Slowly but surely the EU is trying to reshape the narrative on the coronavirus emergency.

Today the European Commission pledged to mobilise €100 billion in soft loans to help companies hold on to workers as much as possible, so that when the health crisis subsides they won't find themselves bereft of the staff needed to get order books filled and products quickly out to market.

Every new initiative is now coded to emphasise the exit strategy.  All the evidence suggests that once laid off workers start to become long-term unemployed, it becomes very hard to get them back into the labour market.

The EU is desperate for this to be a V-shaped crisis - a sudden economic shock followed by a sharp recovery. That imperative is informing the Commission’s thinking, but so devastating has the pandemic been for national economies, and public morale, that it is too early to say if it will work.

"Helping companies to pull through and workers to remain employed would lessen the depth of the recession and speed up the recovery when it starts," says Zolt Darvas from the Brussels-based Bruegel think tank. "In addition, increased government spending boosts demand at a time when people consume less and companies invest less."

Despite a very shaky and cantankerous start, the EU’s fiscal response is beginning to take shape.

Alongside the work-subsidy loan scheme, the European Commission has relaxed state aid and the eurozone’s fiscal rules, pledged money for research, and coordinated the stockpiling of medical equipment.

Next week, eurozone finance ministers are likely to agree to the use of the European Stability Mechanism (ESM), Europe’s lender of last resort, to provide emergency credit lines to countries in need.

The ESM has said that some €240 billion will be made available in emergency credit lines if the eurogroup of finance ministers can agree.

Italy has been resisting any deployment of the ESM if it has austerity-era strings attached. Sources suggest a solution can be found if other financial solutions can be brought into play.

The European Investment Bank

The European Investment Bank (EIB) will hold a virtual board meeting tomorrow on its Pan European Guarantee Scheme, a plan to filter out low-cost loans to the corporate sector - small and large (for example, the airline industry, which has been decimated by the pandemic).

It’s understood the EIB mechanism will be substantial, probably in the tens of billions of euro.

Ireland has been tapping EIB loans during the Brexit crisis through the Strategic Banking Corporation of Ireland.

Altogether, these sums are beginning to add up, but the missteps at the start of this crisis means the EU’s credibility has taken a hammering.

The problem is in part down to the uneven nature of the EU’s legal remit and the interplay with competences which national capitals jealously guard.

Public health remains a national competence, and national governments have taken the lead (as their voters would expect). 

By the same token, the European Commission had no legal authority to close either borders or schools in the early days of the crisis.

However, the EU is committed in its treaties, as the Netherlands-based Clingendael Institute points out, to ensuring the "monitoring, early notification of and combating serious cross-border threats to health", while the EU’s Global Strategy aims to "work for more effective prevention, detection and responses to global pandemics".

Despite public health being a national competence, "that does not mean the EU could not play a more prominent role in promoting intergovernmental co-operation and in co-ordinating matters such as border policies, research efforts and the production and sharing of scarce medical supplies such as face masks and ventilators," write Bob Deen, a senior research fellow, and Kimberly Kruijver, a junior researcher, at Clingendael.

Indeed, the hoarding of medical supplies was a most acute assault on the EU’s much-vaunted value of solidarity between member states. 

13,915 Italians have died so far from Covid-19

"The way other member-states initially responded to Italy’s coronavirus plight has shaped the narrative of the crisis," says Luigi Scazzieri, of the Centre for European Reform (CER). 

"In late February, Italy requested assistance from other member-states, calling on the European Commission to activate the EU’s Civil Protection Mechanism. But, when the Commission did so, not one member-state offered assistance. Instead, several, including France and Germany, banned the export of essential medical equipment for fear that they would need it themselves."

This was compounded by the ECB president Christine Lagarde remarking that it was not up to Europe’s central bank to lower the borrowing costs of countries in the front line. 

That pushed Italy’s bond spreads further and prompted a sharp ECB rethink. The ECB has now committed to buying up to one trillion euro in national bonds in the secondary market, helping to narrow bond spreads in the process.

In the meantime Germany, France and others have been sending medical equipment to Italy and Spain, and have been taking in critical patients where hospitals have bed capacity.

But big divisions remain over the issue of 'coronabonds'.  The idea that member states could borrow money and the debt then be underwritten by the EU as a whole has prompted a poisonous debate along fault lines familiar during the eurozone crisis.

The Dutch government has begun to soften its message, following last week’s EU leaders teleconference, and some high-handed commentary from senior Dutch figures about countries not getting their house in order during the eurozone’s recovery period.

The indications are, however, that debt mutualisation is still a long way off.

Ireland joined eight other countries in calling for coronabonds last week, a position that was noticed given Dublin’s self-conscious alignment during the Brexit negotiations with the so-called Hanseatic League, those northern and Nordic countries characterised by fiscal prudence and a commitment to free-market economics.

Dublin figures acknowledge the pivot, but note that Belgium and Luxembourg also signed the coronabonds letter. The belief is that the pandemic is entirely unprecedented and that questions over moral hazard simply are not an appropriate excuse to resist fully fledged fiscal solidarity.

It’s understood that coronabonds, or something like them, are still in the frame, but will take time to fully evolve, both legally and politically.  A big stimulus will be needed as part of the EU’s exit strategy, so the time is not yet ripe to unleash something as radical as debt mutualisation, is one strand of opinion.

It’s understood Ireland will take a cautious approach to the battery of instruments now being lined up.  The government will mostly likely embrace the EIB Pan European Guarantee Scheme for the corporate sector, but may eschew the ESM and the Commission’s €100 billion job retention scheme, on the basis that Ireland may be able to borrow just as cheaply.

Dublin believes the more radical instruments are for countries that are in real difficulty and that have already high deficit and debt levels.

The big concern for Dublin is that our export markets recover in sync with Ireland’s own eventual emergence from the crisis.  There is, in the end, no small measure of self-interest in solidarity.

"COVID-19 is more than a stress test; it is an existential crisis"

But there is no doubting the long term damage the pandemic might do to the European project.  The EU has gone through an extraordinary period of rapid-fire crises, from the 2008-9 financial shock followed by the Greek debt crisis, to terror attacks, the migration crisis, and the UK’s Brexit vote.

As it turned out, Brexit, paradoxically, restored the EU’s fortunes, engendering a new found sense of solidarity and unity among member states during the negotiations, and improving the favourable rating of the EU among citizens in most member states. 

Much of that positivity could be undone by the virus, even as member states and the European institutions do their best to change the narrative.

"The risk is that much damage has already been done to the EU’s reputation in Italy, as initial perceptions will not be easy to shift," says the CER’s Luigi Scazzieri.  "The EU has so far also failed to communicate its good deeds to the Italian public.

"Tis has given eurosceptic politicians free rein to push the narrative that in Italy’s hour of need, the EU and its member-states turned their backs while faraway countries like Russia and China came to help."

It is the EU’s perennial problem that there is no harmonized public opinion. In other words, the very solutions that might ease euroscepticism in Italy will inflame it in the Netherlands.

"The economic and monetary interdependence of the EU is such that no country can spend its way out of this crisis alone," write Bob Deen and Kimberly Kruijver of the Clingendael Institute, "but southern-imposed transfers of financial resources will not be supported by electorates in northern Europe and may lead to a populist backlash.

"COVID-19 is more than a stress test; it is an existential crisis. The EU will need every crisis management instrument it has at its disposal to overcome it."