by N. Peter Kramer
The recent grown projections for the EU by the European Commission have been revised down by around 9% compared with the forecast of autumn 2019. It is clear that the coronavirus pandemic means a major shock for the EU economies. Despite the swift and comprehensive policy responses in most memberstates and by ‘Brussels’, the EU economy (GDP) is forecast to contract by 7 ½% in 2020 and the euro area by 7 3/4%. All memberstates are hit by the pandemic, but the drop in output in 2020 differs markedly, from -4 1/4% in Poland to -9 3/4% in Greece. Also Italy (- 9 ½%), Spain (- 9.4%), Croatia (-9.1%) and France (- 8 1/4%) are hit hard.
The EU economy is not expected to have fully made up for this year’s losses by the end of 2021. Next year’s rebound could leave the EU economy about 3% below the level implied by the commission’s autumn 2019 forecast. But the outcome could be even worse, for example, another surge in infections could reduce GDP by an additional 3%, the commission said, ‘the danger of a deeper and more protracted recession is very real’. The threat of tariffs following the end of the transition period on December 31 between the EU and the UK could also dampen growth in 2021.
Each memberstate’s economic recovery will depend not only on the evolution of the pandemic in that country but also on the structure of their economies and their capacity to respond with stabilising policies. Given the interdependence of EU economies, the dynamics of the recovery in each memberstate will also affect the strength of the recovery of other memberstates.
The Commission Executive VP for the Economy, Valdis Dombrovskis, said, ‘Our collective recovery will depend on continued strong and coordinated responses at national and EU level. We are stronger together’. But the slump caused by the pandemic has amplified longer existing tensions, with southern memberstates (France, Italy, Spain, Portugal) denouncing a lack of solidarity from northern states (Germany, the Netherlands, Austria, Finland) which are in a better financial situation to support their workers and businesses.
