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COVID-19 and Europe’s New Battle of Ideas

On the surface, European Union member states are arguing about whether the bloc should issue mutualized “coronabonds” to help its hardest-hit countries deal with the COVID-19 pandemic. But the real fight is about the future direction of fiscal policy and even the euro itself.

BERKELEY – Europe can see light at the end of the COVID-19 tunnel as the numbers of daily infections and deaths from the virus fall gradually across the continent. But the economic fallout from the “Great Lockdown” is still to come. The International Monetary Fund is forecasting that the eurozone will experience a drop in real GDP of more than 7% this year and only partly recover in 2021, making this downturn deeper than even the Great Recession of 2008-09.

Europe, or rather the European Union, has been largely missing in action during the continent’s most serious crisis in generations. Member states have not only engaged in an unseemly scramble to secure scarce medical supplies, but have also made little tangible progress regarding the EU’s contribution to the economic and financial costs of the crisis.

True, the European Central Bank has rightly done all it could to calm financial markets. But EU member states remain bogged down on the key question of whether the bloc can and will help fiscally stretched countries.