Demonstrations against stricter rules to combat the 4th wave of the virus swept across Europe and reached a peak this weekend with 35,000 protesters in Brussels yesterday wreaking havoc in the city. At the same time, among the experts, while pandemic restrictions are deemed necessary to contain the virus and lay the ground for a quick economic recovery, concerns are rising over breakdowns in the supply chains on which the European economy depends, especially over the long term.
More than any other continent or country, Europe depends on international trade to maintain its industrial activities running. And with the pandemic, trade routes are interrupted or slowed down, threatening to cause shortfalls in supplies of essential inputs for the European economy, particularly in two areas: natural gas and microchips.
Let’s take a look at the two looming crises in turn and see how they are likely to interact.
Violent protests against pandemic restrictions – from the Netherlands to Vienna – and the reaction from the EU institutions
Panic is palpable. In France, after COVID cases nearly doubled to around 20,000 cases on Sunday (19,749 new coronavirus infections reported compared to 12,496 cases a week ago), the French government spokesman Gabriel Attal did not even call it a 4th wave but a fifth one, saying it was “starting at lightning speed.” But he was confident, pointing out: “We are light years away from [last year’s] situation today. We owe it to the vaccine, to the health pass, and, of course, to everyone’s efforts. We, therefore, have all the cards in the face of this fifth wave.”
But if anyone hoped that people were by now used to pandemic restrictions, “pockets” of violent protests across Europe dashed those hopes. In Brussels, on Sunday, 44 people were arrested. In the Netherlands, protests that began Friday night in Rotterdam spread to other towns across the country over the weekend and resulted in five police officers injured and dozens of citizens being arrested. In Vienna, on Saturday, several thousands of people took to the street to protest the lockdown and 1300 police were mobilized.
The cause of the protests is always the same: They are all protesting in the name of “freedom of choice” and “leaving it to the people” the decision as to whether to be vaccinated or not – conveniently forgetting we live in society and individual decisions that put others in danger cannot be ignored. Unsurprisingly, what spurred most Austrians to protest was not so much the 10-day lockdown as the government’s mandate for obligatory vaccination, starting in February.
In Italy, populist parties on the right, led by Salvini and Melloni. have taken aim at Prime Minister Mario Draghi’s COVID regulations, in particular the “super green pass” that closes access to public spaces for the unvaccinated. Comparing Italy to the totalitarian states of the 1930s, they have taken to call the country “Draghistan”, relying on unfaltering support from no-vaccers.
EU institutions are beginning to react, facing the prospect of rising infection rates just as the European economy is readjusting to a post-pandemic situation and taking off again.
The European Parliament President David Sassoli agreed to allow the Parliament to proceed in hybrid form, following pressure from members of parliament who did not want to attend this week’s plenary session in Strasbourg in person, given that dozens of parliamentarians have tested positive for the coronavirus.
EU ministers are meeting in Brussels tomorrow for a General Affairs Council with COVID on the agenda and expectations are that EU free travel recommendations will be modified to take into account the rising infection rates – something the EU Commission is said to be working on. In particular, the digital COVID certificate which allows free movement within the EU could be adjusted to include booster shots, as post-vaccine immunity from the second shot is now known to be fading fast. When Greek Prime Minister Kyriakos Mitsotakis in a televised speech announced new restrictions to the nation on Friday, he explicitly called on Brussels to adjust the digital COVID certificate accordingly.
Rising economic pains from supply chain breakdown due to the pandemic
While European citizens fight against pandemic restrictions designed not only to save lives but to allow for the unbroken continuation of activities in essential sectors and full restoration of all sectors as soon as the COVID wave is over, other threats loom over the European economy.
The threats concern the supply chains that allow Europe to function. Historically, Europe, with relatively scarce resources has always relied on international trade for many essential inputs, particularly in two essential areas: energy sources and microchips that are key for Europe’s digital future.
The emergency is international and arises from the supply-demand imbalance in the months of economic recovery between one pandemic wave and the next. But the EU is especially dependent on external partners when it comes to supplying essential products or resources, even more so in times of crisis. It happened, first with the shortage of anti-Covid vaccines (although the trend would have reversed in the months), next with the natural gas supplies and now with a third problem in the continental supply chain: semiconductors.
The natural gas/energy crisis: With winter approaching and a post-pandemic surge in demand propelling economic activity across all sectors, the demand for fuels has predictably led to price spikes. With OPEC refusing to increase fuel supplies and the opening of the natural gas pipeline from Russia to Germany suffering delays, prices are expected to continue to rise.
There is a theoretical possibility to take off the brunt of the rise: European governments could accept – at least momentarily – to reduce the high tax rates they slap on fuels. Such a measure would help to contain excessive rises in prices and thus alleviate the burden of high energy costs on their citizens.
Whether governments will actually do so is unclear as it would cause a (temporary) shortfall in tax returns, and many politicians, especially on the populist right, are dead set against running budget deficits of any sort, even for a good cause.
Microchips are an area where there is more political cohesion and will to come up with a working solution. Everyone is well aware that microchips are fundamental for major sectors in the economy, ranging from consumer electronics to the automobile industry faced with the need to transit to electric mobility.
In the case of Europe, however, the challenge is exacerbated by the minimal size of European production, including research. For example, Taiwan alone accounts for 17% of research, 60% of production and 53% of assembly worldwide while Europe does not go beyond 2.5% in research alone and doesn’t even show up in the other production phases.
To respond to the challenge, Commission Vice-President Margrethe Vestager, on reviewing competition rules, has called on providing state aid to the semiconductor industry, extending subsidies to national economies for another six months. There is also a move in Brussels, headed by Commissioner Thierry Breton with France and Germany behind him, calling on unlocking public aid for the construction of the so-called “European champions”: industrial groups capable of withstanding competition from the US and Asian giants. For now, with no results.
The subsidies proposed by Vestager on semi-conductors are limited to financing the opening of new plants and will need to comply with strict criteria of “proportionality” and not endanger the principles of competition dear to the EU Commission.
The issue, however, is far from settled. In the second quarter of 2022, the Commission is expected to make a legislative proposal aimed at strengthening European semiconductors, the European Chips Act. The provision is intended to close the rifts between EU members on whether EU rules on public money should be loosened to benefit weak (or non-existent) industries in the EU.
Meanwhile, the fourth wave of infections raises fears it might impact economic growth and cause another slowdown – yet another international setback for Europe. This time, the EU Commission does not want to be caught unprepared, as it was when vaccines were rolled out. But how the two public forces clash across the continent – those against pandemic restrictions, thus putting at risk chances for a quick economic recovery and those working on strengthening the long-term economic future of Europe – could well undo the best plans of the Commission. Only time will tell who wins out.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — Featured Photo: Trenitalia Frecciarossa high-speed train 9529 to Napoli Centrale from Platform 13, Milano Centrale Railway Station, Lombardy, photo by David McKelvey taken on April 7, 2013