The European Union’s troubled COVID-19 vaccine rollout

March 15, 2021 12:15 AM
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REUTERS/Markus Schreiber
Economic Policy in a Pandemic Age

 

 

 

This essay is part of a PIIE series on Economic Policy for a Pandemic Age: How the World Must Prepare.

 

The European Union and its citizens have long benefited from generally well-funded government health systems and an advanced pharmaceutical sector. Why, then, has Europe found it so hard to quickly immunize its population and reduce the level of COVID-19 infections and hospitalizations? This critical failure stems partly from the institutional set-up of the European Union, which hampered efforts to obtain vaccines, and partly from the different healthcare practices among EU member states, which slowed coordination of the best rollout practices.

Faced with the prospect of a prolonged pandemic and the emergence of new viral variants, the European Union has to do better. It should strengthen its proposed Health Emergency Preparedness and Response Authority (HERA) by requiring the mobilization of common fiscal resources for vaccine development and production. The authority needs to be able to take appropriate financial risks in supporting early-stage vaccine development and scaling up production capacity on behalf of the entire EU population. External leadership with in-depth private sector experience in drug development processes should be recruited to oversee any risky deployment of large sums of EU taxpayers’ money.

Structural Impediments and Solutions to EU Vaccine Procurement

The swift global COVID-19 vaccine development in the second half of 2020 and the second wave of infections in Europe and North America have combined to produce a global scramble among governments to secure scarce vaccines. Initial European government contacts with global pharmaceutical companies by an ad hoc Inclusive Vaccine Alliance—consisting only of Germany, France, Italy, and the Netherlands—ended with the decision in mid-June 2020 to task the European Commission with negotiating vaccine procurement on behalf of all of the EU27 (plus Norway).

This decision preserved the political cohesion of the European Union and provided the smaller and poorer member states with improved access to vaccines in early 2021. Yet the institutional shortcomings of the European Commission posed significant obstacles for EU vaccine purchases. The Commission was at a disadvantage compared with sovereign governments (especially those with their own advanced domestic pharmaceutical sectors like the United States or the United Kingdom) that carry their own direct taxing powers.

Vaccine development is inherently risky, and expedited large human trials are very expensive. Achieving production capacity at an unprecedented scale is costly and time consuming, too. The United States’ approach acknowledged this reality. Following months of negotiations led by the US Biomedical Advanced Research and Development  Authority (BARDA), the interagency Operation Warp Speed was launched on May 15, 2020 with an initial budget of $10 billion (increased by October 2020 to as much as $18 billion). Over the following months, Operation Warp Speed signed vaccine research and development (R&D) support and production contracts worth the full budget with seven global pharmaceutical companies.

By contrast, the European Commission, acting on behalf of an adult population roughly 43 percent larger than that of the United States,[1] was a month behind and fell far short of the commitment of the US government. On June 17, 2020, Brussels launched a €2.7 billion vaccine Emergency Support Instrument (ESI). The ESI provided EU members and Norway the option to purchase an agreed upon amount of vaccines within a given timeframe at an agreed price. In return, it supported part of the upfront costs incurred by vaccine suppliers and operated as a “downpayment” on vaccines ultimately procured by member states themselves. The size of the ESI will ultimately be surpassed by payments from national governments for the vaccines received, but the Commission’s structural lack of financial firepower and inability to promptly take major fiscal risks in the pandemic severely hampered its early actions. The Commission struck initial vaccine supply deals with AstraZeneca on August 14, Sanofi-GSK on September 18, Johnson & Johnson’s (J&J) Janssen Pharmaceutica NV on October 8, BioNTech/Pfizer on November 11, CureVac on November 17, and Moderna on November 25.[2]

A degree of bad luck has hit the Commission’s choices. Its first contract with AstraZeneca has been plagued by well publicized supply-chain problems cutting 2021Q1 and Q2 scheduled deliveries by more than 50 percent. Meanwhile the Sanofi-GSK vaccine has been delayed in development. Instead, vaccines from BioNTech/Pfizer and Moderna, based on the new messenger RNA (mRNA) vaccine technology, were the first ones approved by the European Medicines Agency (EMA), in late December 2020 and early January 2021, respectively. The mRNA vaccines, however, require cooling to ultra-low temperatures and are hence more logistically challenging and expensive for many member states to handle upon receipt. Accordingly, many member states favored the viral vector vaccines from AstraZeneca and J&J/Janssen in their national vaccine rollouts. The reduced deliveries of AstraZeneca vaccines in 2021Q1 and Q2 hit some EU members particularly hard.

Other obstacles have slowed widespread vaccination. Large numbers of people in France, Germany, and other member states were at least initially skeptical about the safety of COVID-19 vaccines. Their concerns caused problems for the Commission in negotiating product liability issues if new vaccines cause unforeseen side effects among some groups. Without its own adequate financial capacity or agreement among the 27 members and Norway to absorb such liabilities (the United States does so via the PREP Act[3]), the Commission had a hard time persuading pharmaceutical companies to retain this liability. The negotiations caused additional delays in vaccine supply agreements. A further complication was the Commission’s willingness to consider pharmaceutical companies’ commitment to vaccine delivery at cost and the companies’ willingness to participate in the global COVAX initiative, when deciding on their possible indemnity protections. The negotiations led to companies signing advance purchase agreements with the European Union that provided them a degree of indemnity protection by agreeing to help the European Union secure cheap vaccines for the global vaccination drive.

At a time of global vaccine supply constraints, a zero-sum game inevitably emerged among the governments of advanced economies around the world. The European Commission’s constraint of the preexisting 2020 budget limits on the ESI[4] hindered its ability to negotiate adequate and timely vaccine supplies for delivery in early 2021. Political circumstances aggravated this financial incapacity. From May to July, EU member states were preoccupied with trying to agree on an ambitious expansion of the overall EU budget and common pandemic fiscal response. As they struggled, the second pandemic wave crept up on them. It was not (yet) understood that successful vaccine development, however expensive to support, would cost far less than the coming macroeconomic costs from prolonged lockdowns.

The Commission and EU member states have been among the largest global supporters of the COVAX initiative, aimed at supplying cheap effective vaccines for 92 low- and middle-income countries. They have offered a contribution of €2.2 billion, a commendable effort that should be praised along with the European Union’s hesitancy to pursue outright export restrictions on vaccines. This stands in contrast to the de facto ban on exports from the United States[5] and the United Kingdom[6] until all Americans have been offered a vaccine.

Yet, the Commission has also made serious mistakes. Targeted by political criticism from member state political leaders, especially Germany (Commission President Ursula von der Leyen is German), the Commission in January 2021 needlessly escalated a contractual dispute with AstraZeneca over the company’s failure to meet early vaccine supply commitments. Starting in January 2021, the Commission required all the pharmaceutical firms that signed advanced purchase agreements to apply for an export certification ahead of shipping any vaccines outside the European Union. This demand is superfluous and counterproductive. Vaccine export data are available from regular EU customs declaration processes, so rather than providing more “vaccine export transparency,” the Commission merely provided member states with the opportunity to block vaccine exports by denying permission. Fortunately, the Commission and EU members have to date been very reluctant to actually use this tool, and so far only one AstraZeneca shipment to Australia has been blocked.[7] Instead, the European Union has in fact remained the main global vaccine exporter, shipping more than 34 million doses around the world from February 1 to March 9,[8] despite its own acute vaccine shortages. This shows a commendable political respect for pharmaceutical companies’ commercial contracts with other (mainly) advanced-economy governments, while highlighting the continued need for global political support for COVAX provision of vaccines to developing countries. By enabling the continued export of vaccines, the European Union will undoubtedly, at the cost of European lives, have helped save others elsewhere, strengthened global vaccine production supply chains, and enabled a more rapid and resilient expansion of future EU vaccine supply.  

The Commission’s new Health Emergency Preparedness and Response Authority (HERA) initiative is aimed at enabling the European Union to better detect and address new variants of SARS-CoV-2, the virus that causes COVID-19, and future pandemics more broadly. If properly designed, HERA will help avert a repeat of past pandemic coordination failures among member states on vaccine development and pandemic lockdown restrictions.

Nonetheless, the European Union has still not addressed the structural impediment to adequate and timely vaccine procurement, namely the inability to obtain sufficient financial resources without cumbersome approval from 27 member states. To plan for future pandemics, the Commission should have an appropriately sized and preapproved credit line at its immediate disposal, backed by member states. Given the success of the US Operation Warp Speed (approximately $18 billion), the European Union’s larger population suggests EU members should preapprove at least €20 billion in state-backed debt, earmarked for urgent vaccine development and production and under the control of a specially appointed entity within the Commission. This funding should be linked to external objective health metrics, such as a declaration of emergency by the World Health Organization, like the one on January 30, 2020, and perhaps should apply only to diseases that threaten a significant number of EU residents.[9] Because of the extraordinary and infrequent nature of such emergencies, the €20 billion EU pandemic fund should be overseen by an externally appointed individual with recent relevant healthcare sector management and/or investment experience.

Challenges and Improvements to National EU Vaccine Rollouts

The EU Treaty bestows only “supportive competences” to the European Union in healthcare. As a result, national healthcare systems, which remain responsible for implementation of vaccine rollouts, will continue to differ in their responses to the pandemic. Even if there is a fully funded EU-level bio-preparedness entity in charge of development, procurement, and production of vaccines, EU member states will continue to play the largest role in future vaccination drives.

The capacity of governments to enlist pharmacies or other qualified quasi-health care providers to administer vaccines differs across the European Union, hampering efforts in some member states. Even basic “best practices” are spreading too slowly across the European Union; not everyone is delivering the maximum number of vaccine jabs from delivered vials, for example.

Given these ongoing impediments, the possibility of freer movement of already vaccinated Europeans with a European-level “vaccine passport” is reasonable. It’s true that imposing temporary restrictions on people not yet vaccinated, which would generally affect younger Europeans the most, would be costly. But the costs would be outweighed by the economic benefits, especially to many small and medium-sized businesses, of expediting reopenings and allowing certifiably vaccinated customers to return to in-person interactions. In the longer run, it is also likely that a vaccine passport would deny conscious vaccine refusers access to some services, such as public transportation. As a result, this group of Europeans would at least partly bear the costs of their refusal to participate in the public good of getting everyone vaccinated. The Commission’s intention to pursue such a Digital Green Pass is welcome.

National health authorities are certainly free to administer individual vaccines according to their own preferences and priorities. That’s what initially occurred in some member states that have given the single-dose AstraZeneca vaccine only to individuals under 65. Yet, the public expression of skepticism of the efficacy of this vaccine by senior EU politicians, including French president Emmanuel Macron, represents a major communication mistake that will inflame public vaccine skepticism and is likely to slow the vaccine rollout.

The unfortunate public clash between the Commission and AstraZeneca over the company’s failure to deliver the expected and contractually specified number of vaccines in 2021Q1 and Q2 has had damaging repercussions. At the same time, while BioNTech/Pfizer and Moderna have also suffered short production delays, both firms recently confirmed in public testimony in the European Parliament that they will deliver the pledged number of vaccines by the end of 2021Q1 and Q2. This relative reliability of supply suggests that it is a mistake for individual member states to be excessively cautious about rolling out these two-jab vaccines. With a possible third wave looming, too few vulnerable Europeans are being quickly immunized due to the decision of some member states to keep the second jab in reserve simply to ensure that it can be administered within the vaccine protocol’s specified time limit. Maintaining an excessively large “strategic national vaccine reserve” beyond a few days’ requirements will have the same negative effect. As (at least non-AstraZeneca) supply now appears to be reliable, EU member states should consistently administer the vaccine doses they have and rely on future deliveries for the required second jabs.

The COVID-19 crisis in Europe has produced obvious destructive policies, including temporary EU trade restrictions on pandemic-related goods and prolonged lockdowns. But on the positive side, the European Union has rallied to support the largest common fiscal stimulus in its history, and the Commission has taken charge of negotiating vaccine supply for all Europeans. Crucially, the European Union’s adoption of a common vaccine procurement approach has averted the worst case of early vaccine supply constraints metastasizing into deeper political splits between richer and poorer or smaller and larger member states.

The uncertain nature of the pandemic underlines the need to strengthen forward-looking and coordinated bio-preparedness in the European Union. The early vaccine supply constraints facing EU member states highlight the importance of taking large early fiscal risks in support of vaccine development and production the next time. Facing a future in which it is likely that the world will experience more frequent pandemics, it is critically important for Europe’s economic and political resilience that EU leaders provide European institutions with these stronger financial capacities.

Notes

1. Roughly 255 million US population 18 years and older versus 365 million in the EU27 plus Norway.

2. Exploratory talks have been concluded with Novavax on December 17, 2020, and Valneva on January 12, 2021.

3. The Public Readiness and Emergency Preparedness (PREP) Act enables the secretary of the US Department of Health and Human Services to issue a “PREP Act declaration,” providing immunity from liability (except for willful misconduct) to entities and individuals involved in the development, manufacture, testing, distribution, administration, and use of countermeasures to identified diseases. See details here.

4. If ESI funds were found to be inadequate, a minimum of four member states had the opportunity to voluntarily contribute additional funds to it on a “pay-to-play” basis and enable the Commission to enter into additional advance purchase agreements only on their behalf. This option was, however, never utilized despite individual national leaders’ subsequent grievances about inadequate Commission purchases. See Com (2020) 4192 final.

5. President Trump issued his Executive Order on December 8, 2020, stating, “After ensuring the ability to meet the vaccination needs of the American people, it is in the interest of the United States to facilitate international access to United States Government COVID-19 Vaccines.” The Biden administration to date has not changed this policy, though its success in increasing US vaccine supply has brought forward the date at which enough vaccines are available for the entire US population to May 2021. The Biden administration has similarly stepped up US financial support for COVAX with an immediate $2 billion contribution in February 2021 and an additional $2 billion over the next two years.

6. The UK government contract with AstraZeneca, the only major vaccine producer located in the United Kingdom essentially specifies that the company cannot supply to other clients until it has delivered all the vaccines ordered by London. Consequently, the United Kingdom has not exported any vaccines to anyone during the pandemic.

7. In early March, the Italian government blocked a shipment of 250,000 doses of the AstraZeneca vaccine bound for Australia. Since Italy at the time had 1 million to 2 million vaccines in storage, the reason was not “lack of vaccines in Italy,” but it was done overwhelmingly to cater to the domestic political needs of new prime minister Mario Draghi to satisfy the nationalist elements in his broad coalition government.

8. Data from the New York Times and Bloomberg show that during this period the European Union exported 9.1 million doses to the United Kingdom, 3.9 million and 3.1 million, respectively, to US neighbors Canada and Mexico, 2.7 million to Japan, 1.4 million to Saudi Arabia, 1.3 million to Hong Kong, 1 million to Singapore, 1 million to the United States, 1 million to Chile, and 0.8 million to Malaysia.

9. There have been six public health emergencies of international concern declared between 2007 and 2020: the 2009 H1N1 influenza pandemic, Ebola (West African outbreak 2013-15, outbreak in the Democratic Republic of the Congo 2018-20), poliomyelitis (2014 to present), Zika (2016), and COVID-19 (2020 to present). Of these, only COVID-19 would have unlocked the funds proposed here.