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Do or Die: There's Only One Way for the EU to Avoid Breakup Amid COVID-19 Recession

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Twelve years after the 2008 global economic crisis the future of the European bloc is in question again as the COVID-19 pandemic has exposed deep internal divisions at a time when a common solution is needed, economic observers say, predicting the potential demise of the EU.

On Thursday, French President Emmanuel Macron warned EU member states that the coronavirus crisis may shatter the pillars of the bloc and bring an end to the no-border Schengen Zone unless the countries in the union demonstrate solidarity.

"What’s at stake is the survival of the European project", Macron told his fellow EU leaders during a conference call on 26 March. "The risk we are facing is the death of Schengen".

'Failure of Basic Principles of EU Integration'

On 17 March, European leaders announced that they had agreed to shut the EU’s external borders down for 30 days in a bid to slow the coronavirus spread. However, 14 of the bloc's 27 members have closed their internal borders either completely or partially thus throwing the EU no-border concept into question.

Likewise, EU member states have failed to reach a compromise on debt-sharing amid the COVID-19-driven economic slowdown. Nine EU countries, namely, Spain, Italy, France, Belgium, Luxembourg, Ireland, Portugal, Greece, and Slovenia are urging the union to issue so-called "corona bonds", i.e. a common debt instrument aimed at raising funds on the market. The so-called "Frugal Four" - Germany, the Netherlands, Austria, and Finland  are resisting the measure.

​Observers are sounding the alarm over the unfolding split within the Eurozone, suggesting that though the 2008 financial crisis fell short of axing the bloc's common currency the coronavirus crisis might end with the breakup of the EU.

Paolo Raffone, a strategic analyst and director of the CIPI Foundation in Brussels, warns that the collapse of the Schengen agreement will have "a tremendous negative impact on citizens’ lives and economic sectors".

The CIPI director feels that the 2008 crisis "has never really ended, but it has structurally created a deep divide between the countries that ought to live in solidarity, cooperation, and growth".

"In fact, it established and enforced the principle of two-classes countries and citizens, the first group dictated the rules and benefited of their implementation, and the second group was subjugated to structural adjustment programmes managed by various technical bodies", Raffone opines. "The current EU management of the coronavirus outbreak, as well as the uncoordinated national responses, follows the usual path of European affairs, but it highlights the absence of solidarity and cooperation in Europe".

According to the strategic analyst, on 26 March, 27 EU member states "practically certified the failure of the basic principles and pillars of the EU integration process".

"Germany, followed by the Netherlands and almost all former eastern bloc states, has decided to take, as the French newspaper 'Liberation' wrote, its 'pound of flesh', that is to say to make Southern Europe pay the debts, Italy in the lead", he underscores.

And this is happening at a time when Italy, one of the most-affected nations in the world in terms of the COVID-19 pandemic, is struggling to stay afloat. Raffone draws attention to the fact that while Germany "produces and has tens of thousands of respiratory fans and the ability to do 360,000 tests on the virus per week", it is not sharing this capacity with other EU nations. "It is the most selfish enduring asymmetry ever!" argues the strategic analyst.

"But above all, as expected, for now Germany aims to allow monetary and financial support to survive only if the recipients get yet again commissioned like in 2008. Hitler in 1943 after the fall of Mussolini wanted to settle the accounts with the 'rabble' of Southern Europe, will Merkel leave the epidemic and debt to do it?" Raffone asks rhetorically, suggesting that the G20 appears to be "the best international body to coordinate and enforce a common health solution as well as to enhance international macro-economic policy coordination".

'Two Separate Blocs Delineating Their Positions'

For his part, Dr Giovanni Di Lieto, lecturer in international business and economics at Monash University in Melbourne, Australia, believes that the European Union is now at the "make it or break it" moment.

"We are seeing two separate blocs delineating their positions, and we see that from the European Counsel yesterday", he stresses. "This huge crisis, which is probably leading to an economic depression like in the 1920s across Europe, is really making things go much faster and really unfolding and exposing fault lines of the European integration. I think the Eurozone is probably at great stake, at great risk. Of course, it's a speculation, but if I had to place a bet, I'd probably bet on the Eurozone to break down, to fall in the medium to short term".

According to Di Lieto it won't happen overnight but cracks between Nordic European countries and their Southern and Mediterranean neighbours have already appeared. He does not rule out that the latter will start to create their own fiscal bonds, fiscal credits.

"This essentially would create a separate currency, parallel currency to the euro, and it's pretty much the first step to having an exit of Italy from euro, the single currency", he foresees.

On the other hand, the gradual breakup of the union may manifest itself in the loss of relevance of European treaties: "So, in the short term we are going to go back to pre-Maastricht trade state in the European region and then probably we won't be talking any more of the European Union", the lecturer alleges.

In the medium-term perspective one may expect an emergence of a French-led bloc across the Mediterranean and Western side of Europe and also a German-led block across Northern Europe with possibly even Nordic countries going their own way, according to the scholar.

"A fair scenario could be that really all individual countries will go on their own, both economically, strategically and eventually also formally, in terms of national boundaries", he says.

However, "the only way to avoid this scenario is really that Germany and the Nordic countries agree to give full solidarity amid Eurobonds which would again be the first significant step to create a federal state in Europe, like United States of Europe", Di Lieto emphasises.

"Now I don't see this happening, to be honest", he adds.

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