By Alessandra Silveira (Editor)

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Talking openly about the federative impact of the COVID-19 pandemic on the EU integration

Jean Monnet stated that Europe will be forged in crises and will be the sum of the solutions adopted for those crises. Crisis is the natural condition of Europe, and, as in every crisis the EU has survived in recent times – be it the sovereign debt crisis, the migration crisis, or the identity crisis with Brexit – at the beginning of the health crisis the imminent collapse of the EU was again proclaimed. And oddly enough, or not, those who were most critical of the EU’s initial silence were the same ones who traditionally postulate the least possible integration[1].

However, the existential risk at this time was also sensed by politicians and academics unsuspicious of any Euroskepticism – such as Mario Monti, Jacques Delors or Giscard d’Estaing[2] – which made that historical moment especially unique. The public opinion in the various Member States called for concerted EU action in the area of public health, in accordance with its competencies under the TFEU [both shared competencies (Article 4/2/k) and the so-called complementary competencies (Article 6/a), both set out in Article 168 under the heading “public health”], in order to fight a virus that knew no borders, endangered the health and lives of citizens, and threatened to cause an economic crisis of unimaginable proportions, foreseeably more serious than the recession crisis of the 1930s.

There was, indeed, a generalized perception that COVID-19 forced the EU to choose between the intrepidity that saves lives or the cravenness that leaves them to their fate. Bearing in mind the transboundary dimensions of the pandemic, specific EU measures were required in order to prevent unilateral action by individual Member States from compromising the interests of others or common interests if such actions were inconsistent with each other or based on divergent risk developments[3].

It goes without saying that the national authorities would have to be in the front line of fighting the disease, as they were in a position to assess the local evolution of the problem. Even in a unitary State like Portugal, the territory is not equally affected by the pandemic, and it was necessary to isolate the most affected populations. However, the implementation of joint purchasing measures for health response medical supplies, as well as the coordinated exchange of information and resources, for example, should be adequately carried out at the European level (as it was already evident from Decision 1082/2013/EU of October 22, 2013, on serious cross-border threats to health)[4].

The starting point of the pandemic was of evident turmoil, mainly due to disconnected solution and specific impulses from Member States, and the President of the European Commission, Ursula von der Leyen, saw fit to take responsibility for them[5]. While apologizing to Italy for the initial lack of solidarity, the European Institutions have broken their inertia by loosening rules on i) budgetary discipline (Stability and Growth Pact) and ii) the functioning of the internal market (ban on state aid) – measures whose unprecedented nature shows the exceptionality of the circumstances – as well as monitoring the restriction of free movement in emergency situations under Regulation (EU) 2016/399 (Schengen Borders Code).

Despite the fact that this easing of the rules immediately benefits the most fragile Member States economically speaking, it would also favor mid-term the most robust Member States, because the latter were in the position to introduce competitive advantages for their companies, compromising the integrity of the functioning of the internal market and thereby creating distortions of competition. Faced with such a paradox, it was important to avoid the asymmetric risk of a crisis that was originally symmetric, especially since the pandemic exposed the underlying tendency towards the renationalization of European politics, something that we have been witnessing since the consolidation of the single currency began to reveal economic imbalances between Member States, reaching a distressing peak during the sovereign debt crisis[6]. Thus, it was important to ensure that the pandemic and the remedies to fight it would not result in deepening the divergences within the eurozone.

In this context, the so-called “eurobonds” (then renamed “coronabonds”) became the target of an ideological dispute – inflated by internal tensions and national agendas marked by electoral timings – to the detriment of what they effectively were: financial instruments of a federative nature.  There were unfortunate moralistic disputes between alleged doers and do-nothings, and disagreements between Northern and Southern Europe over how to deal with the constant pressure from nationalist parties. Southern Member States, led by then Italian Prime Minister Giuseppe Conte, argued that in the absence of a common response based on co-responsibility, the economic emergency could quickly turn into a political emergency. Moreover, it would not be too hard to imagine the difficulties for the recovery of the economies in the North if their counterparts in the South collapsed, because the basic lesson of supply and demand in a free trade system (and even more so in an internal market) has always been that of protecting potential customers. To whom did they intend to sell their products if the consumers were all in misery?

One episode deserves to be highlighted, involving the Dutch Finance Minister, Wopke Hoekstra, and the Portuguese Prime Minister, António Costa, regarding the accusations then made against Spain and Italy that they had not been spared during the bonanza period in order to face possible crises – which gave rise to the “repugnant speech” controversy[7].The Dutch minister had even suggested an investigation on Spain when Madrid said it had no budgetary leverage to respond to the crisis caused by the new coronavirus without financial support from the Union. Spain was then, on March 27, 2020, the second most affected country by the pandemic in Europe, with more than four thousand deaths and on the way to sixty thousand infected – a situation that, tragically, would still get worse.

Eventually, a New Deal for Europe was drawn up,[8] through the adoption of a recovery fund aimed at regaining the trust of Europeans. Thus, at the fourth Extraordinary European Council, on April 23rd, there was unanimity on how to finance that fund, through debt issued by the European Commission, guaranteed by the European budget through new own resources. The issuance of debt securities by European Institutions was not exactly an unprecedented solution, but “on this scale, and in this way, the issuance of direct European debt at the ‘federal’ level, so to speak, had never been designed”[9]. 

Instead of debt mutualized by the Member States (i.e., shares jointly guaranteed by the States, the “eurobonds”), the option was for debt issued by the European Commission (i.e., debt securities of the Union, not just of the eurozone). And as with USA Treasury bonds, it would be the Union as a whole that would guarantee the debt, through its own resources coming perhaps from the taxation of financial transactions, income from the digital economy, carbon emissions, non-recycled plastic, etc.[10]. Either way, even without “coronabonds”, there would be mutualization of the debt to be contracted; if the “coronabonds” would be “confederal debt”, the Commission’s debt securities would be “federal debt”[11].

The solution was not conveyed in this way, because in the history of  the European integration there are politically toxic expressions. The “name of the thing” could kill the idea, because the name refers to ghosts, nuisances, and desires that are unconsciously associated with it [12].  So, the European decision-making reflects the search for consensus between accommodating the interests of individual Member States and pursuing the common interest – the famous strategy of the “Founding Fathers'” small steps – until an idea whose time has come cannot be withheld.

What is for certain is that the European Institutions have gradually agreed to provide more than 3 trillion euros in various forms, be it via the European Central Bank (750 billion + 600 billion), the European Investment Bank (200 billion), the European Commission (100 billion), the Stability Mechanism (240 billion – and without the conditionalities of Troika days), in addition to the upward revision of the European budget proposal to values unthinkable until then (a 1.8 trillion package). In a joint statement on May 18, 2020, the Franco-German axis proposed the initial amount of 500 billion euros in grants (outright transfers) for the Recovery and Resilience Facility of the economies most affected by the pandemic. Moreover, on May 27, 2020, the European Commission put forward the proposal of 750 billion, 500 billion of which in grants, and named it the “NextGenerationEU”.

The magnitude of the 750-billion-euro fund would be similar to the economic package that President Barack Obama approved in 2008 to address the financial crisis. As Moritz Schularick, Professor of Economics at the University of Bonn explained to the Spanish newspaper “El País” on May 30, 2020, few things have more political force than a narrative of shared solidarity in the face of adversity, because it is with such matters that nations – or, in this case, a political Union – are built. The term “resurgence”, “rebirth”, “re-foundation” of the EU has become part of the lexicon of European Institutions, the academic community, and the leading media – in a discourse that is markedly apologetic for the founding values of European integration, including solidarity (Article 2 TEU).

In a long and disputed five-day European Council that started on July 17, 2020, different visions on European construction were confronted – especially those led by the “Frugal Four” (led by the Netherlands with Mark Rutte) and the “Visegrád Group” (led by Hungary with Viktor Orbán). The tactic of the “Frugal Four” (net contributors to the European budget and main beneficiaries of the internal market: Netherlands, Austria, Denmark, Sweden) was to confront the convergence between the French-German axis and Southern Europe by dividing the remaining Member States based on two arguments: i) reclaim moral hazard (by subjecting the Southern Member States to constant peer review on the application of the funds, including the possibility of vetoes on resource transfers); ii) uphold the rule of law regarding the “Visegrád Group” (by providing for a regime of conditionalities on access to the fund, including corrective measures in case of infringement adopted by qualified majority).

When articulating these arguments, the “Frugal Four” were firstly opposed to the issuance of mutualized debts within the EU and then to the allocation of subsidies without conditionalities. They would eventually give in under two conditions: i) the rebates allocated to the net contributors to the European budget would be increased, and ii) the payment of the joint debt assumed by the European Commission would be made from the Union’s budget[13].

At the close of what was recognized as a “historic agreement”, the European Council would reduce the amounts of the recovery fund for grants to 390 billion euros – allegedly because it was not possible to increase the national envelopes and European programme allocations at the same time. However, it did so without reducing the overall amount originally envisaged or affecting direct transfers to Member States – but rather focusing on programs managed centrally by Brussels. Thus, the “NewGenerationEU” corresponds to 750 billion euros, of which 390 billion are grants and 360 billion are loans to the Member States. Hence, the main goals have been achieved – especially supporting the Member States most affected by COVID-19 – with Italy and Spain as the main recipients of support[14].    

In any case, the key question has always been how to strengthen the EU’s financial capacity to respond to the health crisis by redistributing wealth – i. e., by transferring resources among the Member States. And here there was no point in wasting energy: one had to follow the historical lesson of federative systems, namely i) joint debt posting and ii) tax posting by the federal government.

In fact, Alexander Hamilton – one of the “Founding Fathers” of the USA and the first Secretary of the Treasury – said that a non-excessive debt would be a powerful anchor for that Union. In 1790, in the turbulent period following the Declaration of Independence, Hamilton struck a historic compromise whereby the federal government would assume the debt incurred by the federated states to wage war against the British Empire and repay the debt with a public loan financed by a new federal tax from customs revenue. The foundations were thus laid for a fiscal union that would imply democratic accountability, since citizens “do not pay taxes to a government they do not vote for”[15].

In this sense, it would be inevitable that the emission of European debt at an unprecedented scale to face the sanitary crisis would lead to the introduction of new European own revenues – because until then the European budget was mainly borne by the Member States. New own resources are indispensable to avoid budget cuts in the future. This is because until 2027 only interest will be paid on the common debt incurred. But after 2027, interest and amortization will be paid until 2058, which corresponds to an average of 15 billion euros per year. If the current budget figures are maintained without the Union’s own resources, this will represent a cut of 10 percent per year – those 15 billion euros from 2028.

It is clear that the introduction of European debt and European own resources has an impact on the evolution of the European political community (“EU polity”).[16] The pandemic revealed the extent to which Helmut Kohl’s claims were justified when he asserted that the very notion that you can maintain (in the long run) a monetary Union in the absence of a political Union would be absurd.[17] 

Thus, instead of less or no Europe, the pandemic has driven the integration process towards much more Europe. In other words, the pandemic has imposed the need for more European politics and the densification of the “EU polity”, since the destination of the resources mobilized by the health crisis will now be decided in Brussels, starting with the Multiannual Financial Framework for 2021-2027. Many did not initially understand the political implications of the new fund for the economic recovery of the Union, based on the relaunch of productive activity and the strengthening of the internal market. However, in that apparently technical solution lay the deepening of the federative components of the EU’s legal-political system.

Although the European “Founding Fathers” were inspired by an ambitious project of a “United States of Europe”, European integration was achieved by the pragmatic ways of increasing the internal market – or, in broader terms, through an economic and monetary Union. In any case, the federative principles were always present, offering support to European integration. It should be made clear that this is not a matter of building a federal State, but of institutions and procedures that make possible, based on the trilogy “rule of law/democracy/fundamental rights”, both a common foreign and security policy and the staggered harmonization of domestic policies. And the consequence of this sharing of powers and competencies for the pursuit of common goals is the tendency to equalize living conditions in the different Member States – in legal, political, economic, and social terms.

As Jürgen Habermas once asserted, a federally constructed nation State – such as the Federal Republic of Germany, for example – cannot serve as a model for an EU of 27 nation States, all very much aware of their own language and history.[18] In this sense, the EU is in a position to offer the world a much more sophisticated form of organization of political power than that of the federal State, insofar as the State model itself corresponds to a historical construction stemming from constitutional modernity – and susceptible to evolution. Phenomena of federalism should not be considered as static structures that necessarily coincide with the State. In this perspective, Francisco Lucas Pires spoke about “federalising without federal State”,[19] perceiving federalism as a process of federalising a political community.[20].

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[1] See Paulo Sande, Em defesa da Europa: os custos da não-Europa, Público, 6 May 2020.

[2] See Valéry Giscard d’Estaing et. al., Para uma Europa do amanhã, Público, 23 April 2020. 

[3] On this subject see Teresa Freixes, The European Union and COVID-19, The official blog – Thinking & Debating Europe (UNIO – EU law jornal), 20 March 2020 (https://officialblogofunio.com/2020/03/20/the-european-union-and-covid-19/).

[4] See the proposal for a regulation of the European Parliament and of the Council on serious cross-border threats to health repealing Decision No. 1082/2013/EU [COM(2020) 727 final],  Brussels, 11 November 2020 (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020PC0727) and the amendments adopted by the European Parliament on 14 September 2021 on that proposal (https://www.europarl.europa.eu/doceo/document/TA-9-2021-0377_EN.html).

[5] Ursula von der Leyen, President of the European Commission, in a letter published in the Italian newspaper “La Repubblica” and in the plenary session of the European Parliament in Brussels on April 16, 2020, apologized to Italians: “Yes, it is true that no one was really ready for this. It is also true that too many were not there on time when Italy a needed a helping hand at the very beginning. And yes, for that, it is right that Europe as a whole offers a heartfelt apology. But saying sorry only counts for something if it changes behaviour. The truth is that it did not take long before everyone realised that we must protect each other to protect ourselves.” See “Speech by President von der Leyen at the European Parliament Plenary on the EU coordinated action to combat the coronavirus pandemic and its consequences”, European Parliament, accessed January 12, 2022, https://ec.europa.eu/commission/presscorner/detail/en/speech_20_675.

[6] See Bernardo Pires de Lima, O regresso dos adultos à sala, Diário de Notícias, 25 April 2020.

[7] The reaction of the Portuguese Prime Minister reproduced by media, António Costa, echoed throughout the EU: “This speech is repugnant in the framework of a European Union. And that’s exactly the word: repugnant. No one is willing to listen to Dutch finance ministers again like the ones we already heard in 2008, 2009 and 2010. And this is a good time for everyone to understand that it was not Spain that created the virus, nor was it Spain that imported the virus – it hit us all equally. If any country in the European Union thinks it can solve the virus problem by letting the virus loose in other countries, it is very mistaken. The virus knows no borders. We all know that the first Portuguese who were infected were infected during trips abroad – and we can’t blame the countries where they were infected, and much less blame the people for having been infected (…). If we don’t respect each other or understand that in the face of a common challenge we must be able to respond in unison, then no one has understood anything about what the European Union stands for” (free translation).

[8] See Nuno Severiano Teixeira, Um New Deal para a Europa, Público, 6 May 2020.

[9] See Rui Tavares, O nascimento discreto dos unibonds, Público, 23 April 2020.

[10] See Rui Tavares, Conclusão de conclusões, Público, 22 July 2020.

[11] See Rui Tavares, Então e esse fim da União Europeia?, Público, 29 May 2020.

[12] See Pedro Madeira Froufe, O nome das coisas, Correio do Minho, 16 May 2020.

[13] On this subject see Teresa de Sousa, Quatro retratos (incompletos) do Conselho Europeu, Público, 22 July 2020.

[14]See “The EU’s 2021-2027 long-term Budget and NextGenerationEU – Facts and figures”, European Commission, April 2021, https://op.europa.eu/en/publication-detail/-/publication/d3e77637-a963-11eb-9585-01aa75ed71a1/language-en. On this subject see also José Manuel Fernandes, Editorial of March 2021, The official blog – Thinking & Debating Europe (UNIO – EU law jornal), 01 March 2021 (https://officialblogofunio.com/2021/03/01/editorial-of-march-2021/).

[15] On this subject see Nuno Severiano Teixeira, O momento quase hamiltoniano da Europa, Público, 15 July 2020. On the genesis of contemporary federalism and the period that saw its birth as an institutional reality – the USA between 1770-1790 – see Viriato Soromenho-Marques, A revolução federal. Filosofia política e debate constitucional na fundação dos EUA, Edições Colibri, Lisboa, 2002.    

[16] With regard to the introduction of own resources, former MEP Rui Tavares predicted the following: “And the day will come when multinationals that evade taxes and benefit so much from the EU’s internal market will also start paying European federal taxes. All this will help the Union’s debt to get a “triple A” [AAA] rating and make the euro a much more competitive reserve currency against the dollar.” See Rui Tavares, Conclusão de conclusões, cit.

[17] On this subject see Viriato Soromenho-Marques, Tópicos de filosofia e ciência política. Federalismo: das raízes americanas aos dilemas europeus, Esfera do Caos, Lisboa, 2011.

[18] See Jürgen Habermas, Ay, Europa!, Editorial Trotta, Madrid, 2009, p. 85.

[19] See Francisco Lucas Pires, A revolução europeia por Francisco Lucas Pires – antologia de textos, Publicação do Gabinete em Portugal do Parlamento Europeu, May 2008, p. 57.

[20] The idea of federalism considered as a process (the federalising process theory) was developed by Carl Friedrich, Trends of federalism in theory and practice, Praeger, London, 1968. On this subject see José Luís da Cruz Vilaça/Alessandra Silveira, The European federalisation process and the dynamics of fundamental rights, Dimitry Kochenov (ed.), EU citizenship and federalism – the role of rights, Cambridge University Press, 2017. See also Alessandra Silveira, Waiting for a federal big bang in EU? Updating the theory of federalism in times of liquid modernity, The official blog – Thinking & Debating Europe (UNIO – EU law jornal), 2 June 2017 (https://officialblogofunio.com/2017/06/01/editorial-of-june-2017/).

Pictures credits: padrinan.