So much for the “Roaring 20s” after the COVID-19 pandemic. The mood feels more like the Four Horsemen. As pestilence subsides, war has returned to Europe, destroying lives, homes, economies and the optimism greeting the lifting of pandemic restrictions.
Overnight, a Europe reshaped by COVID-19 — with a bigger, more interventionist, more protective state — is adapting to wartime. States of emergency are being extended, defense councils summoned and socially distanced EU videoconferences convened to respond to conflict.
Just as COVID-19 forced the 27-member bloc to pull together by overcoming internal divides over political and fiscal integration, the shock of Russia’s attack on Ukraine has created pressure to narrow lingering defense and energy divides.
One test is whether the EU can revive the pandemic-era “Hamiltonian” spirit that led it to launch a first-of-its-kind 750 billion euros (US$829.5 billion) recovery fund backed by joint borrowing. French President Emmanuel Macron is drumming up support for a new fund to share the economic burden of the crisis, Le Monde reported.
There are reasons to think that something such as this could happen — not because of an idealistic sense of purpose, but because the scale of the challenge rippling across national capitals cannot be easily met without more cooperation and more refining of post-COVID-19 spending tools.
“We always talk about a Hamiltonian moment for the EU, and maybe this is it, but it also depends on the direction of this crisis, and how long it lasts,” Carmignac Gestion SA’s investment committee member Kevin Thozet said.
One motivation is the call to arms triggered by this conflict. The EU is supplying weapons to a country at war for the first time and Germany has smashed historical taboos by pledging to spend more than 2 percent of GDP a year on defense.
If all non-US NATO members follow, that would be a potential 25 percent increase to defense budgets, but not every country would find this an easy budget pill to swallow after COVID-19’s legacy of higher debts and spending on public health, Jefferies Financial Group said.
Alongside the rallying cry of defense, there is the fear of economic ripple effects of sanctions imposed on Russia and a surge in energy prices. Financial links are being severed, trade ties are unraveling, gas prices are at record highs — indicators of a “stagflation” scenario, Barclays research said.
These costs do not fall equally across the EU, nor within countries, as higher energy bills disproportionately hurt the poorest.
The overall economic hit appears far less apocalyptic than COVID-19, which saw EU GDP shrink 6.4 percent in 2020; any new fund would likely be smaller than its COVID-19 version. Barclays has cut its eurozone growth forecasts by 1.7 percentage points to 2.4 percent for this year, and by 0.8 points to 2.1 percent next year.
However, if Macron is striking now, it is because the iron is hot. The likelihood of conflict escalation points to even tougher Western sanctions, inflicting more second-order pain on consumers and companies. Stockpiling energy reserves to prepare for a winter without Russian gas would bring at least 70 billion euros in extra costs, the Bruegel think tank said.
As many as 4 million Ukrainian refugees are to cost nations around the world an estimated US$30 billion, a UN analysis said, adding that the acute phase of this crisis is coming, with a small window to prepare.
The COVID-19 recovery fund took a substantial amount of internal arm-twisting to create, but crossing the Rubicon might be easier a second time. Pandemic battle lines pitting “frugal” northern states against spendthrift southerners, or Western rule-of-law defenders against Poland and Hungary, look pliable these days.
Germany and Austria are exposed to a disruption of gas supplies, while eastern Europe is closest to the war’s front lines, and to an influx of refugees. It is hard to imagine dogged debates about fiscal probity or rule-of-law conditionality in this environment.
Where there is likely to be lingering disagreement is in the kind of Europe that might emerge from post-war integration. Would Europe become more dependent on NATO, or more “sovereign” in all areas? How ambitious could its decarbonization agenda be if a break with Russia makes environmental goals harder to reach?
Moreover, there is no such thing as a free lunch. If there is one difference between today’s crisis and the pandemic, it is the return of inflation. More government borrowing and spending during COVID-19 were straightforward given historically low interest rates and emergency central bank support, but surging energy costs make it trickier.
It is an illusion to imagine that the European Central Bank could eternally postpone a normalization of monetary policy, AXA Investment Managers chief economist Gilles Moec said, adding that some future spending restraints look likelier, from taxes to pension reforms.
Still, a revival of the EU’s COVID-19 fiscal solidarity would bring advantages. It could help countries bear the cost of more defense and decarbonization; it could strengthen the bloc’s ability to add to sanctions where necessary; and it could slow the return to the pre-pandemic “normal” of budget rules that might bring unwanted pressure to cut spending on countries with shakier finances.
If pestilence and war are to be with us a while longer, it might be a good idea to think up new weapons to match.
Lionel Laurent is a Bloomberg Opinion columnist covering the EU and France. He worked previously at Reuters and Forbes.
There will be a new presidential administration in the United States in January 2025. It will be important for the Lai (賴清德) administration and America’s next administration to get on the same page quickly and visibly in respective efforts to bolster Taiwan’s security, economic vitality, and dignity and respect on the world stage. One key measure for doing so will be whether Washington and Taipei can coalesce around a common narrative for moving US-Taiwan relations forward. In recent years, Washington and Taipei have leaned into fear as a motivator for coordinated action. For a time, both sides publicly reinforced each other’s
Recently, the Liberty Times (the Taipei Times’ sister newspaper) published three of my articles on the US presidential election, which is to be held on Nov. 5. I would like to share my perspective on the intense and stalemated presidential election with the people of Taiwan, as well as Taiwanese and Chinese Americans in the US. The current consensus of both major US political parties is to counter China and protect Taiwan. However, I do not trust former US president Donald Trump. He has questioned the US’ commitment to defending Taiwan and explicitly stated the significant challenges involved in doing so. “Trump believes
The government is considering building a semiconductor cluster in Europe, specifically in the Czech Republic, to support Taiwan Semiconductor Manufacturing Co’s (TSMC) new fab in Dresden, Germany, and to help local companies explore new business opportunities there. Europe wants to ensure the security of its semiconductor sector, but a lack of comprehensive supply chains there could pose significant risks to semiconductor clusters. The Czech government is aggressively seeking to build its own semiconductor industry and showing strong interest in collaborating with Taiwanese companies. Executive Yuan Secretary-General Kung Ming-hsin (龔明鑫) on Friday said that Taiwan is optimistic about building a semiconductor cluster in
Embroiled in multiple scandals, Taiwan People’s Party (TPP) Chairman Ko Wen-je (柯文哲) on Thursday announced that he would apply for a three-month leave of absence from his role as party leader, creating uncertainty about the future of the TPP and the “new politics” that he had promised to bring. Shortly after his announcement, Ko’s home and office were searched and he was questioned by prosecutors over his suspected involvement in a corruption case related to a real-estate development project. He was arrested early Saturday morning after he refused to be questioned at night and attempted to leave the prosecutors’ office. In
RSS