THE EUROPEAN UNION IN THE COVID-19
STORM: ECONOMIC, POLITICAL AND
STABILITY CHALLENGES
Stability in the time
of COVID-19
I FEBRUARY 2021
The COVID-19 pandemic struck the European Union in
early 2020, entering the regional bloc through its Southern
Periphery. Italy, together with China and South Korea,
was one of the countries most aected by the initial virus
spread. Besides the huge human toll,
1
the adoption of
strict lockdown measures and the subsequent major dis-
ruptions in both supply and demand have resulted in
the most severe recession in recent history, with regional
GDP estimated to have contracted by a record 7.6% in
2020, the largest drop since the Second World War (see
This is the fth in a series of papers aimed at understanding and analysing the multiple ways
the ongoing COVID-19 pandemic is aecting stability in dierent parts of the world.
The papers concentrate on the pandemic’s impact on security, governance, trade and
geo-economics.
KEY MESSAGES
The International Institute for Strategic Studies
The COVID-19 pandemic has plunged the European Union into the most severe recession in its recent history,
exacerbating existing imbalances and divergences between members. The health emergency has hit the Southern
Periphery region (comprising Greece, Italy, Portugal and Spain) particularly hard, compounding its existing struggles with
stagnant growth, high debt levels and competitiveness aws. Although some recovery is forecast for 2021, the social,
political and economic consequences of the pandemic will be long lasting.
The quality of governance in dierent EU countries aected their resilience to the initial COVID-19 shock and will be key for
the success of the EU-directed policy responses. Structural reforms to improve economic eciency and boost institutional
eectiveness will be essential to ensure durable growth (and access to EU funds). But they remain unpopular domestically.
Shortages of medical and pharmaceutical products have provided a perfect business opportunity for organised-crime
groups in the EU, with a surge in the production and commercialisation of counterfeit and substandard high-demand
medical goods, including vaccines. Better enforcement and awareness campaigns will be needed to address this issue.
After some initial hesitancy, the EU adopted a comprehensive and multifaceted strategy to tackle the pandemic,
supported by an unparalleled mobilisation of regional resources. The strategy is aimed at boosting the immediate
recovery while driving a longer-term transformation towards more resilient, sustainable and inclusive economic models.
The EU response featured several novel elements, such as the ‘mutualisation’ of debt – a victory for the Southern
Periphery states against the ‘frugal four’ (Austria, Denmark, Netherlands and Sweden) – and the conditionality of the
disbursement of EU funds on respect for the rule of law.
The pandemic threatens to accentuate existing trends of political fragmentation and popular dissatisfaction with the
status quo, increasing the risk of political instability.
The eectiveness of the EU-supported recovery and structural transformation of regional economies will be an inection
point for the durability and resilience of the EU project.
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