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COVID-19: Eurozone and challenges

  • IASbaba
  • April 15, 2020
  • 0
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INTERNATIONAL/ ECONOMY

Topic: General Studies 2:

  • Important International institutions, agencies and fora- their structure, mandate. 

COVID-19: Eurozone and challenges

Context: EU- the most progressive post-national regional arrangement was not proactive while dealing with the spread of COVID-19 pandemic. This resulted in its member states turning inward for solutions.

About European Union(EU)

  • It is a political and economic union of 27 member states that are located primarily in Europe.
  • Objective of EU and its policies 
    • Ensure the free movement of people, goods, services and capital within the internal market, 
    • Enact legislation in justice and home affairs and maintain common policies on trade, agriculture, fisheries and regional development

Below is the schematic representation of EU

Image Source: Google

What are the recent steps taken by the EU to fight COVID-19?

  • Emergency rescue package amounting to €540-billion
  • Opening up of an emergency credit line for member countries 
  • Raise the lending capacity of the European Investment Bank 
  • European Commission’s €100- billion unemployment insurance scheme
  • European Central Bank has decided to expand its asset purchase programme by €750-billion over the next nine months

Challenges ahead

  1. Apprehensions about intrusive EU inspections with regard to relief package
  2. Discontent with regard to burden-sharing between the richer members in the north (like Germany & France) and the poorer states in the south (like Greece & Portugal) 
  3. Demand from Italy (worse affected) that pandemic credit to be issued by the European Stability Mechanism should not be attached with any conditionalities. 
    • Greece and Ireland had received financial bailouts from EU in 2009 but were accompanied by fiscal austerity measures (reduction in welfare spending)
  4. No progress on joint issuance of Eurobonds (dubbed corona bond).
    • These are Common debt instrument which would pool borrowing among EU nations to fight the crisis.
  5. Implementation Challenges: Utilization of relief package would be slowed down by bureaucratic complexities
  6. Unsatisfied pro-European elites: The support measures by EU is considered as too little and not holistic
  7. Strains in National Coalition governments over the strategy to be adopted to tackle the pandemic, especially in the backdrop of EU’s less-enthusiastic role
    • For instance: Netherlands’ ruling coalition unhappy over the government’s orthodox fiscal stance, where the opposition parties advocate Eurobonds.
  8. High Stakes: Failure to tackle the pandemic can affect European Solidarity especially after the difficulties faced in the aftermath of 2008 financial crisis and the recent Brexit.

Way Ahead

  • When the pandemic hit the continent self-help and not regional coordination, was countries first instinct- which doesn’t bode well for EU. 
  • Therefore, bigger economies like Germany, France & Netherlands need to compromise to ensure sustainability of the grouping

Connecting the dots:

  • SAARC and India’s initiative for collaboration on tackling pandemic
  • Difference in structure between EU and ASEAN

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