• International Journal of Technology (IJTech)
  • Vol 12, No 7 (2021)

European Integration Risks in the Context of the COVID-19 Pandemic

European Integration Risks in the Context of the COVID-19 Pandemic

Title: European Integration Risks in the Context of the COVID-19 Pandemic
Olga Nadezhina, Vera Zaretskaya , Yulia Vertakova, Vladimir Plotnikov, Diana Burkaltseva

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Cite this article as:
Nadezhina, O., Zaretskaya , V., Vertakova, Y., Plotnikov, V., Burkaltseva , D., 2021. European Integration Risks in the Context of the COVID-19 Pandemic. International Journal of Technology. Volume 12(7), pp. 1546-1556

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Olga Nadezhina Institute of Industrial Management, Economics and Trade, Graduate School of Industrial Economics, Peter the Great St. Petersburg Polytechnic University, 29, Polytechnicheskaya Str., St. Petersburg, Ru
Vera Zaretskaya Financial University under the Government of the Russian Federation, Kursk Branch, 3 Lomonosov str., Kursk, Russia, 305016
Yulia Vertakova Voronezh Forestry Engineering University named after G.F. Morozov, 8 Timiryazeva str., Voronezh, Russia, 394087
Vladimir Plotnikov Saint-Petersburg State University of Economics, 21 Sadovaya str., St. Petersburg, Russia, 191023
Diana Burkaltseva V.I. Vernadsky Crimean Federal University, 4 Academician Vernadsky ave., Simferopol, Republic of Crimea, 295007
Email to Corresponding Author

Abstract
European Integration Risks in the Context of the COVID-19 Pandemic

Economic integration is one of the key trends in the modern economy. The undisputed leader of this process is the European Union (EU). The COVID-19 pandemic led to some instability in the EU. Brexit exacerbated this instability. Under these conditions, the question arises: is the impact of COVID-19 on European integration a one-time shock that will soon lose its significance, or are more fundamental reasons at the heart of the disintegration potential. The study aims to evaluate the risks of integration processes in the EU. Two indicators were used to quantify the degree of convergence: ?-convergence and ?-convergence. A quantitative analysis of convergence showed a high degree of convergence of countries in terms of per capita gross domestic product (GDP) and a lack of convergence in terms of labor productivity. Consumption in countries with catch-up development comes primarily from the redistribution of the EU budget and the wages of migrants. This redistribution weakens integration incentives for donor countries. And restrictions of COVID-19 pandemic weaken incentives for integration for recipient countries. Therefore, the likelihood of disintegration in the EU is increasing.

Convergence; COVID-19 pandemic; European Union; Economic integration; Risk

Introduction

Strengthening international integration and globalization are key trends in developing the modern global economy (Murata and Katayama, 2011; Widjanarko and Ubaydullaev, 2011; Bodrunov and Plotnikov, 2017; Agur et al., 2019; Vertakova et al., 2020). Combining resources, markets, introducing standard rules and regulatory institutions, and integrating customs and financial systems led to lower transaction costs in the economy (Aldokhina, 2017; Caserta, 2017; Egger et al., 2019; Miharja et al., 2021).

With the integration of national economies, return of scale (Lee et al., 2012) and experience curve (BCG, 1968) effects appear. These effects are well studied at the micro-level. Economies of scale decrease costs due to the joint execution of service and support operations. (At the macro level, this is the sharing of infrastructure and increased market capacity.) The effect of experience reduces costs due to the accumulation of knowledge and the development of competencies. (At the macro level, this leads to the irreversibility of the integration processes of countries.)

Thus, the primary economic motive for integration is cost reduction. The scale of possible economic effects is enormous. For example, from digital integration in the EU (creation of the Digital Single Market), an increase in European Union (EU) GDP of 415 billion euros is expected and an increase in EU GDP of 4% in 2010-2020 (EU, 2016b). Cost savings from integration are observed at all levels of the economy, and the international level is the object of our study. Integration is manifested at all levels of the economic system and not just at the international level. It is observed at the micro-level in the form of new networks, partnerships, and similar associations (Plotnikov and Vertakova, 2015; Shinkevich et al., 2016; Makarov and Plotnikov, 2018). A rather serious trend is integration at the mesoscale, where it manifests itself in the form of clustering (Pronyaeva et al., 2018; Sazonov et al., 2018; Vertakova, 2016). It is also manifested at the level of the national economy in the form of the development of interregional and intersectoral cooperation (Balli et al., 2018; Diez, 2019; Zaretskaya, 2019).

The most developed integration association globally is the EU (Eichenberg and Dalton, 2007; Trenz and Triandafyllidou, 2017; Hooghe and Marks, 2019). It dates to 1952, when Belgium, Italy, Luxembourg, the Netherlands, France, and Germany created the European Coal and Steel Association. In the future, this integration group continuously developed, changing its configuration, right up to the formation of the European Union in 1992. Among these countries, restrictions on the functioning of the markets for goods, services, capital, and labor were lifted. The EU has general laws, implements a common (supranational) economic policy, and has EU governing bodies.

EU countries have gained several advantages from pooling their available resources, but at the same time, have limited their national sovereignty. A part of state powers has been transferred to a supranational level of government. A significant number of the EU member states abandoned the national currency, moving to a supranational monetary unit - the euro. Several EU members states (France, Germany, Greece, Italy, Netherlands, and Spain) formed a Monetary Union and abandoned their national currencies. The EU has a common budget, developed by the participating countries, and then redistributed in accordance with the general policy of the EU by its governing bodies.

The success of the European integration model, until recently, served as an example for integration associations that were created in other regions of the world. At the same time, EU sustainability has been questioned in recent years. In early 2020, Brexit occurred, under which the people and the UK government concluded it was not economically feasible to continue their EU membership. As a result, Brexit raised the issue of EU sustainability (Huhe et al., 2020).

Until 2020, the EU expanded. The UK left the EU on January 31, 2020, at 23:00 London time. On June 23, 2016, a referendum was held in the UK. 51.9% of its participants voted to leave the UK from the EU. Great Britain had been a member of the European Community (predecessor of the EU) since January 1, 1973. Under the Brexit agreement, the UK lost its representation and voting rights in the EU authorities but will remain part of the single economic space until the end of 2020.

The case of the UK forces us to reconsider the attitude toward the integration of countries as a uniquely cost-effective phenomenon (Chopin and Lequesne, 2016). This study aimed to explore the potential for further disintegration of the EU using quantitative research methods.

Despite concerns about Brexit, the EU is still stable. At the same time, in 2020, a new challenge arose for the existence of the Union. It is associated with the COVID-19 pandemic (Rodionov et al., 2021). Governments of the world (including EU members) have limited the social contacts of their citizens to counter the pandemic. In particular, the borders were closed, transport links were suspended, and many enterprises were stopped. The unity of the economic space, which was the main idea of the EU and the theory of economic integration (Curran et al., 2017; Didier et al., 2017), was broken.

Under these conditions, it is necessary to study the stability of the modern EU. Our research hypothesis was that the COVID-19 pandemic created powerful incentives for the disintegration of the EU. A study was conducted using quantitative modeling of integration processes to validate the hypothesis. The study aimed to assess the degree of homogeneity of the economic development of the EU member states and the presence or absence of a tendency toward homogenization of the economic field under this integrated association. 

Conclusion

The authors conducted a study of integration processes in the EU using the ??convergence indicator (based on the convergence of growth rates) and the ??convergence indicator (based on the convergence of the degree of differences across countries). Based on an analysis of 2000-2018 per capita GDP and labor productivity, qualitative and quantitative analysis of intra-European migration flows, and formal and informal redistributive financial processes, the authors concluded that the integration processes in the EU are unstable.

The research hypothesis (the COVID-19 pandemic created powerful incentives for the disintegration of the EU) was confirmed. The hypothesis was proven using quantitative analysis. The impact of COVID-19 and the pandemic-led restrictive measures could trigger disintegration processes in the EU. There are objective reasons for this. The EU member states’ governments and the EU authorities should strengthen their convergence policies. Otherwise, the COVID-19 pandemic could play a fatal role in European integration.

The authors’ conclusions are not final. Integration processes are very complex and varied. In addition, the economies of the countries belonging to the integration alliances are highly adaptable. In the near future, political measures may change the vector of convergence processes (EU, 2021). Therefore, further research is needed. That research should collect and process new relevant data on European integration, making it possible to draw more reliable conclusions about its prospects.

Acknowledgement

    The research is partially funded by the Ministry of Science and Higher Education of the Russian Federation under the strategic academic leadership program 'Priority 2030' (Agreement 075-15-2021-1333 dated 30.09.2021).

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