Does divergence among euro members risk tearing apart the single market?

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Divergence Among Euro Members Poses a Threat to the Single Market and the Euro Area

The European Commission has forecast a significant contraction in the eurozone economy for 2020, with projections indicating a 7.7% decrease. This economic downturn, described as a "recession of historic proportions," carries the risk of endangering the single currency. While a rebound of 6.3% is anticipated for 2021, the recovery is expected to be uneven across member states. This divergence, particularly between wealthier northern European nations and more indebted southern countries like Italy and Spain, raises concerns about the integrity of the EU project and the single currency itself, according to the European Commission.
Economic Forecasts Indicate Significant Unevenness

The economic outlook for 2020 paints a stark picture of disparity. Italy's economy is predicted to shrink by 9.5%, with a modest recovery of 6.5% expected in 2021. Greece faces an even steeper recession of 9.7% in 2020, followed by a 7.9% recovery in 2021. In contrast, Germany's economy is projected to contract by 6.5% in 2020, with a 5.9% recovery in 2021. These figures highlight the differing capacities of member states to weather the economic storm and recover, contributing to the growing divergence.
Public Finances and Unemployment to Worsen Unevenly

The economic fallout will disproportionately affect public finances and employment levels in certain member states. Italy's annual deficit is forecast to surge to 11.1% of its annual output, while Spain and France are expected to overspend by 10%. Furthermore, unemployment in the eurozone is projected to rise by two percentage points to 9.6% in 2020, with countries like Greece and Spain anticipated to experience rates significantly above this average. This exacerbates the existing economic disparities and the potential for social and economic fragmentation.
National Responses Have Been Uneven, Hindering a Unified European Solution

While national governments have committed trillions of euros to support their economies, the effectiveness of these measures has been constrained by each country's available financial resources. This uneven national response has complicated efforts to forge a cohesive European solution. Specifically, Germany and the Netherlands have been reluctant to deepen economic ties with struggling southern EU partners, thereby impeding the development of comprehensive recovery plans.
Commission Proposing Common Budget Boost Amidst Delays

In response to the crisis, the European Commission is developing recovery plans aimed at increasing the EU's common budget. However, the finalisation of these proposals has been delayed due to challenges in achieving consensus among member states. Economic Affairs Commissioner Paolo Gentiloni has expressed confidence that an agreement on the plan and its funding will be reached in June, underscoring the urgency of decisive, joint European action to mitigate the threats posed by economic divergence. The European Central Bank has also been a key player, deploying significant monetary stimulus, though its policies have faced legal challenges.

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Does divergence among euro members risk tearing apart the single market?

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