What crisis if the EU did not exist?

Even though most polls show that a majority of European citizens consider cooperation between member states of the EU as good or very good (51%) and the majority trust the Union (52%), Italy is the country with the lowest number of positive opinions for both cooperation (30%) and trust (45% positive versus 50% negative). It is a view which reflects the damaging political atmosphere in that country, but very little of the factual reality or feelings of citizens of other countries. For example, a poll from Polit Barometer shows that 68% of Germans favor financial aid from the EU to countries that are particularly hard hit by the pandemic such as Spain or Italy. Moreover, Italy is the country with the most opinions favorable to an Italexit from both the EU and the Eurozone (between 40 and 42% according to polls) and 71% believe that the pandemic will destroy the Union.

There is no use mentioning here the thousands of billions of euros that the Union has and will leverage in support of its members, or its programs and cooperative agencies, particularly in the field of epidemiological research. Let us instead examine what the situation could be in countries like Italy, Greece, or Spain if the EU did not exist, not because the consequences would be positive for these countries, but because these are the most fragile countries due to the instability of their public finances.

Given the complexity of this argument, let us only examine the case of Italy. Since the beginning of the 1990s, its public debt has never gone below 100% of GDP, its growth rate has remained far below other countries, as well as investment rates, to the point that the weight of its GDP in the EU has gone down 3 percentage points since the beginning of this century.

This is a country which is witnessing a significant youth exodus, the number of those emigrating being higher than the number of those immigrating over the last several years. Despite the unfailing support of the ECB, access to the international financial market remains one of the most expensive due to its debt rating approaching Junk Bond status (BBB+ from Standard and Poors and BBB- from Fitch). And yet the effects of the crisis will bring its public debt to at least 170% of GDP and Italy will need 150 billion euros of liquidity before the end of the year and to extend 200 billion in securities reaching maturity.

Would Italy arrive at such a situation if the EU did not exist? Most likely not because it would have already been bankrupt for some time. Italy only found its way out of the crisis of 1992-1993 thanks to other countries’ support, the flexibility of the European Monetary System, a loan from the EIB of 1 billion ECU (the common currency at that time), and austerity measures recommended by the Union. Yet the country’s downward slide has continued since the beginning of the 2000s despite the advantages brought about by the lowering of interest rates thanks to its participation in the Euro. The crisis of 2008-2012 would have no doubt been fatal without the Eurozone’s protection, the flexibility of its rules, and the support of the ECB “whatever it takes” – no matter the cost, as its governor stated at the time.

Would Italy have received aid in time and in sufficient amount from China and Russia? Nothing is less certain. In fact, the first assistance from China (a 30-person medical team, masks, and medical equipment) only arrived March 12th, and Russia’s aid, March 22nd. Unfortunately, much of this aid was not technically suitable (respiratory equipment) or not in keeping with standards (masks), and in any case insufficient to meet needs. The Russian military trucks contained products from businesses under embargo and many of them did not meet standards. Finally, a week later, the EU sent Italy the entirety of Chinese aid received by the Emergency Response Coordination Center (ERCC), thanks to the EU Civil Protection Mechanism (EUCPM).

Devastating impact on Italy

Without the EU, the macro-economic impact would be devastating. Of course, the Bank of Italy could have created currency by buying back the state’s debt, but with a direct impact on inflation and a simultaneous depreciation of exchange rates. All this would consequently lead to capital flight and the withdrawal of foreign investments. Exports, whose competitiveness depends more on technological content than on price levels, would not have been stimulated by currency depreciation, especially since the economy and agriculture are at a standstill.

On the other hand, import costs, particularly of energy, would have increased (despite the decrease in oil prices), reducing competitiveness even further. Finally, the country’s debt rating would have been reduced to junk bond status, making access to international financial markets nearly impossible. In short, a textbook collapse with its fall out of social ills and poverty. It is a situation that Argentina knew all too well at the end of the 80s and then between 1998 and 2002. It emerged with much difficulty with aid from the IMF and the drastic measures that were then imposed … And for that, Europe is not to blame.