The Coronavirus crisis: A Black Swan?

In Nassim Taleb’s 2007 book titled  ‘The Black Swan’, a black swan event is an unpredictable event with extreme consequences. The name derives from the fact that before discovering Australia, in the Western world all swans were believed to be white. This, Taleb argues, shows how humans base their strategies on what they know. They are not prepared for a black swan. In brief, we are not used to planning for unforeseen scenarios of difficulty. Yet, such scenarios do take place, and when they do they change everything. Yet, Coronavirus was only partially a black swan. While it could not be foreseen in its timing and development, for several years experts warned about the danger of pandemic disease. The contention is that every time the EU is called to do something that goes beyond the political and economic ordinary, its answer is weak.

I am writing while self-isolating at home in Italy in the middle of the coronavirus crisis. I am in Padova, Veneto, one of the cities which have been hit the hardest by the Coronavirus. In the province of Padova, there is Vò Euganeo, the location where one of the first clusters of coronavirus in Italy was identified. Like the rest of Italy, and soon the rest of Europe, I am forced to stay at home 24/7, to try to limit or at least delay the spread of this virus. I am not a virologist, nor a doctor, so I will not comment on the medical situation. The political scene is already swarming with ill-prepared politicians proposing new and tougher measures, while in fact, they were all slow in following experts’ suggestions at the beginning of the pandemic. As a matter of fact, this is a new phenomenon, and the reality is that we simply do not know much about it yet. But as the Director of a newly formed political foundation, I think we need to provide some additional input to the political analysis of the crisis. This article will analyse the gaps in the EU’s answer to the crisis, and show how emergency measures were taken mainly at the national level. The contention is that everytime the EU is called to do something that goes more than the political and economic ordinary, its answer is weak. In the last part, as the Arbury Foundation, we develop our set of six proposals to strengthen the Union and its ability to answer to unforeseen circumstances.

The European response to the crisis

From the beginning of the crisis, there was a lack of coordination between EU countries in responding to the emergence of the problem. Everything started when the first cases of coronavirus began in Europe and several countries began to limit or stop the flights from China. Italy, for example, was the first country to adopt such a  drastic measure. However, there was no coordination between the various EU countries. A passenger from China could for example fly to Germany and then reach Italy. A few weeks later, towards the end of February, the first cases in Italy were detected and the beginning of what seemed to be the first serious outbreak in Europe was already evident. In a downward spiral, Italy suddenly became the ‘super-spreader’ of the viral plague in Europe, and circumstances soon forced it to lock down the entire country.

Instead of addressing the problem of the spread of the virus through EU-wide mechanisms and identifying a common strategy of action, the other EU countries reacted by treating the Italian outbreak as an isolated, self-contained problem. Soon, EU countries began to limit the circulation of citizens from Italy, recommend to their own citizens not to visit Italy, and to impose measures of self-quarantine to Italian citizens arriving in their countries.  In other words, in the eyes of member states, Italy became from a founding member of the “ever closer” European Union to an alien, foreign health threat — as if no ties bound it to its neighbours. Even later, when it became clear that every country had to face its own local outbreak, and their predicament became similar to Italy’s, each country persevered in adopting its own uncoordinated strategy. Spain was the second country to adopt strong measures. Other countries like Belgium followed. In the meantime, France and Germany gave controversial and contradictory messages. President Macron declared that the crisis was dealt with seriously, but at the same time allowed the municipal elections to go ahead. The necessity of strong measures then resulted in complete closure of French borders, de facto suspending the Schengen Treaty. Chancellor Merkel said that this was the worst crisis since World War II and that 70% of the German population risked being affected, but adopted significant measures only weeks after the German outbreak started.

In the face of such an emergency, EU authorities gave a weak if non-existent answer. When they tried, they actually made things worse. A speech by Cristine Lagarde, President of the European Central Bank (ECB),  caused even greater turmoil in the financial markets. Only later, the ECB has agreed to increase Quantitative Easing (the pumping of public money into the financial sector) by around  €750 billion. In the past few days, new measures were announced and the relaxation of EU fiscal rules came into effect. National governments are now able to spend as much as they can to deal with the sanitary and economic crisis. However, this answer is still arguably too weak — it is at the national level rather than based on a European coordinated program of emergency investment.

The EU was not prepared for the Coronavirus emergency, and under the model, it was following it could not have been prepared. It had already shown its weakness many times, from the Greek crisis to the lukewarm answer given to events of the past decade in Ukraine, Syria and Turkey, and finally to its inability in pressuring member states such as Hungary and Poland to uphold civil liberties. On all these occasions the EU had shown its inability to enforce a coordinated plan and support a clear unitary political position. Whether we consider them blackswans or not, crises and emergencies happen and we need to be prepared.

The reforms the EU needs to face the future

The coronavirus crisis has demonstrated the irrelevance of the EU in a way that, without this event, could have taken years. Each European country responded to the crisis in a selfish, un-coordinated way. Every government was left to its own destiny by the Union, and when solidarity was provided, like in the case of German hospitals accepting some French and Italian patients, this was the initiative of a state rather than of the Union. This has got to change. As a pro-European foundation we, of course, think that a different kind of integration is the only way forward. A new Europe is needed. This black swan needs to transform Europe into a white dove of solidarity, into a continent founded on true European solidarity and a radically new humanism. We did not want to launch Arbury Road under such circumstances, but we think this crisis is highlighting some necessities the European Union must answer in order to be more prepared to face future threats. In order to deal with such events, which go beyond the control of single states, further integration is needed. We identified 6 points of actions which the EU should implement in order to improve its ability to answer these threats. Three of them are immediate points of action which can be taken in the next few days, while the other three are structural reforms that should be taken in the next few months (and years) when the economic crisis will kick in.

We believe these steps would help the economy and save the EU in the near term.

  1. Issuing of Euro Bonds:. Currently, individual countries in the EU seek financing for part of their debts individually on the financial markets issuing bonds. With the issue of Eurobond, the ECB will be able to act as a “lender of last resort” for the entire EU, guaranteeing directly the capital sourced on the market at cheaper rates which will be then equally divided across all the EU countries. This will ultimately allow the countries to refinance their debt at lower costs and to deal with the coronavirus emergency.
  2. Stop the humanitarian crisis: migrant camps are especially vulnerable to Coronavirus and we must show solidarity with migrants and refugees at this time, or we could be facing tragedy. Furthermore, the coronavirus showed how universal health care cannot be for citizens only but, in order to safeguard the health of the entire community, also non-members and immigrants need to have this right guaranteed.
  3. Protection of democracy: Hungary is not the only case of a European country where democracy is at stake. Authoritarian controversial measures have been taken in the past few years in Poland, and far-right dangerous populist movements are spreading everywhere in Europe. The European Union should equip itself with a protocol of emergency in defence of democracy, to avoid that these authoritarian movements can exploit these situations to increase their power.

In the longer term we want to see the following, in order for the EU to be robust against crises in the future:

  1. European Health Coordination: The creation of a centralised health agency to share resources and organise both the production of and distribution of materials (and patients) across Europe. If one country is particularly hit, the other countries need to cooperate to ease the situation. Furthermore, more funding for Health Services is needed. The coronavirus emergency showed the insufficiency of funding to hire and prepare new doctors, to increase beds in hospitals, especially in Intensive Care Units, and finally to invest in research. The United States invested a large amount of money on research, while the EU is spending much less.
  2. European political project & fiscal union: In connection with the first point the EU needs to stop being simply a system of economic coordination among countries. This project is clearly insufficient and largely finished. What is needed is a new political project. This virus showed the importance of what we can call “the European way” to citizens’ wellbeing. This comprises universal healthcare, state intervention, state participation to the production and management of the economy.
  3. European green New Deal: In the next few months, when the economic crisis will hit the continent we will need a massive program of  investments to stimulate the economy. This crisis is also an opportunity to change economic policies to adopt the so-called  Green New Deal for Europe. Investment should be channelled to green transition projects around the continent through the creation of a Green Public Works (GPW), a public investment agency. This will help to make society more eco-friendly while at the same time reduce unemployment and inequality.

We also encourage discussions about European Kurzarbeit Emergency Dividend  – This is a point that we are detaching from the other ones because it needs, in our opinion, a deeper discussion. The Trump administration is now actively seeking to hand in a $1000 check to every American to offset the economic recession caused by the pandemic. Europe needs to pursue this initiative as well. At this moment the project of an emergency wage is under discussion.  More in general, the increase in inequality of the past 20 years and the generational gap have made a universal basic income a possible solution to guarantee better opportunities for new generations and to help them to reduce the risk of unemployment due to an over-competitive job market and to the progressive automation and robotization of production.  In the case of a pandemic, it also allows many under-protected workers to stay home and withstand the momentary loss of their job.

Far from being exhaustive, this article is meant to launch a discussion. These are some of our ideas on what the EU should do.  In the next few days we will publish other articles on the single points that we have proposed. What we believe to be clear is that this crisis changed the situation completely and that decisive clear action needs to be taken. The European Union is at a crucial moment and in order to survive it needs to change drastically, going back to represent a hope for a better, more just society.