A new test for solidarity in the EU

Paris Common interests may sustain alliances in peacetime. But an alliance that is to be able to win wars and face crises needs something else: namely the willingness to put one’s own immediate well-being in the background and to make sacrifices. This is called solidarity and it is one of the principles on which the European Union is based.

For a long time, solidarity in Europe was primarily a topic in speeches. But the test came in 2010 when Greece, Ireland and Portugal lost access to the financial markets in the wake of the euro crisis and were forced to ask for financial aid. In the northern part of Europe people were shocked in many ways. Allowing these countries, which had previously flouted the rules of the single currency, to rely on their partners for help would simply be an invitation to flout those rules again. The struggle, with many trials and tribulations, lasted five years and brought some unnecessary economic hardship before ending in 2015 with the decision to keep Greece in the euro area.

This lesson had not been forgotten when Europe was hit by the Covid-19 pandemic shock in 2020. The European Central Bank rushed to launch a dedicated asset purchase program and the EU itself conceived two landmark initiatives within months.

The Union developed a joint plan for buying and distributing vaccines so that wealthier member states couldn’t out-boat the poorer ones, and set up the Recovery and Resilience Facility (RRF), through which grants and loans to member states from EU funds financed. These programs were rightly recognized as European solidarity in action.

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But with the war in Ukraine and its economic consequences, a new, difficult chapter has begun for the EU. The shock is highly asymmetrical. For example, there are currently 1.2 million Ukrainian refugees in Poland, but only 130,000 in Spain – a difference of about ten to one between countries with similar populations. Dependence on Russian natural gas is also extremely uneven. Deliveries from Russia cover about a quarter of the total energy needs in Hungary, Latvia and Slovakia and about an eighth in Germany and Italy. In Spain and Portugal, the share of Russian gas supplies is negligible.

Putin rewards his European allies

Even in normal times, overcoming this asymmetry would pose a major challenge for the EU. But the big, key difference from previous threats to the cohesion of the Union is that in Russian President Vladimir Putin, Europe now has an external enemy who makes no secret of his desire to exploit and exacerbate divisions between and within European countries . Putin’s ultimate goal is the destruction of the EU.

For this reason, he punishes Russia’s opponents by cutting gas supplies and rewards Russia’s European allies for their loyalty. Among the latter is Hungarian Prime Minister Viktor Orbán, who has now fully endorsed the Russian narrative, saying that by imposing sanctions on Russia, the EU had “shot itself in the lungs”. He also sent his foreign minister to Moscow to negotiate additional gas purchases with Russia.

The recent dissolution of the Italian government, led by former ECB President Mario Draghi, is clearly bad news in this regard. Not only because Draghi was a staunch supporter of a tough line against Russian aggression and a key architect of EU sanctions, but also because the three parties (Five Star Movement, Lega and Forza Italia) that supported the collapse of his government pro-Russian views in varying degrees. Here Putin undoubtedly scored a point for himself.

The ECB’s move towards tighter monetary policy could prove another blow to European solidarity. Since March 2020, flexibility in the allocation of the ECB’s special asset purchase program has been the reason why government bond spreads between euro area countries have remained contained. However, by mid-July the combination of the expected termination of the program and the political turmoil in Italy had already caused spreads to widen.

The announcement of a Transmission Protection Instrument (TPI) – a new discretionary asset purchase facility – is likely to help calm fears. The prerequisite for the activation of the TPI is, of course, that the relevant member state of the euro zone meets economic policy criteria, including – particularly important – the determination by the ECB that national debt remains sustainable. However, this was necessary to avoid moral hazard and to protect the central bank from the dangers of fiscal dominance.

The EU’s gas saving plans are not sufficient

On the energy front, however, EU solidarity is not that far off. Initial reactions to the European plan to reduce gas demand presented by EU Commission President Ursula von der Leyen on July 20 were, to put it mildly, rather dismissive.

According to the original proposal (which is based on the same article of the EU treaty that forms the cornerstone of the Recovery and Resilience Facility), all member states should aim to reduce their gas consumption by 15 percent over the winter. In addition, such savings could also be made mandatory in the event of an energy emergency triggered by the significant risk of severe gas shortages or exceptionally high demand. In other words, Spain, which is not dependent on Russian gas, would have to reduce its domestic consumption if Russia continued to curb exports to Germany.

This plan was clearly put on the table as a basis for discussion. Other issues such as the politically controversial postponement of the planned closure of nuclear or coal-fired power plants, the joint purchase of liquefied natural gas and the expansion of interconnected infrastructure must be discussed in the negotiations. But the immediate negative reactions from Spain, Portugal and Greece were tit for tat for what those countries endured during the euro crisis a decade ago.

After several days of negotiations, EU member states agreed on a watered-down version of the plan on July 26. However, it is hardly sufficient quantitatively and contains numerous exceptions and special regulations. In addition, a vote in the European Council is required to order any austerity measures.

When the 13 American colonies signed the Declaration of Independence in 1776, Benjamin Franklin said, “We must all hang together, or we shall all surely hang individually.” With the aftermath of the Ukraine War threatening the cohesion of Europe, Franklin’s warning has taken on new urgency.

The author: Jean Pisani-Ferry is Senior Fellow at the Brussels-based think tank Bruegel, Senior Non-Resident Fellow at the Peterson Institute for International Economics, and Tommaso Padoa Schioppa Chair at the European University Institute.

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