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Foreign Policy

The Coronavirus Crisis: Geopolitics Will Change, the EU Could Disappear

Apr 01, 2020

Thus far, the European Union failed to properly navigate through the Great Recession of 2008, its following credit crunch and debt crisis, and the challenges of mass and illegal migration. Now, Europeans find themselves overwhelmed by coronavirus and the globe’s impending economic collapse. Overwhelming global debt is no longer an issue to solve. Instead, the primary question is – how do we simultaneously remain healthy and prop up a collapsing economic system?  

While Germany closes its borders with neighboring countries and stalls the traffic of desperately needed goods and services, China presents Europe with a ‘Health Silk Road’, delivering medical aid and personnel to Belgium, Bulgaria, Cyprus, France, Greece, Italy, Lithuania, Luxembourg, Norway, Serbia, Slovenia, Spain, and Ukraine, among other European states. The Chinese are sending urgently needed masks, test kits, doctors, and lung ventilators to the EU, and Beijing, alongside Jack Ma, is also sending virus test kits to all 54 African countries, Pakistan, Japan, Iran, the Philippines, and the United States. Russia and Cuba also sent aid to the struggling Italian health system. 

The shocks caused by the COVID-19 pandemic will almost entirely realign the global political and economic landscape. Coronavirus could also unravel the EU and return governance from supranational institutions in Brussels to centralized parliaments in Europe’s nation-states. I predict that neoliberalism and its representatives across Europe will lose out to populist political opponents on both ends of the spectrum in the coming years. 

Although the US and China will spar over the origins of coronavirus and the honesty and quality of Beijing’s initial response, Washington’s preoccupation with its health and economic crisis will not allow it to significantly assist Europe. As EU institutions appear less and less effective each day, China and Russia will step in and create lasting relationships in dire times. Unconventional European politicians and their constituents will remember who sent help and how Europe’s bureaucrats failed to prevent and solve yet another crisis. In short, COVID-19 will completely change the world economy and our understanding of global politics. 

Firstly, coronavirus and its subsequent economic crisis will accelerate already apparent geopolitical trends. The complete decoupling between China and the US will happen much sooner. Washington will bring home vital industries and shutdown pharmaceutical production in China. Economic nationalism will become the norm as China and the US ensure that they are less vulnerable and prepared to be independent for future challenges. Supply chains will become more domestically concentrated, and multipolarity will prevail in both economics and geopolitics. This will translate to massive price changes and standards of living for respective populations. The government will play a greater role in everyone’s life because the state will be entrusted with facilitating the transition to a new world system.    

Secondly, China, Iran, and Russia will strengthen their strategic alliances and encourage other states to join a partnership that opposes the US-led world order. Saudi Arabia’s role in the recent OPEC-Russia price war already reveals a weakening of Washington’s control over its apparent ‘allies.’ If China chooses to maintain oil output while Russia and Saudi Arabia keep crude prices low, the heavily indebted US shale industry will collapse. Washington will need to consider bailouts or low-interest loans for the airline, hotel, restaurant, casino, and oil production industries. If not handled masterfully, the US could very well lose its energy supremacy as a result of depressed demand, along with price cuts and output increases made by OPEC. Moscow can likely withstand prices between $25 and $30 for about 6 to 10 years, while US producers would need to abandon drilling projects, furlough workers, or declare bankruptcy. 

Thirdly, the COVID-19 pandemic confirms the widely-held belief that monetary policy is too weak to address global economic shocks. It also verifies that fiscal expansion is necessary. The Trump administration is pushing for an ever-expanding economic package that will cost trillions and provide direct payments to households and offer loans to small and medium-sized businesses. While such action is necessary, spending further balloons global debt, and central bank balance sheets will explode to unprecedented levels as governments must spend to assist populations. It will take a while for demand and consumption to recover. Social distancing and closed businesses could keep economies frozen for months. Liquidity problems will persist, and there will be US dollar  shortage. However, President Trump’s Republican Party will emerge from the COVID-19 crisis with positions that are more economically left than that of many Democrats. The crisis will completely transform the nature of the Republican Party and US politics.   

Lastly, the European Central Bank will further illustrate its inability to handle economic and political crises. The European Central Bank launched an emergency €750bn ($820bn; £700bn) package of additional rounds of quantitative easing through buying government and corporate debt across the eurozone. Italy, Spain, and France – all countries hit terribly by the pandemic – have the least amount of fiscal breathing space, irrespective of the European Commission’s relaxation of budgetary and state aid rules. European banks hold far too much bad debt, and there is no proper bank resolution regime or eurozone deposit insurance. Therefore, unlike the Fed and Washington, EU institutions did not expand fiscal spending or advocate for direct payments to taxpayers. These measures will not work and will only further establish Viktor Orbán, Matteo Salvini, Sebastian Kurz, and Marine Le Pen as Europe’s new populist leaders for three reasons. First, EU institutions continue to prove that they are incapable and unable, due to structural limitations, to handle economic crisis. Second, many EU states adopted Viktor Orbán’s policy on migration during the humanitarian crisis along the Greek and Turkish borders. Such strict border control and cautious immigration policies are further justified as a result of the COVID-19 outbreak. Lastly, much of the European periphery feels betrayed by Brussels, Frankfurt, and Berlin as hundreds die each day in Italy and Spain. The EU appears useless as each country pursues individual health measures. 

This sentiment also extended to non-EU Serbia, where President Aleksandar Vučić reacted to the Union’s ban on medical exports. Serbia, like Italy and Spain, looked to China or Russia for medical aid after the European Union did not provide adequate support. Vučić stated that: 

“European solidarity does not exist. That was a fairytale on paper. Today I sent a special letter…we asked China for everything. We even asked them to send us medical staff. I sent a letter to President Xi, where for the first time, on several occasions officially, which the Chinese understand very well, I not only called him my dear friend but a brother… 

When [the EU] needed Serbian money, they asked that we alter tenders and conditions so that European firms could receive Serbian money. But when there is pain and hardship, then our Serbian money is worthless…  

I believe in my brother and friend, Xi Jinping. I believe in Chinese assistance. The only country that can help us is China. For the rest of them, thanks for nothing.…” 

Although a president of a non-EU state, Aleksandar Vučić reveals the terrible fact that Brussels is unable to help any European country during a crisis. Once COVID-19 hit Italy, Rome understandably assumed that as a member of the EU, it would receive aid from other EU states to save Italian lives. Unfortunately, Brussels fumbled and barely responded, leaving an opportunity for Moscow and Beijing. Imposed border controls within the EU froze the flow of people, goods, and services, leaving European citizens stuck in trucks, cars, and buses at state borders. Germany and France restricted the export of medical supplies, which negates the purpose of a European single market. Other states banned travelers from Italy, which fundamentally violates the principle of free European travel. As the crisis develops, more and more Europeans will repeat Vučić’s words and ask if European solidarity is simply a fairytale. The European Union must assume greater responsibility for the wellbeing of its member states or grant them complete economic and political sovereignty, because currently, the EU experiment is contributing to a loss of European lives during the COVID-19 pandemic. 

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