Covid-19 will test the resilience of EU: Italian Minister Amendola

The European Union is facing a pivotal moment in its history. “The Coronavirus pandemic will change the way the world interacts and will definitively test the resilience of the 27-nation bloc,” said Vincenzo Amendola, Italian Minister for European Affairs, in an interview with BusinessLine .

“The EU definitively is not facing a battle for survival, rather it is fighting to avoid an internal fragmentation that may result in a Europe that moves forward at different speeds.The EU is the world’s biggest free-trade and the crisis has touched the real economy, not just the financial markets. So, the bet is on the strength of the European Union,” Amendola said.

Lessons for Europe from the crisis

“I remember the EU’s slow reaction to the crisis that followed the Lehman shock in 2008.” “It was slow.”

In October 2010, after the Deauville, France, declaration by then-French President Nicholas Sarkozy and German Chancellor Angela Merkel, which unleashed an attack on sovereign debt, Europe was too slow in reacting. “It took almost two years, until July 2012, before Mario Draghi [then-Chairman of the European Central Bank (ECB)] came out with his now famous ‘Whatever it takes’ speech” that calmed the markets.

“Now it is different. Europe has understood that speed and unity are essential in overcoming the crisis and for the EU to maintain its strength. The European Commission (EC) acted very swiftly suspending the growth Stability Pact allowing member States more flexibility in their budgets and the ECB enacted the PEPP,” Amendola said.

The Pandemic Emergency Purchase Program (PEPP) is a €750-billion asset-purchase program by the ECB to counter the risks to the monetary policy transmission mechanism and the outlook for the Euro area posed by the Covid-19 outbreak.

“What was missing until now was a common fiscal policy. Now after the European Council meeting of April 23, we have taken the first step in this direction.We need to be able to say ‘Whatever it takes’ also at a national level.

What Europe is doing

On top of the above-mentioned measures, the Union is working on other steps to provide financing and liquidity to member states. “Friday’s [May 8] Eurogroup meeting will discuss the operational development of the European Stability Mechanism (EMS) with the aim to make the instrument operational by June 1, as indicated by the European Council following on April 23,” as well as other measures such as the Support to mitigate Unemployment Risks in an Emergency (SURE) program to provide financial assistance to member states to address sudden increases in public expenditure for the preservation of employment and the European Investment Bank (EIB) package to alleviate liquidity and working capital constraints for SMEs and mid-caps.

The recovery fund

“Likely by mid-May, the European Commission will draft a proposal that will be sent to the national governments and will be discussed by end of June.” The Recovery Fund will have its legal basis in the EU 2021-2027 Budget. However, as the Budget will take effect on January 1, 2021, “we are discussing a front load, or a way to use the funds as soon as possible.”

Once the accord is hammered out, “the Recovery Fund will be activated immediately.” “The Fund will not rely only on the Budget, but also on debt instruments issued in the capital markets, and this is very important because it is a path that has never been trodden before but already foreseen in the EU Treaty,” the Minister said.

In late April, Paolo Gentiloni, the EC’s Economy and Financial Affairs Commissioner, said the fund aims to have about €1.5 trillion and should be available by mid-September.

Exit strategy

“The EU is working to implement a common exit strategy which will be of paramount importance to guarantee not only free trade, but also free movement of people.” Italy, and several other countries are introducing, or have already introduced, apps to trace people’s movements to warn users in case they have been in contact with someone diagnosed with Covid-19. “One of the objectives is to coordinate and link the various national apps so that we can guarantee free movement of people and most of all guarantee their safety,” Amendola added. “The next step will be to coordinate at the international level.”

Development of a vaccine

Italy is working on the development of a vaccine against the coronavirus. This is part of a “coordinated effort led by the European Commission which is part of the Global Response” program that has raised more than €7 billion in funds to ensure the joint development and global deployment of diagnostics, treatments and vaccines against coronavirus. “Several countries have given their contribution” in terms of funding and research and “we are looking forward to strengthen the relationship not only in the development of a vaccine, but also in the fields of virology and pharmaceutical cooperation,” Amendola said.

Global power realignment

In the light and magnitude of the recent events, “we have to be ready to spot new trends in the global relationships between world powers. It is very clear that geopolitical value chains will need to be revisited. Some people talk about a de-globalisation in the mid-term” and a realignment of commercial and financial relationships. “Others feel multi-lateralism is the way of the future,” he said.

“Europe needs to affirm, together with its Western allies and in cooperation with its international partners, its sovereignty and independence. We also need to look at regions and countries that may be heavily affected by the current events, such as Africa.”

“Europe’s sovereignty and independence must also come in the form of economic independence by stimulating internal consumption, and promoting a fairer international trade.”

In this context, “this black swan puts the global power balance into discussion. For an interesting turn of the events, Italy and India will chair the G-20 respectively in 2021 and 2022. This will provide an opportunity to both countries within a multilateral forum to lead the effort to rebuild the response capability to events such a pandemic,” or other global crisis.

“This will deepen the relationship between the two countries and will strengthen their leadership capabilities within a multilateral forum.”

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