On Wednesday, the European Commission projected that Europe’s economy will decline by 7.4% this year. Unfortunately, this downturn far exceeds the financial crisis of 2008, when the Eurozone’s economy shrank by 4.5%. Currently, economists expect the EU to grow by 6% in 2021. Under these circumstances, the EU economy will not make up 2020 losses by the end of 2021.
EU unemployment is expected to rise from 6.7% in 2019 to 9% in 2020.
Unlike the United States, which can print and borrow an almost unlimited amount of money to finance its goals, Eurozone countries possess more limitations. They share control over the European Central Bank instead of instituting monetary policies that solely benefit their national interests.
In contrast to the United States, where fiscal and monetary policy seeks to treat the residents of each state equally, EU policymakers will not nor wish to provide uniform aid to all of its inhabitants.
The EU’s problems will dampen the world economy for the next few years. The economic size of the EU is comparable to the United States. The EU is the United States’ largest trading partner. In 2019, we exchanged goods and services worth $1.3 trillion.
Paolo Gentiloni, European Commissioner for the Economy, said: “Europe is experiencing an economic shock without precedent since the Great Depression. Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources. Such divergence poses a threat to the single market and the euro area — yet it can be mitigated through decisive, joint European action.
To date, Europe’s political leaders have resisted an integrated response to the pandemic. The recovery of one member state will impact the recovery of other member states. Nevertheless, the wealthier northern countries such as Germany and the Netherlands resist transfers of money from the stronger nations in the bloc to the weaker ones.
Currently, providing financial assistance to the EU’s weaker economic entities has raised alarms in Germany. The German Constitutional Court issued an ultimatum to the European Central Bank (ECB). In a nutshell the ECB must show that the negative fallout from their massive expenditures will not outweigh their positive economic benefits. Unless the court is satisfied, they could prevent Germany’s central bank from taking part in the stimulus program. German abstinence would constitute a serious breach of European unity.
Political pundits worry that the euro common currency could be a casualty of insular policies. During the last financial crisis, the ECB provided sufficient financial assistance to prevent Greece, Italy and Spain from becoming insolvent.
The political and social impact of the pandemic have far-reaching implications that cannot currently be fully anticipated. For example, the 2008 financial crisis aided far-right populist movements in Germany, Italy, Hungary and France.
According to the Economist article “Infectious Doubt,” trust in government varies dramatically between Europe’s wealthy countries vs. those in poorer countries. Sixty percent of Swedes trust their government. In comparison, in Italy, only 30%, and Romania, only 7% trust their government. One in eight Bulgarians have zero trust in their government.
The economies of Italy and Spain, which are very dependent on tourism, could shrink by 9% each this year. By comparison, Germany, the bloc’s biggest economy, will suffer a decline of 6.5%.
At this time, nobody can predict the economic severity of the coronavirus pandemic. However, the threat of disunion is their most challenging concern. They need to heed the advice of Benjamin Franklin, who warned the signers of the Declaration of Independence: “We must, indeed all hang together or most assuredly, we shall all hang separately.”
