The Coronavirus response turns the EU’s agenda upside down

4 June 2020

The current crisis requires a major re-thinking of the EU’s policy priorities for the coming five years

Karel Lannoo
Editorial credit: Alexandros Michailidis / Shutterstock.com

The EU is facing a major transformation, even bigger than the one following the financial and sovereign crisis of 10 years ago. But for this transformation to work, leadership and imagination are required, as well as foresight on the part of its members. Insularity and withdrawal of European states into themselves will not help combat a crisis that only highlights the need for more cooperation and a truly European response. The UK’s protracted withdrawal may help the 27 member states move in this direction, but it is far from a given. A profound and new agenda is required for the coming years to combat the downturn that the pandemic has precipitated – but the first steps are being taken.

Coronavirus has reset the European Commission’s agenda. President von der Leyen’s had just completed the symbolically important first 100 days in office when the pandemic struck last March, and objectives such as the plan for a geopolitical Commission, an EU industrial policy, and strategic autonomy now have a different relevance, as all efforts now turn to combatting COVID-19. These, and many other of the Commission’s priorities, remain important, but are now even more difficult to accomplish, but the crisis should serve as a wake-up call to member states that there is a need for EU-wide planning to face global threats.

Many parallels can be drawn with the financial and sovereign crisis, which also exposed the limited powers of the EU Commission and the pre-eminence of the member states, and the need for drastic structural solutions for the EU to remain relevant. The previous crisis also produced some innovative solutions, such as with the central role played by the ECB, and the creation of supranational entities like the European stability mechanism (ESM) and the single supervisory mechanism (SSM). To some extent, the EU has responded decisively in the short term, with the ECB’s announcement of the Pandemic Emergency Purchase Programme (PEPP) and with European Council welcoming the Joint European Roadmap towards lifting of COVID-19 containment measure on 23 April 2020. For the longer term, the foundation may be laid in the coming weeks with the expected passage of the EU’s multiannual financial framework (MFF), the bloc’s seven-year budget. Once this is done, the hard work can start to adapt EU policies, and possibly even the EU Treaty, to rise to the challenges posed by COVID-19, as was done for the ESM.

For a broader public, the EU’s toolbox continues to be mired in complexity and opacity, which impedes communication. Also, once again, the EU’s response has been widely seen as inadequate, and the EU is blamed for all kinds of shortcomings. The criticism is most acute in Italy, where the EU is blamed for a lack of solidarity, even though health policy is fully a national or local competence. These misgivings have been reflected in tumbling support for EU in polls in that country. More broadly, this may also be indicative of the lack of a European public opinion, which is especially acute in times of crisis, when progress has to be made swiftly. Debates continue to be largely steered through national media outlets, and there is hardly any Europe-wide debate.

Looking at the initial reaction to this crisis, the failure to respond adequately is something for which Europe collectively can be blamed. Most EU states reacted late, downplayed the threat of the pandemic, or were naïve about the possibly devastating consequences of the virus. A few states managed to contain it before being hit hard, but only after they saw what was going on in northern Italy, and the majority of lockdowns still only happened more than a month after the first cases were reported in a ski resort in France at the end of January.

The EU as a set of institutions did not react promptly to the crisis either. Health policy is not an EU competence as we have said, and the EU institutions have only limited coordinating powers, and can only request member states to inform the EU about measures they adopt when dealing with health crises (Art. 168.2 TFEU). Nevertheless, the EU entities in charge of the bloc’s albeit limited health policy capacities were almost entirely absent in the early weeks of the 2020, when the pandemic was raging in China and was taking hold in Italy. The European Centre for Disease Prevention and Control (ECDC), which is the official “EU agency aimed at strengthening Europe’s defences against infectious diseases” hardly gave any advance warning of the impending catastrophe. The Commission, which oversees the ECDC, has also been constantly behind the curve on the threat of the pandemic, and the implications it could have on EU economies and EU freedoms. DG Santé, the EU Commission’s directorate general in charge of health policy, was almost silent. It was only from mid-March that the Commission President, a medical doctor, and the European Council President started to act decisively, and then the EU institutions switched to crisis mode. By that time, the situation in northern Italy had become dramatic.

Looking at the disastrous economic consequences of the crisis thus far, it is clear to us that the EU will need to have a greater role when it comes to. Healthcare and disease control. Healthcare cannot be disconnected from the other areas of EU competence, such as the single market, trade, competition, and civil liberties. The way member states have reacted to this crisis in limiting personal movement and trade in a disjointed and haphazard manner only weakens the EU. It has profoundly undermined the EU rights and freedoms of individuals and the rule of law, going against fundamental principles of proportionality and non-discrimination.

To act as a united economic bloc, the EU will also need to have stronger prospective and coordinating powers to manage pandemic risks. It will need to look more closely at healthcare budgets as part of the EU’s economic governance regime, to map its medical and pharmaceutical capacity, and to coordinate Europe-wide research efforts in biotechnology. And if EU countries are to continue to pride themselves on having the strongest social security system in the world, they had better act together to protect it.

On the governance side, the EU has already started to look into social security expenditure, as part of public finance monitoring through the EU semester programme – the EU’s annual cycle of economic and fiscal policy coordination. In the future, this will need to go deeper to detect major discrepancies between member states and to allow for efficiency gains in healthcare expenditure. Since the onset of the pandemic, many European citizens have been made aware of the enormous differences between practices and capacities in public healthcare in the EU. This will need to become much more aligned, and best practices must be promoted. An EU Treaty change should not be excluded to give the EU more competences in this area, to ward against uncoordinated reactions in the future, should similar circumstances arrive. This crisis has also led to huge restrictions on the movement of persons and goods, causing serious damage to the internal market and the economy.

The Treaty on the functioning of the EU currently states explicitly that EU ‘action shall cover the fight against the major health scourges, by promoting research into their causes, their transmission and their prevention” (Art. 168.1) and encourages and promotes cooperation between member states in the field of public health, but regrettably there has been little evidence of this during the COVID-19 crisis. Given that health policy remains a jealously-guarded national competence, EU interference in this matter is rarely tolerated. This was clear in the diversity of standards applied throughout the EU and the wide range of methods and methodologies used to record and report cases. Even if quality of healthcare continues to diverge as a result of the differences in purchasing power in the EU, the monitoring of public health matters should still be comparable all across the EU. The same effort should be made, as with the Maastricht Treaty, to make public finance data comparable across the bloc. The current situation has only led to limited awareness about the outbreak of the disease, confusion, and incapacity to act. Often, it has also led to incomplete or flawed comparisons between states’ efficacity in combating the crisis.

A fundamental re-design of the role and functions of the ECDC should be a top priority. Even after several months of this crisis, many Europeans have never heard of this EU agency and its director, but have possibly heard of its US equivalent – the CDC (Centers for Disease Control and Prevention) or the National Institute of Allergy and Infectious Diseases (NIAID) of Dr Fauci. The Copenhagen-based agency, with an annual budget of €59 million and a total staff of about 270 persons, should follow the model of the European Systemic Risk Board that was created after the financial crisis, and the central role of the ECB in monitoring financial risks. Pandemics are systemic; they create domino effects and should be tackled at source through the monitoring of diseases all around the globe and by tracking the related movement of persons. It is obvious that for a small geographical area like Europe, this can better be done by pooling expertise rather than having it scattered across many different states. This will certainly benefit smaller states, of which there are many in the EU. The agency should also be represented at global level in the relevant international bodies – including at the WHO. This will require a dramatic but necessary change to the functioning and role of the agency.

Another reason for greater European coordination of healthcare is the geopolitical dimension. The EU needs a much closer monitoring of the value chains in the production of pharmaceuticals and medical equipment, and must have an overview of the capacities and areas of strategic autonomy in these sectors. In a world of growing trade tensions and declining weight of the multilateral order, too much dependence on third countries can put public healthcare at risk, as we saw at the peaks of the crisis and the scramble for personal protective equipment (PPEs) and respirators. It can also be exploited by third countries for favours, or to undermine the EU legal order. For its part, the EU needs to pool more resources to boost the development of a vaccine and to acquire the necessary supplies of ingredients and reagents. It was recently reported that the largest EU-based pharmaceutical company would first supply the Americans with vaccines, as the US invested most through Barda, a federal biomedical research authority. Barda thus protects the industry, but requests supplies for the home market in return. The company’s CEO suggested the EU should create something similar.

The EU and its close neighbours host a large and vibrant pharmaceutical sector, but a publicly available monitor or factbook does not exist. European pharma groups form half of the top-ten list of companies by market capitalisatios, and their combined weight dominates European stocks. But for about 25 years the sector has been delocalising research and outsourcing production to countries outside the EU, diminishing Europe’s leading role and endangering its autonomy, thereby creating dangerous dependencies on third countries. Today, one in two new treatments comes from the US and the Chinese market share is growing, whereas Europe’s has declined. A mapping of the capacities of the European pharmaceutical industry through some form of consolidated balance sheet of their combined assets, and also some record of their dependencies on third countries is required, given the industry’s potentially critical influence over European healthcare systems. The industry is closely intertwined with national health administrations, because of the often heavy price subsidies afforded to them, which vary widely across markets. In addition, prices are set as a function of local purchasing power, and there is no single EU-wide price. The European Medicines Agency (EMA), which authorises medicines for the EU market should, together with the European Commission, play a central role here.

These considerations underline the need for a European industrial policy, which resurrects an old debate that has long haunted European policymakers, in this case, in the domain of pharmaceuticals. The EU presented its latest industrial policy plans on 10 March, but this communication was not drafted with the current health crisis in mind, but focuses mostly on the green and digital transition, and the need for strategic autonomy in these areas. It hastily adds that an EU pharmaceutical strategy will also be worked out by the end of 2020, in view of the ongoing health crisis, which will cover the need to ensure critical supplies of medicine and innovation. This however raises the question of whether the Europe can do this effectively, compared to its member states, which have currently maintain the full competence in this domain.

An industrial policy for pharmaceuticals may however go against the objective of the free trade agreements (FTAs)that the EU has recently concluded with third countires, which are designed to reduce tariffs and non-tariff barriers, and thus encourage trade, which in turn grows international dependencies and value chains. In the financial sector, an exception is allowed for market liberalisation in a ‘prudential carve-out’ – the same should be considered in pharma, but at EU level. FTAs also enforce intellectual property rights or patents of the large pharma companies, mostly based in rich countries, at the expense of developing countries. This is an old debate, which is certainly resurfacing with this crisis.

The EU has done a great deal to create an environment for the approval of medicines, which is carried out by EMA, the agency that recently moved from London to the Netherlands as a consequence of the UK’s withdrawal. It also supports research into the development of new medicines, through public-private partnerships and with the support of European funds. However, as with healthcare, the main levers remain in national hands, where the bulk of funding support is also based.

The Commission science hub – the Joint Research Centre – which employs about 3000 persons, is currently mainly focused on the areas falling within the EU’s competences, with very little attention currently being paid to healthcare. The EU’s research programme, Horizon, has important funding lines for biotech and cooperative research, also for the private sector. The current Horizon programme (2014-2020) has assigned €2.1 billion for the core funding programme in this domain, through vaccination research and through support for the Innovative Medicines initiative (IMI), which is co-funded with the private sector. But this is less than what is needed, given the high cost of vaccine discovery. Vaccine research is costly and drawn out and with a limited success ratio, and it is obviously best done in close collaboration with others. This could be alleviated through the issuance of vaccine bonds, the research costs of which could be borne by a broad group of both public and private investors.

Europe remains a hotspot for biotech research, but the landscape is highly fragmented, which is reflected in the fact that the United States generates about three times as many patents for new medicines as Europe, and China about nine times as many. European biotech companies were responsible for 13% of the new drugs approved by the US Food and Drug Administration in 2017 and 2018, while US biotechs were responsible for 78%. However, Europe’s share of new drugs could grow if its biotechs were able to attract more investment. They currently receive only 20% of the funding of their US counterparts, and 98% of follow-on offerings by European biotechs have been on US rather than European exchanges. The lack of an integrated and performing capital market in the EU is another impediment to its performance for the biotech sector.

A European data strategy is an important part of the EU’s industrial policy, where the interests of the pharmaceutical sector also come into play. Here again, ambitions for a European digital age were drafted without the health crisis in mind, and show the practical difficulty of the project. European data in European hands sounds wonderful, but a health crisis shows the need for an immediate reaction capacity, which currently does not exist. Alternatively, the member states can go their own way for lack of a European solution, or the data ends up in the hands of Big Tech, which tend to be US-based, as the tracing apps debate has demonstrated. In both cases, the European market suffers.

For the EU pharma sector specifically, there is no EU single data market, the prospect for which is held up by the national public interest provisions, and by the lack of national data spaces for healthcare, because of differences in views on privacy and different degrees of automation in healthcare in different countries. The emblematic EU General Data Protection Regulation (GDPR) is often seen as a hindrance to the development of an EU healthcare policy.

And there is the social dimension. The current crisis obviously does not hit all Europeans evenly. While overall, Europe has the most generous public healthcare system in the world, early data since the coronavirus crisis indicate that it affects mainly the elderly, the weaker, the less educated and the poorest in society. Work was already underway for an EU-wide minimum wage, which will undoubtedly be accelerated with this crisis, but other aspects will move up on the agenda as well.

More generally, the current pandemic is a huge challenge for the EU’s ambition to form an ‘ever- closer union’. Cohesion between regions and countries has been affected, as it seems that there are huge differences in healthcare, and even more as the impacts on public finances and the interest rate spreads on public debt become clear. The ECB’s massive securities purchase programme (PEPP) can temporarily address this issue, but long-term solutions will have to come from other institutions, and for a substantial increase in the EU budget. This was proposed in the EU Commission’s Next Generation budget on May 27, with a huge budget increase for cohesion policies.

The current crisis thus requires a major re-thinking of the EU’s policy priorities for the coming five years. It seems that the EU Commission, in cooperation with its member states, is on the way towards profound change, but this will require cooperation at all levels, and a positive outcome is not guaranteed. The joint announcement by the French President and the German Chancellor on 18 May is a sign that there is a willingness to get things done. The European Council will now need to approve the EU budget for the next seven years, which may serve as the basis for a profound shift in EU policy-making for the years to come.