Brexit and COVID-19: Economic Stability of the EU

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Table of Contents

Introduction
General Economic Information about the EU
Importance of the EU Economy Compared to Other Countries
Effects of COVID-19 and Brexit on the Stability of the EU
Dealing with Brexit and COVID-19 in Various EU States
Conclusions
Reference List

Introduction

European Union is one of the major economic-political blocs to exist in the world, encompassing most of western Europe and expanding eastward. The EU has a large internal single market that operates under a singular system of laws applicable for all member states. Its purposes largely revolve around making the travelling of people, goods, services, and capital within a single system easier, and to make decisions on important common policies like trade, agriculture, development, and fishing possible. The purpose of this policy note is to provide the general information about EU economy, show its importance in comparison to other countries, discuss the effect of Brexit and COVID-19 on the situation, and analyze different measures taken by member states to deal with the problem.

General Economic Information about the EU

The EU has a population of about 447 million people, making it one of the largest and most high-paying markets in the world. Its’ total GDP is estimated at 20.3 trillion USD a year, with 45,500 USD per capita, though the actual number varies from one country to another, depending on the economic situation there. For example, the highest GDP per capita in the EU is in Luxemburg, with over 110,000 USD a year, whereas the lowest is in Bulgaria, with 26,034 USD a year. The overall GDP used to grow by roughly 2.5-3% from year to year, with the growth slowing down considerably in 2019 (to 1.66%), and then suffering a calamitous drop by -7.11% in 2020.

The current unemployment rate stands at 7.1% across the union, having grown from 6.5% during the first half of 2020 (Unemployment rates 2020). The current inflation rate is relatively low, standing at 0.62% for EU-27, which is lower when compared to the annual growth of 1.5-1.8% achieved in the previous three years (Euro area inflation rate 2020). EU’s total account balance constituted a surplus in 2019, standing at 385 billion USD in 2019, however the majority of those funds were gathered by wealthier EU nations, such as Netherlands, Denmark, Germany, Sweden, and others (Balance of payment statistics 2019). Countries such as Greece, Romania, Cyprus, and Ireland, among many others, constituted a deficit in the past year. As it is possible to see, the EU as a bloc showed reasonable growth in the previous years, despite the inequalities between member states, but the recent slump is associated with crises that struck it several times in a row.

Importance of the EU Economy Compared to Other Countries

EU is one of the central economies in the world, constituting 16.28% in 2018, which put it higher than the US, which stood at 15.2%, but lower than China (the world’s largest single-state economy) with its 18.69% (Dur et al. 2020). Despite that, EU sports some of the highest GDPs per capita and a high customer purchasing power, making it a very lucrative and desirable market. The bloc’s top give trade partners include the US (615 billion USD in exchanged goods), China (559 billion USD), UK (511 billion USD), Switzerland (256 billion USD) and Russia (230 billion USD) (Dur et al. 2020). The nature of these relationships varies – US, UK, and Switzerland are the primary importers of goods and services from the EU. China and Russia export to the EU more than they buy, due to the fact that China is the leading industrial nation in the world, and Russia supplies gas, oil, and other raw materials to member states (Dur et al. 2020). The EU, thus, plays a critical role in the economies of all these countries, making it an indispensable trading partner.

Effects of COVID-19 and Brexit on the Stability of the EU

Brexit was the first crisis to hit the EU in the examined timeline. UK leaving the union left a lasting social, political, and economic implications, the full extents of which are only being estimated. UK was one of the largest contributors to the EU’s overall GDP, with 2.4 trillion USD a year (Davis 2020). In addition, the country had withdrawn its contributions to the EU budget, standing at 19.4 billion USD (Davis 2020). Losses from discontinuation or alterations to the existing trade agreements and increased difficulties in traveling for the UK and EU citizens are difficult to estimate in the short and long-term, but are likely to have caused significant damage to both entities, resulting in the slump that began in 2019, followed by an economic dive in 2020 (Davis 2020). In addition, the political implications of the event sent ripples across the entirety of the EU, giving strength to various nationalist, populist, and euro-skeptical movements, while at the same time strengthening the motions of various members to achieve greater independency within the system, resulting in disunity and discord.

COVID-19, in comparison, had a much greater effect on the EU due to the fact the disease quickly became global and paralyzed the world economy. For a duration of time, economic processes both within the union and outside of it was severely hampered, with borders being closed off and air connections halted in order to prevent the spread of the disease. Average monthly GDP per capita since April has fallen by over 20%, from 3,200 USD to 2,500 USD (Davis 2020). While total financial losses are still being estimated, the EU has to spend over 100 billion USD to keep businesses from closing down, leading to a greater disaster in the long-term (COVID’s economic impact 2020). Europe’s COVID-19 death toll exceeds 100,000 people, and causes great expenditures for diagnosis and treatment (Davis 2020). Different members of the union demonstrate varied levels of preparation for addressing the needs of its populations, with some of the poorer countries suffering through the worst of it. Italy and Spain are some of the EU members to have suffered the most from the outbreak.

Based on the information provided above it could be concluded that both Brexit and COVID-19 caused significant economic damage to the EU, while at the same time attacking its most important asset – the unity of laws, rules, and regulations in combination with opened borders. Brexit challenged the adherence to the common good over individual sovereignty and claimed that membership in the EU is less beneficial to some in the long-term – a statement some of the poorer members seemed to support. COVID-19, on the other hand, forced the shut-down of internal trade, resulting in border closures and the reliance of individual members on their own capacity to deal with the crisis. As the result, the political and economic ties between individual members became weaker, and would likely serve as contention points in the future.

Dealing with Brexit and COVID-19 in Various EU States

The reaction to Brexit in the EU has been polarizing. EU officials stated that they deeply regret but respect Britain’s decision to leave the union. De-facto, the country still benefits from open-border policies as though it was still a member, but that will continue only until December 2020 (The EU’s response to Brexit 2020). After that, it will be treated as a non-member by the rest of the union. Countries with strong connections to the EU market would prefer for it to stay, whereas other strong economies, namely Germany and France, are pushing for a tougher EU stance on Brexit, wishing to fortify their own dominant position in the union and occupy the market places freed from British goods (The EU’s response to Brexit 2020). UK’s own policy currently revolves around pushing for a Canada-like deal, similar to the trade agreement between EU and Canada, which gives it many benefits despite not being a member (The EU’s response to Brexit 2020). Overall, the strategies for Brexit revolve around minimizing negative impact on the market while fortifying one’s own positions.

In relation to COVID-19, first responses by individual countries were increasingly selfish, involving the closure of borders, hoarding of medical supplies, non-provision of aid to others, and separate negotiations with countries like China, Russia, and the US, for outside help (The common EU response to COVID-19 2020). As time passed, the EU managed to prepare and provide a unified response to the crisis by increasing expenditures on medical supplies, supporting local businesses with a 100 billion USD bailout, and offering individual aid to citizens (The common EU response to COVID-19 2020). Nevertheless, the majority of the participants were largely left to rely on their own devices to reduce the outbreaks and the economic aftermath of such.

Conclusions

Brexit and COVID-19 dealt significant damage to the economic and political systems of the EU. Both events left a lasting damage on the sense of unity and showed the weaker members that during times of crisis they will likely suffer more than other members of the union. The existing policies should be reviewed to support countries on individual needs-basis, to encourage inclusion, preventing more Brexits, and ensuring a coordinated response to the COVID-19 threat.

Reference List

Balance of payment statistics (2019). Web.

COVID’s economic impact: €100 billion to keep people in jobs (2020). Web.

Davis, J. (2020) ‘EU‐UK Brexit negotiations, Covid‐19 and key roles for economists’, EuroChoices, 19(1), p. 3-10.

Dür, A., Eckhardt, J. and Poletti, A. (2020) ‘Global value chains, the anti-globalization backlash, and EU trade policy: a research agenda’, Journal of European Public Policy, 27(6), pp. 944-956.

Euro area inflation rate (2020). Web.

The EU’s response to Brexit (2020). Web.

The common EU response to COVID-19 (2020). Web.

Unemployment rates EU-28, EA-19, seasonally adjusted, January 2000 – June 2020(2020). Web.

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