[EAI Working Paper] Post-COVID World Political Economy Series ⑩_ The COVID-19 Crisis and the Transformation of European Integration

I. Introduction: The Impact of the COVID-19 Crisis on the European Union

The COVID-19 crisis has severely disrupted the order of daily life in every region of the world, prompting national responses. Europe was no exception (Schmidt 2020). However, in Europe's case, the politico-economic system that constitutes the order of daily life exhibits unique characteristics. In any region, the responsibility for responding to severe social crises lies with the sovereign state. Differences may emerge depending on whether the state is unitary/federal or whether its political/administrative system is centralized/decentralized. In addition to these complexities, Europe presents a system of Multi-Level Governance (Hooghe and Marks 2002). This means that in addition to the typical structure of central and local governments, an additional complexity of supranational, central, and local governments must be considered.

Furthermore, Europe possesses a fluidity that intensifies this complexity. Europe's multi-level governance system is not maintained by once-established rules but is constantly evolving. Since the European integration movement officially began in the 1950s, it has strengthened regional integration at the supranational level. The concept of the sovereign state, prevalent in other regions, does not exist in its pure form in Europe. This is because the supranational entity known as the European Union (EU) is a political unit formed by the pooling of sovereignty (Peterson 1997). The fluidity of the European political order means that the scope and volume of pooled sovereignty change over time. In Europe, the principle of 'one and indivisible Republic' (La République une et indivisible) established during the French Revolution has long since disappeared, as member states have gradually transferred their sovereignty to Europe.

The COVID-19 crisis served as a test of the complexity and fluidity inherent in the European regional political order. The objective of this paper is to analyze and understand the particularities of the European region, which forms a pillar of the global politico-economic order, by examining the impact of the COVID-19 crisis on European integration. The interrelationship between crisis and regional integration can be seen as forming an important epistemological foundation from the early stages of European integration. Jean Monnet, considered the father of European integration, argued that integration occurs in the process of overcoming crises, and ultimately defined Europe as a collection of solutions to crises (Monnet 1976). Of course, Monnet's assertion can apply not only to supranational regional integration but to all political orders, as sovereign states were also formed through processes of power concentration to overcome crises in their early stages.

Monnet emphasized the functional aspect that crises highlight the need for integration, while simultaneously stressing pragmatism, asserting that solutions to crises must be found through very concrete policies. The equation 'Europe = Collection of Solutions' implies that while grand narratives are necessary, the core of European integration must be found in joint action. This aspect represents a significant difference in the formation processes of states and Europe. Whereas states in the past established constitutional orders (i.e., the creation of units through establishment) at once by mobilizing considerable physical force to declare macro-sovereignty, European integration was destined to gradually persuade these established states and incrementally build a new order by pooling sovereignty on an issue-by-issue basis.

Monnet's functional and pragmatic approach was directly reflected in the theory of regional integration. Functionalist theory, which posits that institutions or policies are created to address existing social needs, was perfectly suited to explaining the transformation of European integration. The logic is that in an era of globalization, supranational political entities are necessary to address international problems. Neo-functionalism, which emerged in the 1950s and 1960s, developed and proposed the concept of 'spillover,' suggesting that integration in one sector must be linked and extended to other sectors to achieve maximum effect (Deutsch et al. 1957, Lindberg and Scheingold 1971). It even provided the logic that integration stagnation could inevitably lead to new integration (Corbey 1995). Although neo-functionalist theory has been heavily criticized for its excessive optimism about integration, it is undeniable that it has significantly contributed to explaining the fundamental driving force behind European integration over the past 70 years (Schimmelfennig 2018).

Of course, the explanations of structural functionalism should be supplemented with explanations that reflect the strategies and interests of actors. In particular, the theory of political strategy, which defines and manipulates issues based on identity and interests to drive or oppose integration, appropriately complements neo-functionalism (Jabko 2005). This approach emphasizes the process by which serious social problems are reflected in integrated policies, focusing on how actors identify and define problems, utilize them as resources, and advance policy frameworks. This process involves many actors, necessitating micro-level analysis, and often leads to unexpected outcomes through various negotiations and compromises, frequently resulting in a combination of actors with divergent goals working towards a common outcome.

Efforts to explain the major growth periods of European integration from the perspectives of both neo-functionalism and political strategy are highly persuasive. In the early stages of European integration in the 1950s and 1960s, the efforts of state actors such as the United States, France, and Germany to meet the needs of the Cold War and economic reconstruction resulted in the failure of political and military integration and a readjustment towards economic integration. In the 1980s and 1990s, amidst the rise of Japan (Sandholtz 1992) and the post-Cold War era, the pursuit of political integration culminated in the somewhat unexpected directions of a single market and monetary union. In other words, European integration did not necessarily follow the grand direction demanded by the times, but rather emerged as an unpredictable outcome of the efforts of actors leveraging the demands of the era.

What impact did the COVID-19 crisis, which struck Europe in early 2020, have on the European Union? Specifically, did it have a strong enough effect to shape the direction of European integration? To properly assess the impact of the COVID-19 crisis, it is necessary to examine the various crises that the European Union experienced in the 2010s and their consequences for European integration. It is no exaggeration to say that Europe was facing an existential crisis (II.) at the dawn of the 2020s. The COVID-19 crisis then delivered a fatal blow of lockdowns and quarantines (III.) within the region. Given that Europe has promoted free movement as one of its greatest achievements, the COVID-19 crisis threatened to dismantle the hard-won edifice of integration. However, in two respects, Europe succeeded in seeking new roles through the COVID-19 crisis. First, the EU emerged as a new actor in health policy by taking responsibility for vaccine procurement and distribution. Second, it succeeded in establishing EU-wide fiscal policies to overcome the economic impact of the crisis. It is impossible to predict the future based on the experience of just over a year and a half since the crisis began. However, what can be judged in the short term is that the EU has successfully seized the opportunity presented by the COVID-19 crisis to strengthen integration.

II. Background: The Overall Crisis Situation of European Integration

As the 2020s began, Europe found itself in an unprecedented crisis due to shocks from both within and outside. First, the withdrawal of the United Kingdom from the European Union delivered a shock akin to the removal of a pillar supporting Europe. Externally, the remarkable rise of China brought about significant changes in global geopolitics, threatening Europe's standing. Furthermore, the relationship with the United States, a traditional ally, was fundamentally shaken by the presidency of Donald Trump.

1. European Integration and Brexit

Through a referendum in 2016, the United Kingdom decided to withdraw from the European Union and, by early 2021, effectively became a non-EU country. The negative effects and psychological blow of Brexit on European integration were profound ("The Economist 2016). First, since its inception in the 1950s, European integration had maintained an expansionary trend by continuously increasing the number of member states, and the withdrawal of a specific country from the integration process was unprecedented. Although discussions about the potential withdrawal of some Southern European countries, such as Greece in the 2010s (dubbed 'Grexit'), were ongoing, no actual withdrawal occurred. Second, the UK is one of the largest countries within the European Union. The collapse of one pillar in the European core, comprising the so-called 'Big Four' (Germany, France, the UK, and Italy), was significant. Third, the UK was not merely a large member state but also a country that represented a policy paradigm emphasizing free trade and a market economy within Europe (Rosamond 2020). Furthermore, historically, the UK is the birthplace of parliamentary democracy and has played a crucial anchoring role in European identity as a force defending liberal democracy in two world wars.

Brexit thus demonstrated the historical fact that European integration is not always a progressive movement and can also regress. However, at the same time, Brexit produced unintended side effects (Ricard 2021). Once Brexit was decided and went through the arduous process, voices calling for withdrawal within the European Union tended to diminish. For example, the calls for leaving the EU by far-right nationalist groups such as France's Rassemblement National (RN) and Italy's Lega have subsided. Moreover, with the UK's departure from Europe, the EU's policy-making process became smoother. The UK, for various historical and cultural reasons, was not a proactive participant in European integration but rather a reluctant member with a lukewarm attitude. It generally opposed policies that would implement new measures at the European level, and its departure has therefore made policy-making easier. This is why Brexit can be seen as having had a complex effect in the context of responding to the COVID-19 crisis.

2. The Rise of China and Europe's Response

China's rise on the world stage in the 2010s proceeded at a remarkable pace. In 2013, China's GDP surpassed that of the United States in Purchasing Power Parity (PPP) terms, establishing China as a de facto G2 economic power. The 2020s were anticipated to see China surpass the US in nominal GDP as well, becoming the world's leading economic power. European integration has historically been driven by external threats. The explicit threat that spurred European integration in the 1950s was the military and security expansionist strategy of the Soviet Union and the communist bloc. Europe also considered integration as a means to regain economic and cultural leadership lost to the United States. From the 1970s onwards, Japan's rise was a factor promoting European integration. For Europe, which prided itself on being the center of the world just a century ago, China's rise represents another serious threat, following those posed by the Soviet Union, the United States, and Japan (Biscop 2020).

In 2019, the European Union designated China as a 'systemic rival,' signaling a new strategic direction (Small 2020). This acknowledged that China had grown to the point of competing with Europe for the global politico-economic order, rather than being a large developing country supported by Europe. Furthermore, China's tendency to strengthen its nationalist orientation, despite its economic development, contributed to the formation of this strategic perception. Of course, Europe's internal situation is far more complex than the confrontation or competition suggested by the strategic discourse. The UK, post-Brexit, harbors the dream of a 'Global Britain' where Asia-Pacific regions, including China, can replace Europe, and export-oriented Germany fears deteriorating relations with China. The COVID-19 crisis has highlighted Europe's dependence on China, creating an opportunity to emphasize the need for European integration.

3. The Trump Administration and European Integration

Following the UK's Brexit referendum in June 2016, Donald Trump's election as President of the United States in November sent significant shockwaves through European integration. Trump had boasted of close ties with far-right nationalist forces in Europe during his campaign and made efforts to disparage the European Union's promotion of international integration (Shapiro 2020). More fundamentally, the United States can be considered the historical patron of European integration. From the early stages of integration, the US supported Europe as part of an international anti-communist plan, and even in the post-Cold War era, it recognized the EU's role in pursuing the goal of stability on the European continent. While there were aspects of economic competition, they did not reach a level that endangered the firm security alliance between the US and Europe.

The Trump administration shook the firm alliance between Europe and the United States, which had endured for over 100 years since World War I. In particular, by implying that the collective security concept, a core tenet of the North Atlantic Treaty Organization (NATO) that had bound the US and Western Europe into a security community for nearly 70 years, might not be automatic, it threatened trust in the alliance ("The Economist 2019a). In Europe, as security dependence on the US became uncertain, calls for Europe to develop its own defense capabilities emerged. The discourse of European security, particularly centered in France and Germany, began to gain traction. The UK's decision to withdraw, which historically prioritized transatlantic relations over Europeanism, lent momentum to this trend. Of course, in Central and Eastern Europe, which faced threats from the Soviet Union and now Russia, trust in the United States remained stronger than in uncertain Europeanism.

In early 2020, the COVID-19 crisis, which originated in China, spread beyond East Asia and rapidly to Europe. At that time, it is no exaggeration to say that the European Union was in a state of siege. The stability and balance had been disrupted by the withdrawal of the UK, a key member state, and the rise of China as a new competitor further suppressed Europe's standing in the global order, while the traditional ally, the United States, showed a shift in attitude, treating Europe more as an adversary or competitor than a friend.

III. Lockdowns and Quarantines

Since the Middle Ages, the most effective response to epidemics has been to prevent transmission by isolating people. The term 'quarantine' originates from the French word for isolating potentially dangerous individuals for 40 days. The response to COVID-19 was no exception, and quarantine and lockdowns emerged as key tools for managing the health crisis. The problem was that, from the perspective of European integration, free movement was its most prominent achievement. This is because, more than the diverse and complex common policies, the simple fact that 'one could travel freely with just an ID card, without needing a passport' was more easily recognized as evidence of Europe's unity.

1. Regression of European Integration?

When the COVID-19 crisis began to hit Europe in 2020, the UK was undergoing a chaotic domestic political process in its withdrawal from the European Union. If Brexit represented an external contraction of the EU, the COVID-19 crisis had the effect of dismantling the internal edifice of European integration. This was because the COVID-19 crisis did not spread uniformly across Europe but rather moved from one region to another. COVID-19, transmitted by tourists from China to Italy, first spread in countries heavily reliant on Mediterranean tourism, and then, through Europeans who had traveled there, it spread to the UK, France, Germany, and other countries. EU member states initially decided to prohibit travel to specific regions with a high number of COVID-19 cases, but as the number of cases surged simultaneously, they resorted to widespread lockdowns, not only restricting inter-state travel but also controlling movement within their own borders (Stroobants 2020).

The European Union has promoted the concept of Europe as a 'space to travel, work, and live freely' as one of its most visible achievements (European Commission 2021b). The idea was that, much like within a single country, European citizens could freely cross borders. Indeed, the Schengen Agreement of 1985 opened the way for Europeans to travel freely across borders, and the Single European Act of 1986, while promoting a single market at the European level, recognized the right for labor to move freely like capital. Subsequently, the EU made efforts to coordinate policies to ensure that social security systems in one member state were recognized in others. As policies restricting border controls and freedom of movement rapidly spread due to the COVID-19 crisis, the space that European integration had taken over 30 years to build seemed to be fragmenting again.

The case of Sweden illustrates how complex the re-establishment of borders within Europe was in response to the COVID-19 crisis. Sweden maintained policies that preserved citizens' everyday freedoms to a greater extent than other member states (Steinglass 2020). It minimized restrictions on economic activity and largely avoided measures such as mask-wearing. This was because it adopted a unique policy of pursuing herd immunity in the long term, even if it meant a higher number of immediate casualties from the epidemic. Sweden's distinctive policy prompted neighboring countries to implement measures restricting travel with Sweden. Denmark, Finland, and Norway—Norway is not an EU member but has guaranteed free movement through the Schengen Agreement—all imposed travel bans. This is a case where differences in COVID-19 response, rather than COVID-19 itself, led to the re-establishment of borders.

2. The Precedent of the Refugee Crisis

The principle of free movement, which Europe prides itself on, was severely undermined during the 2015 refugee crisis (Caporaso 2018). In other words, before the COVID-19 crisis, there was already an experience of free movement being suspended. At that time, as a consequence of the Syrian civil war, over a million refugees entered Europe via Turkey and Greece, and then moved throughout the European Union from Greece. Since free movement was guaranteed once they entered Greece, i.e., the EU territory, the primary goal for refugees was to cross from Turkey to Greece. However, as the influx of refugees surged, some member states, under the guise of emergency measures, resumed border checks, obstructing free movement.

Of course, the border controls implemented due to COVID-19 after 2020 were more comprehensive and stringent than those during the 2015 refugee crisis. This was because the measures not only reinstated border checks to block refugee movement but also restricted the movement of European citizens. The 2015 refugee crisis could be contained through cooperation between the European Union and Turkey. Turkey, situated between Syria and Europe, agreed to control the flow of refugees in exchange for economic assistance from the EU, thereby halting the refugee influx (Vallet 2021).

The precedent of the refugee crisis left the European Union with subtle lessons. One is that when a crisis occurred, Europe failed to promptly establish a common response, leading to fragmented national measures that undermined integration achievements—a critical perspective on Europe's short-term impotence. However, another lesson is that these national measures are ultimately temporary, and normalization occurs over time as EU-level solutions are sought. Measures that negate European integration, such as border controls, are merely temporary responses to crises, and do not signify the collapse of Europe.

3. Seeking a Common Response

While it is true that the COVID-19 crisis instantly undermined the achievement of free movement in European integration, it was a situation for which it is difficult to assign blame solely to Europe. Of course, those who view European integration as part of globalization might criticize Europe and globalization together, arguing that large-scale tourism and extensive trade led to the COVID-19 situation, but this is unlikely to be the general European response. Rather, the view that measures such as quarantine and lockdowns were temporary and unavoidable responses was more prevalent. In particular, decisions regarding quarantine and lockdowns were within the authority of member state governments, and since they applied not only to inter-state travel within Europe but also to domestic movement, it was difficult to hold Europe responsible.

Although COVID-19 initially spread in Western Europe, it eventually spread throughout Europe, including Central and Eastern Europe, over time. As the scope of the COVID-19 crisis expanded, regional differences also began to emerge within the same countries. The overall expansion of the crisis and the recognition of regional disparities underscored the need for a multi-layered response to the COVID-19 crisis involving Europe, member states, and regions (Krastev and Leonard 2021).

Although limited, the COVID-19 crisis also provided opportunities for cooperation between European countries. In the spring of 2020, Italy and France experienced a surge in patient numbers, while Germany had relatively available hospital capacity. Consequently, a cooperative system was established where German hospitals admitted and treated patients from Italy and France in border regions (Wieder 2020). This created a precedent where cross-border travel for the treatment of a small number of patients was encouraged, even while restricting the movement of the general public, which was difficult to control.

The EU's agreement in April 2020 to prohibit non-essential travel from outside the EU can be seen as the beginning of a common response to COVID-19 (European Commission 2020a). Historically, Europe's role was to lower or eliminate borders between member states, but through COVID-19, it took on the role of raising external borders. This is similar to the early experiences of the European Community, which established a common trade policy by applying common external tariffs to goods from outside the EU.

It is undeniable that the quarantine and lockdown measures in Europe due to COVID-19, implemented in various countries and regions, represented a regression of European integration. However, there was also a strong perception that this regression was temporary and unavoidable. Furthermore, it is accurate to consider that the responsibility for these measures lay with the member state governments, which traditionally handle health policy. Europe could be seen as having an opportunity to explore new policies while avoiding direct responsibility.

IV. The Politics of Vaccines

The COVID-19 crisis played a decisive role in prompting the European Union to intervene directly in a part of health policy. It assumed the crucial role of procuring and distributing vaccines at the European level, rather than through individual member states. Health policy traditionally fell under the purview of member states, and EU-level intervention was intermittent and indirect. Without a crisis that raised new policy issues like COVID-19, it would have been difficult for the EU to quickly assume authority in such a critical area. This section examines the factors that enabled the expansion of EU authority.

1. Health Policy Handled by Member States

The division of powers between the EU and its member states in Europe is highly complex. This is because in modern society, where policy issues are closely interconnected, a clear separation of powers is impossible. Broadly speaking, the EU exercises almost exclusive authority in areas related to the single market, i.e., the movement of goods. In contrast, the functions related to the welfare state can be considered to be exclusively handled by member states. Within this division of policy responsibilities, health policy tends to fall strongly under the purview of the welfare state, i.e., member states (Brooks and Geyer 2020, 1059). In practice, health and medical policy decisions are still made at the member state government level. For example, policies related to quarantine and lockdowns, which were crucial during the COVID-19 crisis, and vaccination policies, are decided by member state governments.

The areas where the EU has intervened are those that overlap between health/medical policy and the single market. A prime example is the evaluation and authorization of medicinal products, a role handled at the European level by the European Medicines Agency (EMA). Although pharmaceuticals are specialized, they are also goods, and their authorization and distribution fall under the free movement of the single market, thus requiring European-level management. The EMA was established in London, UK, in 1995 with the formation of the European single market, but it relocated to Amsterdam, Netherlands, after Brexit.

The European Medicines Agency played a crucial role in vaccine authorization at the end of 2020. Given the rapid development of vaccines for a new disease, safety concerns were significant, and the authorization of vaccines developed in countries like Russia and China became a sensitive diplomatic issue. As of August 2021, the EMA has not officially authorized Russian or Chinese vaccines, and this policy has become a contentious issue in the politics of vaccines within Europe.

2. The Rise of Europe: Joint Vaccine Procurement

In the spring of 2020, Europe faced a severe economic crisis due to the rapid spread of COVID-19, leading almost all member states to implement nationwide lockdowns. In the summer of that year, the European Commission demonstrated its acquisition of new authority by taking on the crucial aspect of health policy: joint procurement and distribution of vaccines (European Commission 2020b). There is a significant difference between the authority to authorize medicines at the European level and the authority to procure and distribute vaccines, which are critical for controlling a new disease. The former is a subsidiary aspect of market management, while the latter is a decisive cornerstone of health policy. How did the health crisis become a mechanism for promoting European integration?

The temporal and structural crises faced by the European Union provided a motivation to reaffirm its raison d'être through new policies. Brexit had generated widespread skepticism about European integration, and the rise of China and discord with the United States highlighted Europe's relative powerlessness (van Middelaar 2020). The negative assessment that Europe's response to the refugee crisis, which was decentralized around member states, ultimately failed was also strong. Even after the COVID-19 crisis emerged, competition among European countries for mask procurement starkly revealed the limits of division.

The EU Commission, in particular, was experiencing a crisis of legitimacy. Commission President Ursula von der Leyen, appointed in 2019, emerged as a candidate through a power struggle between the European Parliament and member state leaders ("The Economist 2019b). She was proposed by France after the leading candidates supported by the main political forces in Parliament—the Christian Democrats and Social Democrats—failed to be appointed due to opposition from some member states. Von der Leyen, who has a long political career, also has a background as a medical doctor. Efforts to compensate for her weak democratic legitimacy could be expressed through a strong commitment to new policies. The doctor-turned-Commission President's vaccine procurement policy can be seen as a natural link from this perspective.

For the Commission to pursue a procurement policy in an area where the EU does not have clear authority, member state consent is essential. Therefore, it is necessary to explain why member states did not at least oppose joint procurement at the European level. As of the summer of 2020, vaccine development was uncertain, and it was well-known that vaccine development for coronaviruses was particularly challenging. Member states had little reason to strongly oppose the EU taking on an uncertain issue in a new area.

Europe entered into negotiations with major pharmaceutical companies and generally succeeded in securing sufficient vaccine supplies through advance purchase agreements. The negotiation process was slower than in the UK or the US, and the actual vaccine supply was also relatively delayed, with some problems arising ("The Economist 2021). There were also instances of friction among member states regarding vaccine supply. Despite these technical issues, the European Commission's joint advance purchase strategy is considered to have been effective in securing large quantities of vaccines at a low price, and the results were met with a positive response from European public opinion.

3. The Politics of Vaccine Distribution

In December 2020, Europe began its vaccination campaign, rapidly inoculating its citizens in the first half of 2021. The most serious issue that arose in the politics of vaccines was the explosive increase in COVID-19 cases in Central and Eastern Europe, which occurred later (The Economist 2021). While the spread of COVID-19 in 2020 was primarily centered in Western Europe, Central and Eastern Europe were relatively unprepared. In 2021, the disease suddenly spread, causing shock. The allocated vaccines were severely insufficient for Central and Eastern European countries.

Hungary and the Czech Republic even resorted to introducing Chinese and Russian vaccines (Kauffmann 2021). The Hungarian government under Viktor Orbán, which had consistently voiced criticism of European integration, advocated for the use of cheaper Chinese vaccines from the outset. In the Czech Republic, the hasty decision by the government to introduce Russian vaccines led to a political crisis that resulted in the collapse of the coalition government, as a coalition partner party withdrew in opposition to the introduction of Russian vaccines.

The European Union, in its own way, applied the principle of solidarity to respond to the changing situation in these Central and Eastern European countries. More affluent member states reached an agreement to cede vaccines to Central and Eastern Europe (Malingre et Chastand 2021). Furthermore, the will of member states that opposed new distribution until the end was respected. This is why it can be considered a considerable success in harmonizing principles, concessions, and compromises.

4. Health Passport: Combining Health and Mobility

Since July 2021, the European Union has implemented health passports to harmonize the resumption of free movement for its citizens. The health passport is an effort to establish criteria for allowing movement at the European level and is a result of the European Commission's plan from the early stages of vaccination in March 2021 (Malingre 2021). The idea is to facilitate travel by creating a common certificate containing information such as vaccination status, COVID-19 test results, and medical history. However, due to the wide divergence in policies regarding travel authorization among member states, only the information to be included in the passport could be agreed upon. Moreover, the response is continuously subject to change due to the emergence of various variants. From the perspective of European integration, it is interesting that the EU's new vaccine authority has combined with the traditional authority over people's movement, evolving into another domain: the health passport.

In the process of responding to the COVID-19 crisis, the European Union has come to play a significant role in health policy (Brooks and Geyer 2020). As a global pandemic, it is functionally more effective to establish responses at the European level rather than at the member state level. However, research on the process by which this functional demand was translated into actual authority needs to continue. Here, only a few hypotheses based on probability have been provided, and further research is required for precise confirmation.

V. Fiscal Federalism

In July 2020, the European Union decided on a European-level multi-year economic support financial package amounting to 750 billion euros to overcome the economic and social damage caused by the COVID-19 crisis. Compared to the US government's COVID-19 crisis response measures, which amounted to trillions of dollars, Europe's support scale was meager. Even when compared to the crisis response financial support mobilized at the member state level, Europe's decision stands out for its relatively small scale. However, it is no exaggeration to describe this decision as the most dramatic policy paradigm shift brought about by the COVID-19 crisis (Ladi and Tsarouhas 2020), as it presents the most concrete and realistic starting point for fiscal integration in Europe.

1. The Experience of the Euro Crisis

Just as the precedent of the 2015 refugee crisis significantly impacted the COVID-19 crisis, the experience of the repeated Euro crises in the 2010s served as an important standard and background for responding to the health crisis (Schimmelfennig 2014). The Euro crisis, which began in 2010 and repeatedly pushed Europe into a corner in 2012 and 2015, visibly exposed the imbalances of European integration (Pisani-Ferry 2014). The logic is that Europe, possessing a single currency, the Euro, is subject to the same monetary policy, while fiscal policy is handled by each member state, inevitably leading to crises. Europe launched the Euro in 1999, and the European Central Bank (ECB) is responsible for monetary policy. However, economic conditions and situations vary among member states. For Europe to function effectively as a single economic area, there must be a common fiscal policy to adjust the differences between member states. This means creating a fiscal mechanism where competitive, wealthy member states assist lagging regions and poorer member states, similar to how federal states like the United States or Germany operate. However, internationally, criticism has been raised that the separation of monetary policy at the European level and fiscal policy at the member state level is a cause of crises and an impediment to their resolution.

The imbalance in monetary and fiscal policies was reflected in the geographical imbalances within the European Union. While countries in Northern Europe, including Germany, were critical of fiscal deficits, most Southern European countries structurally suffered from chronic fiscal deficits. Even if not intentionally pursued, fiscal deficits and public debt burdens were historically high or worsened by the Euro crisis (Matthijs and McNamara 2015). The contrasting patterns between North and South Europe in monetary and fiscal policies can perhaps be seen as a kind of tradition that has continued since World War II. Even within the US-centered Bretton Woods system, France and Italy experienced repeated currency devaluations, while Germany repeatedly experienced the appreciation of the Deutsche Mark. This trend was confirmed again in the European Monetary System (EMS), launched in 1979.

Germany's greatest concern during the pursuit of a single currency was the depreciation of the currency's value due to the 'irresponsible' spending of Southern European governments. When the decision to pursue a single currency was made in the Maastricht Treaty in 1991, Germany laid the groundwork for a strong Euro (Degner and Leuffen 2021). The treaty stipulated that an independent central bank would pursue the sole objective of price stability. Furthermore, to join the Euro, countries had to meet the criteria for stable monetary and fiscal policies. Italy and other Southern European countries barely met the Maastricht criteria after efforts at austerity policies in the 1990s and were able to participate in the launch of the Euro. From Germany's perspective, the loosening of fiscal policy by Southern European governments after the Euro's launch was a significant cause of the Euro crisis. This is the background against which Germany consistently demanded stricter fiscal austerity while supporting the Southern European crisis in the 2010s.

The proposed solution at that time was to create a European-level fiscal mechanism. If the sovereign bonds of Southern European member states, including Greece, were the problem, the proposal was to issue common bonds (eurobonds) to share the risk and overcome the crisis. Germany clearly opposed this, arguing that it would lead to a repetition or exacerbation of moral hazard among Southern European countries regarding fiscal matters (Matthijs 2016). In other words, the fiscal and monetary policy imbalance in Europe, superimposed on the North-South geographical imbalance, became the cause and background of the Euro crisis.

2. Content and Significance of the Fiscal Package

While the expenditure component of the July 2020 fiscal package is significant, the truly remarkable change lies in its establishment of the principle of European bonds for revenue generation (European Commission 2021a). Firstly, examining the expenditure, securing a multi-year budget indicates that it is part of a medium- to long-term plan. The European Union was already implementing policies based on the principle of multi-year budgets. Given that policy decisions involve numerous member states, annual decisions would become excessively complex without medium- to long-term planning. It is noteworthy that this fiscal package, despite being a special budget to respond to a 'temporary' crisis, provides a medium- to long-term timeframe.

Revenue generation employs two methods. One follows the principle of member state financial contributions, which has been generally applied until now. The other is a new revenue generation method: issuing European-level bonds to support member states in need. This marks the birth of the Eurobond. If one does not consider the history of the Euro crisis or European integration, the revenue generation method of this fiscal package might be dismissed as a mere technical issue, given its modest scale. However, the change in attitude and policy shown by Germany, which had refused fiscal integration with Southern Europe for decades, is astonishing in principle (Malingre 2020).

3. The Politics of Fiscal Integration

In the context of existing European fiscal integration, one side consisted of Southern European countries desiring integration, while the other side comprised the remaining countries, namely Northern and Eastern European countries, who opposed it (Busse et al. 2020). The Euro crisis of the 2010s was a crisis in Southern Europe, and fiscal integration was about supporting Southern Europe; therefore, all other countries were opposed. Germany and Northern Europe, in principle, doubted the finances of Southern Europe and opposed integration. Eastern Europe felt that they had barely joined the Euro through difficult austerity measures and could not support Southern Europe, which was at a higher level of development.

In the context of the COVID-19 crisis in 2020, the discussion on fiscal integration took a slightly different turn. This is because Eastern European countries, as potential beneficiaries, showed a different attitude compared to the Euro crisis. The Netherlands, Austria, and Scandinavian countries like Denmark and Sweden opposed fiscal integration through common bonds, adhering to their traditional policy stance (Maillard 2020). The decisive role was ultimately played by Germany's change in attitude. Why did Germany decide to change a policy paradigm that had persisted for decades?

The North-South European divide created by the Euro crisis was almost identically superimposed in the COVID-19 crisis (Krastev and Leonard 2021). In July 2020, when the fiscal package was decided, Southern European regions such as Italy and Spain were experiencing the health crisis most severely. To overcome the health crisis, they had no choice but to resort to drastic measures like nationwide lockdowns, which immediately led to an economic crisis, with an expected negative growth of 10%. It was conceivable that if the situation worsened for Southern European countries, which had already endured prolonged austerity due to the Euro crisis, they might radically leave the EU, leading to the overall collapse of European integration.

Furthermore, actual political changes in Italy and Spain made it impossible to ignore this possibility. In Italy, in 2018, the far-right nationalist League and the uniquely populist Five Star Movement formed a coalition and came to power, defeating the existing political forces (The Economist 2018). In Spain, far-right anti-European nationalist forces like Vox have shown a rise in frequent general elections. While the political effects of COVID-19 could not be predicted, there was a high probability that a severe crisis would lead to the strengthening of anti-European political forces. Although it is difficult to ascertain the exact motivations behind Germany's policy change, the political situation and changes in Europe likely influenced Germany.

When Germany, a key player in the group of countries previously opposed to fiscal integration, shifted its stance, the remaining member states appeared isolated. Although the Netherlands, Austria, Denmark, and Sweden opposed it, as is often seen in EU politics, it is difficult to exercise veto power until the end on policies desired by the majority. They compromised by proposing conditions for fiscal support, and ultimately, the European package was agreed upon and decided.

The COVID-19 crisis led to an enhanced role for the European Union in strategic areas, such as vaccine procurement and fiscal support packages, even if the scale was not enormous. Some media outlets, citing American history, excitedly proclaimed the arrival of Europe's 'Hamiltonian moment.' This interpretation and hope suggest that just as the US federal government laid its fiscal foundation in its early days, the EU has now acquired the basis for pursuing its own fiscal federalism. Whether the principle of common bonds will develop further or remain a one-time technical innovation is unknown. However, if fiscal integration grows and expands based on this, it is worth remembering that the COVID-19 crisis provided the true starting point for fiscal integration.

VI. Conclusion: The COVID-19 Crisis as a Catalyst for European Integration

The COVID-19 crisis coincidentally struck at the beginning of the 2020s. The European Union was in a state of existential crisis in the 2010s, with frequent mentions of its potential collapse. The 2010s can be described as a decade spent navigating the Euro crisis, which arose from the aftermath of the global financial crisis. The launch of the Euro in 1999 was a representative achievement of European integration, signaling the unification of the currency, a symbol of sovereign states. The possibility of the collapse of this Eurozone was equated with the scenario of the end of European integration.

The 2015 refugee crisis was also a serious event that starkly revealed Europe's divisions. To control refugees, Europe had to temporarily abandon the achievement of freedom of movement. Although the refugee crisis was resolved relatively quickly, Europe's identity as a champion of human rights was irrevocably damaged by 'outsourcing' refugee control to an authoritarian Turkey.

The UK's decision to leave the EU in 2016 was a shock that shattered the irreversibility of European integration. The shock was even more profound because it was the withdrawal of a major power, a pillar of Europe, not a small or medium-sized member state.

The effects of the three major crises of the 2010s—the Euro, refugees, and Brexit—were not necessarily negative for European integration. On the contrary, there is a clear aspect in which the crises made the process of European integration more robust. Through the Euro crisis, the European Central Bank's status was further strengthened (McNamara 2012), and Europe was able to pursue further policy integration, such as the Banking Union. The refugee crisis ended as a stopgap measure of policy outsourcing to Turkey and starkly exposed the divisions among member states. The unequal reality, where Mediterranean countries like Greece, Italy, and Spain bore the heavy burden of refugee responsibility, became widely recognized. Brexit, with its messy process and the realization that severing ties with Europe would be extremely complex and difficult, served to reduce the desire for other member states to leave (van Middelaar 2020). Furthermore, with the withdrawal of the UK, which had fundamentally opposed European integration, the decision-making process within the EU became smoother and simpler.

The COVID-19 crisis was an additional crisis on top of the existing three major crises (Wolff and Ladi 2020). The tentative findings of this paper indicate that while European integration experienced significant difficulties due to the repercussions of crises, it also expanded its powers through new policies mediated by these crises. Amidst the generalization of quarantines and lockdowns due to the health crisis, Europe took on the role of managing external movement of people and, by coordinating discussions on health passports, maintained its role as a guardian of freedom of movement. In vaccine procurement policy, it emphasized the need for a common front, expanding its scope beyond existing drug approval authority to the comprehensive task of managing the health of European citizens. Finally, in establishing a financial package to overcome the crisis-induced damage, it included the technical innovation of common bonds. While these may be dismissed as limited changes, history shows that such small policy innovations can lead to significant future transformations in European integration.

The COVID-19 crisis acted as a catalyst, accelerating European integration through the establishment of common responses. As introduced in the introductory section, this paper has strived to present both a structural explanation of Europe's response to crises and a micro-level analysis where the diverse calculations and strategies of actors lead to the formulation of solutions. The efforts of the Commission to overcome its weak 'democratic' legitimacy early in its term and the German government's acceptance of a decades-old policy paradigm shift were decisive in the COVID-19 crisis response (Wieder et Boutelet 2020). Although in-depth research and analysis were limited due to time constraints in this paper, this is an area that requires further investigation in the future.

The structural and functional need for common responses to crises will likely be similar at the East Asian and global levels. Unfortunately, East Asia and the world are exhibiting dispersed responses rather than cooperation, and at times, confrontational behavior. A micro-level analysis of actors' strategies is certainly necessary, as is an examination of the institutional frameworks within which actors operate. This paper offers little detailed analysis of the framework connecting the macro and micro levels. It only introduces the concept of a multi-level governance structure, but an explanation of this aspect is crucial for understanding the strategies, actions, and decisions of actual actors. This is particularly true for comparative analysis with actors at the East Asian or global levels. Furthermore, since Europe already possesses significant 'quasi-state institutions and structures,' a comparison with the federal state of the United States may offer a key to understanding.

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■ Author: Cho Hong-sik_Professor, Department of Political Science and International Relations, Soongsil University. Received a Ph.D. in Political Science from Sciences Po Paris. His main research areas include international political economy, European regional studies, and the politics of identity. Representative works include "The Web of Civilizations: A Panorama of European Culture," "One Europe: The History and Policies of the European Union," and "European Integration and the Future of 'Nation'."

■ Responsible for and edited by: Yoon Ha-eun_EAI Research Fellow

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