Activity in Covid-19-struck Europe is thought to have leapt in the third quarter, but finance ministers meeting early next week will take little comfort from coltish-looking economic figures.
The reason is simple — the rolling series of new restrictions that have been announced in recent days have cast a new shadow over the region’s prospects, making it all but impossible to know exactly where output will go next.
With Europe’s caseload soaring at a vertiginous rate, Germany and France imposed new lockdown measures on Wednesday. Other member states are clamping down as well, with both Belgium and Greece expected to announce fresh restrictions as soon as Friday.
Euro area ministers will hold a detailed debate about what all this means when they gather on Tuesday. The focus will be on understanding the interaction between the pandemic and economic conditions, in light of the experience of earlier this year. The new anti-coronavirus measures will have “important consequences” for economic activity, said one EU senior official. “That is unavoidable.”
The European Commission has the unenviable task of forecasting what the revised prognosis will look like when it releases its latest outlook next week, something that will be prodigiously difficult in the current situation of “extreme uncertainty”, the official added. But the European Central Bank on Thursday gave a good sense of the likely direction as it predicted “a significant softening in economic activity” and laid the ground for further easing.
The question for finance ministers is how and when fiscal policy will need to respond, but it is probably too soon for them to make any concrete new collective contributions to the debate. Officials point out that there is a great deal of EU-wide fiscal support already teed up for the bloc, much of which has yet to be tapped or made fully available.
The eurogroup helped put in place a €540bn emergency offering this spring, mostly comprised of loans, before EU leaders followed up in July with their €750bn recovery fund. For the time being, ministers are focused on ensuring that the existing package is rolled out as quickly as possible — something that is being impeded by the ongoing wrangling with the European parliament over the exact size of the EU’s upcoming seven-year budget and recovery package.
But the inevitable question is: Will it all be enough? Olivier Blanchard, former chief economist at the IMF, has made one notable contribution, arguing that the second wave is different and arguably even more severe for policymakers already testing the limits of fiscal policy (see: tweetstorm).
Mr Blanchard thinks the latest round of lockdowns introduces a heightened level of uncertainty for governments because initial hopes that infection rates could be controlled after prolonged inactivity have proven to be misplaced. The fiscal response will also have to be “more generous and aggressive” than the first time round, he argues, calling for aid in the form of grants rather than loans for already indebted companies.
“Pinching pennies and allowing bankruptcies on a large scale, limiting unemployment benefits, and letting demand collapse would be penny wise and pound-foolish,” he writes. “Governments will need strong nerves. Let’s hope they have them.”
Chart du jour: Black gold loses its lustre
It’s been a bumpy year for oil. Since January, big European oil firms like BP and Shell have collectively lost €360bn in market value — equivalent to 53 per cent of their total market capitalisation. A good portion of oil’s lost fortunes can be chalked up to the pandemic-related travel bans, but the pivot to clean fuels has played no small part.
The fortunes of renewable energy stocks have climbed as oil has dipped. Dutch energy storage company Alfen has seen a 230 per cent increase in 2020. The ascent of renewable energy comes as big players like the EU set out big plans to cut emissions in the next few decades. (chart via FT)
Europe news round-up
Customers sit outside of a bar in Barcelona in August. Travel to Spain during the summer is said to have played a large part in transmitting the new strain of the coronavirus © Bloomberg
A new strain of coronavirus seems to be responsible for the surge in Covid-19 cases in major European countries. The new variant has accounted for 80 per cent of cases in Spain in the UK. The study, which is yet to be peer-reviewed, suggests the new mutation of the virus spread through travel to Spain during the summer. The findings come at a time when cases are rising across Europe and many countries are imposing various forms of lockdown. (FT)
A man with a knife killed three people in a church of the French city of Nice on Thursday, in what President Emmanuel Macron described as an “Islamist terror attack”. In response, Mr Macron announced up to 7,000 soldiers will be deployed to protect churches and schools. Separately on Thursday, a man was shot dead by police in Avignon after threatening a shopkeeper with a gun. Mediapart reports that the man was wearing a T-shirt bearing a slogan from a far-right group. (FT/Mediapart)
The Netherlands’ prized image as an efficient bureaucracy is crumbling under the weight of the coronavirus. The Dutch style of consensus politics and elevation of individual liberty has proved too slow to combat the pandemic, which is spreading at some of the fastest rates in Europe. It is also shaking the country’s belief in some of its most-widely held national myths. (FT, NYT)
The EU border agency Frontex is at the heart of a growing scandal that accuses the agency of playing a role in “pushbacks”, where refugees are stopped from landing on European shores. The investigation by various media outlets accuses Frontex of turning a blind eye to pushbacks by the Greek coastguard and actively participating in some cases. Ylva Johansson, EU commissioner for home affairs, has asked for an extraordinary meeting of Frontex’s management to discuss the allegations. (Guardian/Bellingcat)
Coming up on Friday
EU health ministers hold their latest teleconference to discuss Covid-19 management on Friday afternoon. Third-quarter growth figures in the euro area are due, with economists predicting a sharp bounce from the prior quarter.
sam.fleming@ft.com; @Sam1Fleming
mehreen.khan@ft.com; @MehreenKhn
david.hindley@ft.com
Source: Economy - ft.com
