether a lockdown can be ended?

Von der Leyen said individual governments must address three crucial questions when assessing whether to end a lockdown:

• Is the pandemic fading?
• Are there enough hospital beds?
• Is large-scale testing in place?

The strategy advises member states to start easing their restrictions gradually. Targeted lockdowns should replace general ones, with only vulnerable citizens such as the elderly made to stay at home.

Until countries have witnessed a peak of COVID-19 cases and hospital capacity is restored, only then can they start lifting their restrictions.

Peaks will be determined by the level of testing individual nations have conducted and it will likely work hand-in-hand with smart phone apps that are capable of contract tracing. The data collected from these apps will be shared across the EU and it will not be blocked at borders.

All 27 EU member states approved of this strategy.

The Problems With the European Commission’s Plan

Yet the EC’s plan faces many problems. In the US, President Donald Trump wants lockdowns to be ended soon to revive the American economy, regardless of whether certain states where the virus has spread the most, like New York, have reached their peak of infections. However, the federal government cannot force states to end their lockdowns unless it deprives state governments of money or sends in the military.

The West Coast Pact and the East Coast Council have been formed to resist Washington’s lockdown instructions.

For the EU’s strategy to work, there would need to be a form of regional coordination like there is in the US. Forbes reports that the EC confirmed that no such strategy exists, but considering cross-border communication is key to ending European lockdowns, they need to have a regional strategy.

Prior to the unveiling of von der Leyen’s plan, many EU nations already adopted their own lockdown exit strategies. In Austria, DIY shops, garden centers and small shops opened on Monday under strict hygiene measures. From May 1, that policy is likely to be extended to shopping malls and hairdressers.

Italy is also preparing to open bookshops, stationers and children’s clothes shops whilst Spain’s factory workers returned to work on Monday.

Meanwhile in Denmark, Danish pupils are preparing to go back to school this month.

French President Emmanuel Macron has warned that his own lockdown measures will remain in place until May 11 and only then will schools and colleges be reopened.

Is the EU Still in Charge of Member States on COVID-19?

Although these countries’ actions are in line with what the EC is proposing, the fact that certain nations were gradually lifting their own lockdown measures before von der Leyen announced her plan on Wednesday shows that different governments had already produced their own exit strategies before the EU created one for them.

With Sweden refusing to implement its own lockdown, this proves that the EU has become irrelevant in the way individual nations continually respond to the pandemic. Therefore, von der Leyen’s strategy will not apply to every single member state.

The EC President may believe that she finally has a plan that can save the EU from COVID-19, but the way certain European governments have acted since this epidemic began suggests that the concept of the nation state is more relevant than ever before, and this will thwart EU unity in the long-term.

L'articolo The Problems with the EU’s COVID-19 Lockdown Exit Strategy proviene da InsideOver.