2.1. How the Pandemic Unfolded in the EU’s Centres of Infection: The Interplay between Damaged Health Systems and Political Leadership

COVID-19 led to a pressure test of both the abilities of national leaders and the robustness of their health systems. The former was the first firewall at the macro-level, while the latter the second at the micro-level. Many commentators (Landwehr and Schafer Reference Landwehr and Schafer2020; Blackburn and Ruyle Reference Blackburn and Ruyle2020; McKee et al. Reference McKee, Gugushvili, Koltai and Stuckler2020, 2–4; Gugushvili et al. Reference Gugushvili, Koltai, Stuckler and McKee2020, 721–722; Lassa and Booth Reference Lassa and Booth2020) contend that populist leaders performed more poorly in the pandemic than non-populist ones, and were associated with the virus spread. The EU’s first centre of the pandemic, Italy, was seen as a case in point. The Italian coalition government, formed by the populist Five Star Movement and centre-left Democratic Party, was heavily criticized for its delayed actions in the critical weeks, from 21 February to 22 March, due to its underestimation of the virus spread, ignorance of experts’ warnings and downplaying the contagion. Horowitz et al. (Reference Horowitz, Bubola and Povoledo2020) believe that if lockdowns had been imposed 10 days earlier, the outcomes in Italy could have been very different.

Pisano et al. (Reference Pisano, Sadun and Zanini2020), however, attribute Italy’s maladministration not to its populist leadership, but to the typical human tendency to seize on information that confirmed preferred positions and avoided painful decisions. Capano (Reference Capano2020, 330–332, 341–342) explains that, when facing unknown or unexpected events like COVID-19, most policy design went through the same problem-recognition process -- from initial denial, followed by under-reaction, to final recognition. Justifiable or not, the Italian leadership’s fatal mistakes in missing the ‘time advantage’ of controlling the contagion resulted in an explosion of the pandemic, and inevitably put the second firewall, the Italian health system, to a severe test.

COVID-19 struck the Italian health system at a time when it had already experienced a decade of austerity. The Italian national health system (NHS) was once ranked as the world’s second best in the WHO’s 2000 Health Report, compared with Germany’s 25th place (WHO 2000, pp. 153–155) and was seen as the best part of the country’s welfare system. Austerity measures over the following decade undermined not only its quality but also its universalistic nature. These cut pharmaceutical expenditures, reduced hospital beds and hospitalization rates, increased co-payments for patient contributions, reduced numbers of healthcare workers and contained their wages. Between 2009 and 2015, Italian NHS staff dropped by 6.5% and the health system became seriously understaffed and ill-equipped (Neri Reference Neri, Serapioni and Hespanha2019, 153–154).

The resulting understaffed and ill-equipped Italian NHS, as Sanfelici (Reference Sanfelici2020, 197) indicates, ‘was not adequate to face the health crisis’. The pandemic accentuated the existing fault lines of the Italian NHS – the lack of even the most basic personal protective equipment (PPE), from protective masks and suits to the shortage of health workers and hospital beds, particularly in intensive care units (ICUs). Health professionals were forced to overwork under extreme pressure without breaks. These cruel realities explained why Italian health workers reported very high infection rates, 9% (Nava et al. Reference Nava, Tonelli and Clini2020). Meanwhile, hospitals were forced to implement triaging systems to determine which patients received the limited resources effectively (Palaniappan et al. Reference Palaniappan, Dave and Gosine2020). The COVID-19 mortality rate in Italy was comparatively high amongst advanced countries, 9%. Torri et al. (Reference Torri, Sbrogio, Rosa, Cinquetti, Francia and Ferro2020) attribute this dreadful outcome to the low availability of hospitals and ICUs, along with the aging population and concentration of the outbreak in the populous Northern regions. Many health practitioners (Armocida et al. Reference Armocida, Formenti, Ussai, Palestra and Missoni2020; Paterlini Reference Paterlini2020; Indolfi and Spaccarotella, Reference Indolfi and Spaccarotella2020: 1415–1417; Nava et al. Reference Nava, Tonelli and Clini2020) point out that, in the most-affected regions, the health system was close to collapsing. Despite differences in the regional performance of containing the pandemic (for example, the Veneto Region outperforming Lombardy for its lower rates of both infection and mortality), the pandemic became Italy’s ‘most severe crisis since WWII’, as Italy’s prime minister, Giuseppe Conte, put it. Compounded by leadership mistakes and a damaged health system, the pandemic in Italy turned into a health disaster and formed the EU’s first centre of infection.

The EU’s second centre, Spain, followed a similar path to Italy – from initial denial of the pandemic (‘the virus isn’t in Spain’), under-reaction (little preparation for medical equipment and tests), to final problem-recognition by political leaders (imposing strict lockdowns). Henriquez et al. (Reference Henriquez, Almorox, Garcia-Goni and Paolucci2020) argue that the lockdowns effectively reduced COVID-19 cases by about 80% in Spain and if they had been implemented one week earlier, there would be a further improvement of 12.8%. Enriquez (Reference Enriquez2020, 1–4), however, excuses the Spanish leadership’s accountability from the pandemic explosion on account of genetics, aging population and density, social habits, and different phases of the pandemic. Regardless, the failure of the first firewall triggered the second firewall – placing the Spanish health system under severe pressure.

Similar to Italy, the Spanish NHS was once considered a flagship of modernity and once ranked as the world’s seventh best in the WHO’s evaluations (2000, 153–155). Austerity reforms between 2011 and 2018 cut public spending in healthcare from 6.8% of GDP in 2009 to 5.9% in 2020, far below the EU average of 7.5%. These reforms resulted in a decline in hospital beds, a rise in temporary contracts for doctors and nurses, a 75% reduction of professional training, and a wave of privatization. Privatization was found to be an obstacle to handling a pandemic on a scale such as COVID-19’s. The Madrid region, which has been through the heaviest wave of privatization, was under severe strain during the crisis and became the country’s centre of infection (Hedgecoe Reference Hedgecoe2020; Legido-Quigley et al. Reference Legido-Quigley, Otero, la Parra, Alvarez-Dardet, Martin-Moreno and McKee2013, 1–3). Overall, these austerity reforms resulted in the loss of 28,500 NHS staff between 2011 and 2014 (Amnesty International 2018, 5–8). Accordingly, Franklin et al. (Reference Franklin, Hochlaf and Holley-Moore2017, 35) and Legido-Quigley et al. (Reference Legido-Quigley, Otero, la Parra, Alvarez-Dardet, Martin-Moreno and McKee2013, 1–3) criticize austerity reforms for changing the Spanish NHS fundamentally from one providing universal coverage to a contribution-based system, which was reflected in the deterioration of its accessibility, affordability, and quality of health services for Spanish citizens.

The Spanish NHS was thus in a precarious position before the pandemic and ‘not ready to confront a strain of this magnitude’ (Henriquez et al. Reference Henriquez, Almorox, Garcia-Goni and Paolucci2020). Shortages of human and physical resources stretched the Spanish health system to the very extreme. Despite the government’s efforts to prevent hospitals from collapsing – for example, rearranging the decentralized health system to a more centralized one, allowing implementation of private health services, and re-employing retired doctors and nurses (Legido-Quigley et al. Reference Legido-Quigley, Mateos-Garcia, Campos, Gea-Sanchez, Muntaner and McKee2020, e252–251; Henriquez et al. Reference Henriquez, Almorox, Garcia-Goni and Paolucci2020) – Spain had the highest infection statistics in Europe by September 2020. Its infection rate among health workers, 14%, was even higher than that in Italy (Nava et al. Reference Nava, Tonelli and Clini2020). The worst scenario, however, occurred in Spanish care homes. Owing to insufficient preparedness and overloaded caregivers, there was ‘a drastic deterioration of the health situation … [in] Spanish nursing homes’ (Thornton Reference Thornton2020, m3271). Two-thirds of registered COVID-19 mortalities in Spain occurred in care homes, and their ‘alarming living conditions’ was described as a ‘true humanitarian crisis’ (Henriquez et al. Reference Henriquez, Almorox, Garcia-Goni and Paolucci2020; Thornton Reference Thornton2020, m3271).

The systematic deficiencies of the Spanish NHS helped create the EU’s second centre of infection of the pandemic. The EU’s role in encouraging and promoting these austerity reforms should not be denied. In its reports, the European Council recommended Spain to ‘improve the cost-effectiveness’ of the healthcare sector and ‘the consolidation effort … needs to continue’ (quoted from Amnesty International 2018, 46). Between 2011 and 2018, the European Commission issued 63 instructions to members with high public debt and deficits to reduce healthcare spending or privatize health services and ‘Brussels should take its share of blame for this’ (Aubry and Schirdewan, Reference Aubry and Schirdewan2020).

COVID-19 could have been responsible for much worse disasters in Greece and Portugal, if it had not been for their swift action in announcing early lockdowns. Austerity cuts to the public health systems had led to serious shortage of health resources and staff in Greece and Portugal. Greek officials claimed that there were only 560 ICU beds in Greece for its population of 11 million in 2019, while in Portugal, there were just 4.2 critical care beds per 100,000 people, the lowest in the EU. Recognizing their NHS’s fragility, both Greek and Portuguese governments took decisive steps to lockdown at an early stage of the pandemic (Perrigo and Hincks Reference Perrigo and Hincks2020; Ames Reference Ames2020).

Franklin et al. (Reference Franklin, Hochlaf and Holley-Moore2017, 41) predicted before the pandemic that austerity reforms ‘save costs today while storing up problems for the future’. Such problems were exemplified when the pandemic hit Italy and Spain. Evidence from the UK also verified his predictions. Despite not being a euro-crisis country, the UK’s Conservative government ideologically pursued fiscal austerity to respond to falling tax revenues resulting from the global financial crisis. Government spending on health as a percentage of GDP declined 7% between 2009–2010 and 2018–2019. It resulted in the stalling of life expectancy in England, since 2010, for the first time in more than 100 years (Marmot Reference Marmot, Allen, Boyce, Goldblatt and Morrison2020, 3–5). The strained UK NHS, compounded by irresponsible populist leadership at the beginning of the pandemic, led to Europe’s third centre of infection developing in the UK. It is true that even the most well-resourced health systems could not prevent loss and damage to lives in the pandemic. Nevertheless, the heavy loss of lives in Italy and Spain was unnecessary and many lives could have been saved had resilient and better-resourced health systems been in place.

2.2. Precarious Labour Markets and Societies

During lockdowns, drivers, couriers and basic service providers were the only groups, along with health workers, to maintain regular employment. One major reason why they endured high risks to their health and kept working was because most of them were working on zero-hour contracts – the so-called ‘gig economy’, where there is no guarantee of minimum paid working hours. Keeping working was the only way to sustain their income. Such gig jobs provided little, if any, employment protection and most workers were not eligible for the government’s subsidies for furloughs during lockdowns as conventional workers were. The gig economy was the product of labour market reforms that the EU had pushed for over the last decade, aiming to reduce high unemployment in euro-crisis countries through providing greater flexibilities in labour markets. Labour market reforms, together with austerity cuts to social benefits, drove many people into poor-quality, little-protection and low-income employment in the gig economy (Marmot et al. Reference Marmot, Allen, Boyce, Goldblatt and Morrison2020, 23). For example, nearly one-third of the working population in Spain was classified as independent workers, of which, 42% were forced to accept gig jobs ‘out of necessity’ rather than ‘by choice’. Moreover, 61% of gig workers were young and 56% of them were from low-income households (McKinsey Global Institute 2016, 4–9).

As Braun et al. (Reference Braun, Kayali and Tamma2020) indicate, the rapid and massive breakout of COVID-19 in Europe shows that liberal and flexible labour markets, such as platform- or gig-economies, cannot ‘protect the health and well-being of individuals’. Foster (Reference Foster2020) observes that even knowing they were sick and at high risk of jeopardizing their health, gig workers ‘didn’t feel able to risk taking time off sick, including people cleaning the buildings where politicians work every day’, due to fears of being replaced. On the other hand, the increased co-payment of healthcare after austerity reforms deterred them from accessing health services due to financial considerations.

The poor working conditions and inadequate health protection that gig workers endured formed loopholes that made it difficult to contain the pandemic and undetected channels of virus transmission. As Michell (Reference Michell2020) points out, frontline workers in health services, care homes and basic services during the crisis were also those who suffered most from austerity and labour market reforms. It was ‘those most at risk [in the pandemic, who] remain the most vulnerable’ in the labour market (Foster Reference Foster2020). The continuing functioning of the gig economy during the pandemic therefore turned health risks undertaken by individual gig workers into collective ones for the entire society.

To summarize, the pandemic caught the EU at a precarious time due, to a certain extent, to the legacies of the EU’s economic governance over the last decade, which had encouraged austerity reforms at the macroeconomic level and labour market liberalizations at the microeconomic level. The former has left some EU countries with damaged and under-resourced health systems and, compounded with incompetent leadership, helped form the centres of infection in Italy and Spain. The latter highlighted the precarious social conditions within the EU, where loopholes were not detected in the gig economies and prevented the governments’ efforts from effectively containing the pandemic. The interaction between damaged health systems and precarious labour markets aggravated both the width and depth of the crisis in Europe. Austerity and gig-economic labour markets thus became what Foster (Reference Foster2020) calls the ‘patient zero of coronavirus’.

3.1. Practical and Moral Necessities

First, in practice, the individualist bailout–austerity nexus has been proved ineffective as a policy solution to managing crises after the EU’s experiment of the 2010s. It failed to reduce public debts for the euro-crisis countries. The level of public debts, though marginally improved, remained high in all euro-crisis countries, with the sole exception of Ireland (see Figure 1). This meant that those fiscally-weak countries such as Italy and Spain, also the EU’s two COVID-19 centres of infection, had very limited room for further fiscal manoeuvre, despite the lifting of fiscal restrictions on public spending by the European Commission during the pandemic. Such policy holidays were not realistic, although not impossible, for these highly indebted EU countries. As Bergsen (Reference Bergsen2020) argues, any increase in their public spending, for whatever legitimate reasons, would lead to questions in the markets over the sustainability of their debt levels. Fiscal freedom granted by the Commission could only be enjoyed by EU members who were fiscally-strong, or the EU would risk the return to a second sovereign debt crisis in Italy and Spain. This stark reality can explain why more than half of the state aids approved by the Commission since the crisis were paid out in Germany (Grant Reference Grant2020, 4). Even though all EU countries had the same fiscal room to increase public debt as a response to the pandemic – e.g. 20% of GDP – the debt servicing costs that Italy and Spain would bear would be much higher than those borne by Germany, Sweden and Austria. Odendahl and Springford (Reference Odendahl and Springford2020, 8–9) estimate that the former would see a rise in their debt servicing costs by about 0.5% GDP, while the latter would bear ‘little-to-no additional cost’ due to their differences in public debt levels. The European Commission (2020b, 5) admits that, due to weaker fiscal positions, those hardly-hit EU countries were constrained in their ability to take necessary support measures.

Figure 1.

Government debt, 2016–2019 (percentage of GDP).

Source: Eurostat (2020) Government finance statistics.

Second, economically, austerity practices have proved counterproductive in reviving growth and reducing unemployment, which were urgently needed in the aftermath of COVID-19. Manson (Reference Manson2020) contends that empirical evidence from Greece suggests that the EU economy could only expect an L-shaped recession if austerity was followed in the post-COVID-19 era as a result of high public spending during the crisis. As Michell (Reference Michell2020) explains, economic growth was stifled by austerity because aggregate demands of both households and governments reduced and failed to stimulate growth. Economic growth was limited to financial expansion only, derived by a series of quantitative easing (QEs) from central banks. What financial expansion created for the economy was mostly temporary and low-paid precarious jobs, induced by boosted housing markets and re-inflated financial asset prices, rather than by robust and sustainable recovery. Without productive investments to create decent jobs, any labour market liberalizations would only encourage the rise of the gig-economy; moreover, any austerity efforts would prove to be of limited use in reducing public debts because the taxation base was in effect shrinking.

Third, politically, the rise of contemporary populism in EU politics followed the euro crisis. This phenomenon was in line with the historical evidence that populism was usually the political product of crisis mismanagement. As the pandemic posed much greater damage to the European economy than the euro-crisis, commentators were concerned with whether it would usher in a new wave of populism in the EU or not (Gaston Reference Gaston2020; McCaffrey Reference McCaffrey2020; Paulus Reference Paulus2020).

At the time of writing, the majority of advanced EU members approved their governments’ handling of the pandemic, while the popularity of far-right populist parties has receded (Devlin and Connaughton Reference Devlin and Connaughton2020, 5; Kleine-Brockhoff Reference Kleine-Brockhoff2020, 6). However, the temporary ‘rallying around the flag’ effect would not be sustained if policy responses to the post-pandemic economic recovery were misplaced. The EU’s two centres of the pandemic, Italy and Spain, were estimated to be witnessing the world’s biggest economic decline, 12.8% of their GDP, throughout 2020 (IMF 2020, 7). Bergsen et al. (Reference Bergsen2020, 16) warn that, without the EU’s support, those fiscally weaker members would lack the capability to recover their economies from recession and may reinforce populist demand for leaving the EU in these countries. In an opinion poll conducted during the height of the pandemic in April 2020, nearly half, 49%, of Italians wanted to leave the EU (Grant Reference Grant2020, 4). With the vivid memory of the EU’s lack of empathy with and support for Italy’s calamity at the beginning of the pandemic, the merits of Italy’s EU membership were questioned. An anti-EU party advocating Italy leaving the EU – Italexit Party, was formally established in July 2020. Without the collective rescue package from the EU, the weakest link in the EU economy – those fiscally-weak and pandemic-resistant countries – would also risk evolving into the weakest link in EU politics, inviting the return of populism.

Some may be concerned that a collective approach to the economic recovery of the post-COVID-19 EU may induce moral hazards and risk the re-emergence of populism in fiscally conservative members such as Germany, the Netherlands and Austria. Such concerns fall into an epistemological fallacy. Moral hazards arose when beneficiaries were accountable for catastrophes. This did not apply to the pandemic as no EU country was responsible for its outbreak and all EU members were victims. Furthermore, it was the austerity and labour market reforms that the EU had pushed for that had depleted the health systems in euro-crisis countries and eroded their governments’ capability to combat the pandemic. The EU’s moral obligation for engaging in post-pandemic economic and social recovery should not be written off.

3.2. The Need for a New Paradigm

At the ideological level, a paradigm shift from the current neo-liberalism, centred on supply-side reforms in individual countries, towards a more demand-driven management at the EU level was required for post-COVID-19 economic recovery. Neo-liberalist economic orthodoxy, as austerity and labour market reforms embodied, has been proved seriously flawed by the pandemic. Neo-liberalism’s sole emphasis and reliance on market mechanisms to underpin economic growth ignores what qualities of jobs and growth it could produce and what costs it would inflict on societies. It was weak growth, gig-economic labour markets and precarious societies, the ‘patient zero of coronavirus’, that neo-liberalism actually produced for the EU. The painful lessons of the pandemic have shown that the political correctness of any economic ideology should not be market-centred but human-centred. Only when the majority’s well-being, guarded by economic security and health protection, were genuinely progressed, could societies become resilient to any crises.

This article accordingly argues that the corresponding economic management for the post-COVID-19 EU should be investment-driven, for which a Keynesian-style fiscal stimulus package led by public investments towards productive, future-oriented industries is not only to be desired, but is also essential. Investment priorities, primarily, should focus on rebuilding healthcare systems in the EU, preferably, as a common health policy and European health union as Creel et al. (Reference Creel, Holzner, Saraceno, Watt and Wittwer2020, 6) propose. The pandemic revealed the EU’s weakness in coping with contagions owing to fragmented and unequal health resources among member states. Only a fully-fledged European health union can effectively address these deficiencies. A common European health policy is optimal because economic scale is a precondition to producing vaccines and medical equipment (Creel et al. Reference Creel, Holzner, Saraceno, Watt and Wittwer2020, 6–7, 71–72). In addition, economic policy focuses should be changed from narrow concerns with fiscal soundness to wider ones taking into account the qualities of economic growth and jobs. Only when economic growth is robust and sustainable, can the positive effects of labour market liberalizations outweigh the negative ones. With such a paradigm shift, the economic climate that cultivated ‘patient zero of coronavirus’ could be effectively raised.

Methodologically, individualist approaches, based on bailouts for individual members through the European Stability Mechanism (ESM) and austerity as conditions for the later stages, were no longer applicable. As explained above, a collective, EU-wide approach was needed to meet both practical and moral challenges. Solidarity has long been seen only as idyllic in EU politics, rather than tangible during crises. An individualist, case-by-case approach, as a problem-solving model that EU leadership has long relied on, actually solved nothing for the EU. It neither solved high sovereign debt for those euro-crisis countries, nor revived their economies to normality. Instead, it produced new problems, precarious health systems and societies, which cultivated new crises when challenges occurred.

Moreover, the pandemic has shown that individual problems of member-states would become systematic problems for the entire EU. If there had been no rapid and wide virus spread in Italy and Spain, forming two centres of infection, the pandemic might have been less serious and damaging to the wider EU. Unlike previous crises, the pandemic was not an individual crisis, but a collective one, ‘where failure of one is the failure of all’ (Aubry and Schirdewan Reference Aubry and Schirdewan2020). Also, as Odendahl and Springford (Reference Odendahl and Springford2020, 12) indicate, owing to the high economic interdependence between EU members, they would all rely on each other’s economic recovery. A full recovery of EU economies would not be realized until every member has recovered. As the New York Times (2020) editorial asserts, all EU countries were ‘in this together and can only conquer it together’. European solidarity that demonstrated a collective solution would not be merely a moral appeal, but also the only effective way of fundamentally solving the pandemic’s problems.

To summarize, a game-changer in both the ideology and methodology of the EU’s current economic governance was justified by practical and moral necessities. Ideologically, a human-centred, investment-driven, and growth-oriented management, different from the orthodox neo-liberalist one, was needed for the post-pandemic EU economy. Methodologically, a systematic crisis such as COVID-19, although with its asymmetric effects on different EU members, required a holistic solution. It is therefore time for the EU’s economic governance to move to a new paradigm.