The Covid-19 epidemic is not just any stress test. For starters, it is likely to affect the entire world, leading to a synchronised growth slowdown or even recession. Synchronised recessions are virtually always deeper and longer-lasting than downturns affecting individual economies, and they hit open economies such as the EU particularly hard.
Compounding the problem, because every EU member state is facing a severe shock, they will be far less able to help one another than they were during the eurozone crisis that began in 2010. To be sure, Italy has suffered the most so far. But past transmission patterns elsewhere suggest that Covid-19 will continue to spread across Europe, putting every country under growing strain. [...]
The Covid-19 pandemic thus represents an opportunity for the EU to create a powerful crisis-management mechanism, which pools member states’ resources and channels them toward a co-ordinated fiscal policy. The idea of such an ‘insurance fund’ is not new: several economists championed the idea after the last crisis, when discussion of governance reform was in full swing.
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