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    Russia-Ukraine War Is Reshaping How Europe Spends

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    Romania is buying iodine pills. Ireland enacted special incentives for its farmers to till essential crops. And military spending is rising across the continent.Nicolae Ciuca spent a lifetime on the battlefield before being voted in as prime minister of Romania four months ago. Yet even he did not imagine the need to spend millions of dollars for emergency production of iodine pills to help block radiation poisoning in case of a nuclear blast, or to raise military spending by 25 percent in a single year.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” Mr. Ciuca, a retired general, said through a translator at Victoria Palace, the government’s headquarters in Bucharest. “We never expected this kind of war in the 21st century.”Across the European Union and Britain, Russia’s invasion of Ukraine is reshaping spending priorities and forcing governments to prepare for threats thought to have been long buried — from a flood of European refugees to the possible use of chemical, biological and even nuclear weapons by a Russian leader who may feel backed into a corner.The result is a sudden reshuffling of budgets as military spending, essentials like agriculture and energy, and humanitarian assistance are shoved to the front of the line, with other pressing needs like education and social services likely to be downgraded.The most significant shift is in military spending. Germany’s turnabout is the most dramatic, with Chancellor Olaf Scholz’s promise to raise spending above 2 percent of the country’s economic output, a level not reached in more than three decades. The pledge included an immediate injection of 100 billion euros — $113 billion — into the country’s notoriously threadbare armed forces. As Mr. Scholz put it in his speech last month: “We need planes that fly, ships that sail and soldiers who are optimally equipped.”The commitment is a watershed moment for a country that has sought to leave behind an aggressive military stance that contributed to two devastating world wars.“We never thought we’d need to go back to the Cold War and consider potassium iodine again,” said Nicolae Ciuca, prime minister of Romania.Cristian Movila for The New York TimesA wartime mind-set has also spread to sectors aside from defense. With prices soaring for oil, animal feed and fertilizer, Ireland introduced a “wartime tillage” program last week to amp up grain production, and created a National Fodder and Food Security Committee to manage threats to the food supply.Farmers will be paid up to €400 for every additional 100-acre block that is planted with a cereal crop like barley, oats or wheat. Planting additional protein crops like peas and beans will earn a €300 subsidy.“The illegal invasion in Ukraine has put our supply chains under enormous pressure,” Charlie McConalogue, the agriculture minister, said in announcing the $13.2 million package. Russia is the world’s largest supplier of wheat and with Ukraine accounts for nearly a quarter of total global exports.Spain has been running down its supplies of corn, sunflower oil and some other produce that also come from Russia and Ukraine. “We’ve got stock available, but we need to make purchases in third countries,” Luis Planas, the agriculture minister, told a parliamentary committee.Mr. Planas has asked the European Commission to ease some rules on Latin American farm imports, like genetically modified corn for animal feed from Argentina, to offset the lack of supply.Extraordinarily high energy prices have also put intense pressure on governments to cut excise taxes or approve subsidies to ease the burden on families that can’t afford to heat every room in their home or fill their car’s gas tank.Ireland reduced gasoline taxes, and approved an energy credit and a lump-sum payment for lower-income households. Germany announced tax breaks and a $330-per-person energy subsidy, which will end up costing the treasury $17.5 billion.Ireland introduced a “wartime tillage” program last week to increase grain production.Niall Carson – PA Images, via Getty ImagesIn Spain, the government agreed last week to defray the cost of gasoline in response to several days of strikes by truckers and fishermen, which left supermarkets without fresh supplies of some of their most basic items.And in Britain, a cut in fuel taxes and support for poorer households will cost $3.2 billion.The outlook is a change from October, when Rishi Sunak, Britain’s chancellor of the Exchequer, announced a budget for what he called an “economy fit for a new age of optimism,” with large increases in education, health and job training.In his latest update to Parliament, Mr. Sunak warned that “we should be prepared for the economy and public finances to worsen potentially significantly,” as the country faces the biggest drop in living standards it has ever seen.The energy tax relief was welcomed by the public, but the reduced revenues put even more pressure on governments that are already managing record high debt levels.“The problem is that some countries have quite a big chunk of legacy debt — in Italy and France, it’s over 100 percent of gross domestic product,” said Lucrezia Reichlin, an economics professor at the London Business School, referring to the huge amounts spent to respond to the pandemic. “That is something which is very much new for the economic governance of the union.” European Union rules, which were temporarily suspended in 2020 because of the coronavirus, limit government debt to 60 percent of a country’s economic output.And the demands on budgets are only increasing. European Union leaders said this month that the bill for new defense and energy spending could run as high as $2.2 trillion.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Dollars or Rubles? Russian Debt Payments Are Due, and Uncertain.

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    Citing sanctions, the Russian government warned it might pay foreign debt obligations in rubles. Credit rating agencies say a default is imminent. Russia is teetering on the edge of a possible sovereign debt default, and the first sign could come as soon as Wednesday.The Russian government owes about $40 billion in debt denominated in U.S. dollars and euros, and half of those bonds are owned by foreign investors. And Russian corporations have racked up approximately $100 billion in foreign currency debt, JPMorgan estimates.On Wednesday, $117 million in interest payments on dollar-denominated government debt are due.But Russia is increasingly isolated from global financial markets, and investors are losing hope that they will see their money. As the government strives to protect what’s left of its access to foreign currency, it has suggested it would pay its dollar- or euro-denominated debt obligations in rubles instead. That has prompted credit rating agencies to warn of an imminent default.The Russian currency has lost nearly 40 percent of its value against the U.S. dollar in the past month. Even if the payments were made, economic sanctions would make it difficult for Western lenders to access the rubles if they are in Russian bank accounts.“It is not that Russia doesn’t have money,” Kristalina Georgieva, managing director of the International Monetary Fund, told reporters last week. The problem is, Russia can’t use a lot of its international currency reserves, she said, because they have been frozen by sanctions. “I’m not going to speculate what may or may not happen, but just to say that no more we talk about Russian default as an improbable event.”Last week, the chief economist of the World Bank said Russia and Belarus were squarely in “default territory,” and Fitch Ratings said a default was imminent because sanctions had diminished Russia’s willingness to repay its foreign debts.Russia last defaulted on its debt in 1998, when a currency crisis led it to default on ruble-denominated debt and temporarily ban foreign debt payments. The crisis shocked the financial world, leading to the collapse of the U.S. hedge fund Long-Term Capital Management, which required Federal Reserve intervention and a multibillion-dollar bailout. If Russia failed to make payments on its foreign currency debt, it would be its first such default since the 1917 Russian Revolution.Foreign investor interest in Russian assets fell in 2014 when sanctions were imposed after the country annexed Crimea, and never fully recovered before more sanctions were imposed by Washington in 2019. But holdings aren’t negligible. Russian government bonds were considered investment grade as recently as a few weeks ago, and were included in indexes used to benchmark other funds. JPMorgan estimates that international investors own 22 percent of Russian companies’ foreign currency debt.BlackRock, the world’s largest asset manager, has already incurred losses on Russian assets and equities.Jeenah Moon/BloombergFunds managed by BlackRock, the world’s largest asset manager, have incurred $17 billion in losses on Russian assets, including equities, in recent weeks, according to the firm. The loss in value has a number of causes, including investors selling their holdings.But so far, regulators have said the risk to global banking systems from a Russian default wouldn’t be systemic because of the limited direct exposure to Russian assets. The larger ramifications from the war in Ukraine and Russia’s economic isolation are from higher energy and food prices.Still, financial companies have been scrambling to assess their exposure, according to Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.“I’m seeing a lot of clients that had exposure to the Russian market wondering what type of default scenarios might be coming up,” said Mr. Tannebaum, who is also a former Treasury Department official. In the case of a default, “those bonds become worthless, for lack of a better term,” he said.On Monday, Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.” The government has the money to meet its debt obligations, he said, but sanctions were hampering its ability to pay. Mr. Siluanov had also said over the weekend that the country had lost access to about $300 billion of its $640 billion currency reserves.The government insists investors will be paid. The finance ministry said on Monday it would send instructions to banks to issue the payment due on dollar- or euro-denominated bonds in dollars or euros, but if the banks don’t execute the order then it will be recalled and payment will be made in rubles instead. The statement also said that the payments could be made in rubles and then converted to another currency only when the country’s gold and foreign exchange reserves are unfrozen.Russia’s finance minister, Anton Siluanov, accused the countries that have frozen the country’s internationally held currency reserves of trying to create an “artificial default.”Alberto Pizzoli/Agence France-Presse — Getty Images“In any case, obligations to our investors will be met. And the ability to receive the funds in foreign currency will depend on the imposed restrictions,” Mr. Siluanov said.But the statement doesn’t provide a clear vision of what might happen on Wednesday. American sanctions allow for the receipt of payments of debt obligations until late May, and so the reasoning behind the Russian finance ministry’s claim that banks might refuse the payments is unclear. The payments due on Wednesday also have a 30-day grace period, so a default wouldn’t technically happen until mid-April. But Russia has already blocked interest payments on ruble-denominated bonds to nonresidents, a sign of its hesitancy to transfer funds abroad.While the Russian finance ministry said it could meet its obligations by paying in rubles, others disagreed.“In order to avoid a default, the only way that Russia can really navigate this is to send the full payment in dollars,” said Trang Nguyen, an emerging markets strategist at JPMorgan.Some Russian bonds issued in recent years do have provisions that allow for repayment in other currencies, including the ruble, if Russia can’t make payments in dollars for reasons “beyond its control.” The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Workers in Europe Are Demanding Higher Pay as Inflation Soars

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    Prices are rising at the fastest rate on record, and unions want to keep up. Policymakers worry that might make inflation worse.PARIS — The European Central Bank’s top task is to keep inflation at bay. But as the cost of everything from gas to food has soared to record highs, the bank’s employees are joining workers across Europe in demanding something rarely seen in recent years: a hefty wage increase.“It seems like a paradox, but the E.C.B. isn’t protecting its own staff against inflation,” said Carlos Bowles, an economist at the central bank and vice president of IPSO, an employee trade union. Workers are pressing for a raise of at least 5 percent to keep up with a historic inflationary surge set off by the end of pandemic lockdowns. The bank says it won’t budge from a planned a 1.3 percent increase.That simply won’t offset inflation’s pain, said Mr. Bowles, whose union represents 20 percent of the bank’s employees. “Workers shouldn’t have to take a hit when prices rise so much,” he said.Inflation, relatively quiet for nearly a decade in Europe, has suddenly flared in labor contract talks as a run-up in prices that started in spring courses through the economy and everyday life.From Spain to Sweden, workers and organized labor are increasingly demanding wages that keep up with inflation, which last month reached 4.90 percent, a record high for the eurozone. Austrian metalworkers wrested a 3.6 percent pay raise for 2022. Irish employers said they expect to have to lift wages by at least 3 percent next year. Workers at Tesco supermarkets in Britain won a 5.5 percent raise after threatening to strike around Christmas. And in Germany, where the European Central Bank has its headquarters, the new government raised the minimum wage by a whopping 25 percent, to 12 euros (about $13.60) an hour.A market in Frankfurt. Inflation in the eurozone last month reached 4.90 percent, a record high.Felix Schmitt for The New York TimesThe upturns follow a bout of anemic wage growth in Europe. Hourly wages fell for the first time in 10 years in the second quarter from the same period a year earlier, although economists say pandemic shutdowns and job furloughs make it hard to paint an accurate picture. In the decade before the pandemic, when inflation was low, wages in the euro area grew by an average of 1.9 percent a year, according to Eurostat.The increases are likely to be debated this week at meetings of the European Central Bank and the Bank of England. E.C.B. policymakers have insisted for months that the spike in inflation is temporary, touched off by the reopening of the global economy, labor shortages in some industries and supply-chain bottlenecks that can’t last forever. Energy prices, which jumped in November a staggering 27.4 percent from a year ago, are also expected to cool.The E.C.B., which aims to keep annual inflation at 2 percent, has refrained from raising interest rates to slow climbing prices, arguing that by the time such a policy takes effect, inflation would have eased anyway on its own.“We expect that this rise in inflation will not last,” Christine Lagarde, the E.C.B. president, said in an interview in November with the German daily F.A.Z., adding that it was likely to start fading as soon as January.In the United States, where the government on Friday reported that inflation jumped 6.8 percent in the year through November, the fastest pace in nearly 40 years, officials are not so sure. In congressional testimony last week, the Federal Reserve chair, Jerome H. Powell, stopped using the word “transitory” to describe how long high inflation would last. The Omicron variant of the coronavirus could worsen supply bottlenecks and push up inflation, he said.In Europe, unions are also agitated after numerous companies reported bumper profits and dividends despite the pandemic. Companies listed on France’s CAC 40 stock index saw margins jump by an average of 35 percent in the first quarter of 2021, and half reported profits around 40 percent higher than the same period a year earlier.Justine Negoce, a cashier at Leroy Merlin, with her daughters. She joined a companywide walkout in Paris last month demanding a pay increase.Andrea Mantovani for The New York TimesWorkers say that they have not benefited from such gains, and that inflation has made things worse by abruptly slashing their purchasing power. Companies, for their part, are wary of linking salaries to inflation — a policy that also makes the European Central Bank nervous.Surging energy costs have been “a shock on incomes,” said James Watson, chief economist for Business Europe, the largest business trade association. “But if you try to compensate by raising wages, there’s a risk that it’s unsustainable and that we enter into a wage-price spiral,” he said.European policymakers are watching carefully for any signs that companies are passing the cost of higher wages on to consumers. If that happens, it could create a dangerous run-up of higher prices that might make inflation chronic.For now, that seems unlikely, in part because wage negotiations so far haven’t resulted in outsize pay increases, said Holger Schmieding, chief economist at Berenberg Bank in London.Negotiated wage increases have been averaging around 2.5 percent, below inflation’s current pace. “Will wage hikes be inflationary? Not really,” he said. “The eurozone is not at a severe risk.”But as climbing prices continue to unnerve consumers, labor organizations are unlikely to ease up. Gasoline prices recently hit €2 a liter in parts of Europe — equal to over $8 a gallon. Higher transportation costs and supply chain bottlenecks are also making supermarket basics more expensive.Ms. Negoce is facing a 25 percent jump in grocery and gas bills for her family. Even with a pay raise next year, “we’ll need to count every penny,” she said.Andrea Mantovani for The New York TimesJustine Negoce, a cashier at France’s largest home-improvement chain, joined an unprecedented companywide walkout in Paris last month to demand a hefty raise as rising prices gobbled up her modest paycheck.After employees blocked warehouses for 10 days and demonstrated in the cold, the company, Leroy Merlin, agreed to a 4 percent raise for its 23,000 workers in France — twice the amount that management originally offered. The company, owned by Adeo, Europe’s biggest DIY chain, saw revenue climb over 5 percent in 2020 to €8 billion as housebound consumers decorated their homes and people like Ms. Negoce worked the front lines to ring up sales.Her monthly take-home pay will rise in January to €1,300 from €1,250. The additional cash will help offset a 25 percent jump in grocery and gas bills for her two teenage children and husband — just barely.On a recent trip to the supermarket, her basket of food basics, including rice, coffee, sugar and pasta, jumped to €103 instead of the €70 to €80 she paid a few months back. Filling her gas tank now costs €75 instead of €60. And even with her husband’s modest salary, she said, the couple will still be in the red at the end of the month.“We’re happy with the raise, because every little bit helps,” Ms. Negoce said. “But things are still tight, and we’ll need to count every penny.”In a statement, Leroy Merlin said the agreement maintains employees’ purchasing power and puts its average salaries for next year at 15 percent above France’s gross monthly minimum wage, which the government raised in October by 2.2 percent.Crucially, executives also agreed to return to the bargaining table in April if a continued upward climb in prices hurts employees.At Sephora, the luxury cosmetics chain owned by LVMH Moët Hennessy Louis Vuitton, some unions are seeking an approximately 10 percent pay increase of €180 a month to make up for what they say is stagnant or low pay for employees in France, many of whom earn minimum wage or a couple hundred euros a month more.Jenny Urbina, a representative of the union that is negotiating with Sephora for salary increases. “When we work for a wealthy group like LVMH no one should be earning so little,” she said.Andrea Mantovani for The New York TimesLVMH, which recorded revenue of €44.2 billion in the first nine months of 2021, up 11 percent from 2019, raised wages at Sephora by 0.5 percent this year and granted occasional work bonuses, said Jenny Urbina, a representative of the Confédération Générale du Travail, the union negotiating with the company.Sephora has offered a €30 monthly increase for minimum wage workers, and was not replacing many people who quit, straining the remaining employees, she said.“When we work for a wealthy group like LVMH no one should be earning so little,” said Ms. Urbina, who said she was hired at the minimum wage 18 years ago and now earns €1,819 a month before taxes. “Employees can’t live off of one-time bonuses,” she added. “We want a salary increase to make up for low pay.”Sephora said in a statement that workers demanding higher wages were in a minority, and that “the question of the purchasing power of our employees has always been at the heart” of the company’s concerns.At the European Central Bank, employees’ own worries about purchasing power have lingered despite the bank’s forecast that inflation will fade away.A spokeswoman for the central bank said the 1.3 percent wage increase planned for 2022 is a calculation based on salaries paid at national central banks, and would not change.But with inflation in Germany at 6 percent, the Frankfurt-based bank’s workers will take a big hit, Mr. Bowles said.“It’s not in the mentality of E.C.B. staff to go on strike,” he said. “But even if you have a good salary, you don’t want to see it cut by 4 percent.”Léontine Gallois More

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    E.C.B. Will Slow Its Crisis-Era Bond Buying

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    The European Central Bank said on Thursday it would slow down the pace of its pandemic-era bond-buying program, one of the main tools it has used to support the eurozone economy through lockdowns, citing “favorable financing conditions” and the inflation outlook.The program, which has lately been purchasing about 80 billion euros, or $95 billion, of mostly government bonds each month, is a way to keep borrowing costs low and encourage economic growth.Other policy measures were left unchanged. Interest rates were held steady, including the so-called deposit rate, which remained at negative 0.5 percent. Policymakers also maintained the size of the bank’s other bond-buying program that was restarted in 2019 to head off a regional recession.In the eurozone, inflation is rising faster than expected, supply chain disruptions and product shortages are pushing costs higher for manufacturers, and there are early signs that the economic recovery is slowing down.It’s a concoction that has created divisions among the central bank’s policymakers about when to slow and then end its enormous bond-buying program. It began in March 2020 as the pandemic spread across Europe, and is meant to buy a total of 1.85 trillion euros in bonds and run until at least next March. The slowdown would help ensure the purchases end on schedule, though the central bank hasn’t ruled out an extension.“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases,” the central bank said in statement on Thursday.Thursday’s decisions are the first test of the central bank’s updated forward guidance. In July, policymakers said they were willing to overlook short-term jumps in inflation and would raise interest rates only once it was clear the annual inflation rate would reach 2 percent “well ahead” of the end of the central bank’s projection horizon and stay around that level over the medium term.New projections for inflation and economic growth will be published later on Thursday when the central bank’s president, Christine Lagarde, will hold a press conference.. The previous forecasts, in June, predicted inflation would peak at 2.6 percent in the fourth quarter and decline to 1.5 percent in 2022 and 1.4 percent in 2023.But inflation has already risen to 3 percent in August, the highest in nearly 10 years, the region’s statistics agency said last week. So far, policymakers have been betting that the jump in inflation will be temporary, like other central banks around the world.In recent years preceding the pandemic, the inflation rate was below the bank’s 2 percent target.“The stars are much better aligned than they have been for a long time for the return of inflation back to 2 percent,” Klaas Knot, the governor of the Dutch central bank and a member of the governing council at the European Central Bank, said last week.Jens Weidmann, the head of the German central bank, said that policymakers shouldn’t ignore the risk of “excessively high inflation” and that they should not “commit to our very loose monetary policy stance for too long.”But the European Central Bank as a whole has been more cautious than the Federal Reserve and Bank of England about preparing markets for a return to normal policy. While the economy is rebounding — rising 2.2 percent in the second quarter from the first three months of the year — Ms. Lagarde has highlighted the uncertainty posed by the spread of the Delta variant.Recently, Philip Lane, the central bank’s chief economist, said there were headwinds for the economy in the second half of the year, including supply-chain bottlenecks that could be more persistent than expected.While the pandemic-era bond program might be approaching its end, the central bank is expected to maintain its older bond purchase effort, under which the bank buys 20 billion euros in assets a month. Many analysts expect policymakers to increase the size of purchases to keep providing stimulus to the economy even after the immediate impact of the pandemic has passed. More

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    European Central Bank Tweaks Strategy to Fight Inflation

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    The European Central Bank said Thursday it would adjust the guideposts it uses to set monetary policy, giving its more room to deploy crisis measures even if inflation rises above its official target. The bank also said it would begin using its clout in bond markets to fight climate change.After concluding an 18-month review of its strategy, the bank’s Governing Council said Thursday that it would no longer aim to keep inflation below, but close to, 2 percent. Rather, it would simply aim for 2 percent and be ready to accept “a transitory period in which inflation is moderately above target.”The seemingly minor change gives the bank space to keep pumping credit into the eurozone economy even if annual inflation rises above 2 percent, as long as policymakers think the jump is temporary.That situation may soon materialize. Inflation in the eurozone has been hovering around 2 percent in recent months, and could rise above the target as economies reopen and shortages of needed products like semiconductors become more acute. According to the previous strategy, the central bank would be obligated to raise interest rates or take other measures to slow the economy, even if the crisis was not over.By law, controlling prices in the 19 countries of the eurozone is the central bank’s main priority, so any adjustment to its approach to inflation has broad implications for the interest rates that businesses and consumers pay on loans, and for employment and economic growth.The bank also said it would take climate change into account when it buys corporate bonds as part of its stimulus measures. The bond purchases, made with newly created money, are a means to stimulate borrowing and economic growth. But in the future, the European Central Bank will favor companies that have made sincere efforts to reduce the amount of carbon dioxide they produce.In practice, the central bank has already provided ample evidence it was willing to bend its own rules to fight the pandemic, or the debt crisis that nearly destroyed the euro a decade ago.“We do not expect the new strategy to shift the outlook for the E.C.B.’s monetary policy stance significantly,” Holger Schmieding, chief economist at Berenberg Bank, said in a note to clients ahead of the announcement. “Instead, it will formally codify the approach which the E.C.B. has pursued anyway. This will make it easier for the E.C.B. to communicate with markets and the public.”The European Central Bank’s new approach is sure to generate criticism from places like Germany, where fear of inflation runs deep. Jens Weidmann, a member of the Governing Council and president of the Bundesbank, Germany’s central bank, has called for the European Central Bank to begin dialing back its stimulus to ensure that inflation does not get out of control. He has also said that climate change was not a matter for central banks.But Mr. Weidmann belongs to a minority on the Governing Council. The central bank said in a statement that it believed that climate change was relevant to “inflation, output, employment, interest rates, investment and productivity; financial stability; and the transmission of monetary policy.” More

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    How the Stimulus Could Power a Rebound in Other Countries

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    As Americans buy more, they are expected to spur trade and investment and invigorate demand for German cars, Australian wine, Mexican auto parts and French fashions.Washington’s robust spending in response to the coronavirus crisis is helping to pull the United States out of its sharpest economic slump in decades, funneling trillions of dollars to Americans’ checking accounts and to businesses.Now, the rest of the world is expected to benefit, too.Global forecasters are predicting that the United States and its record-setting stimulus spending could help haul a weakened Europe and struggling developing countries out of their own economic morass, especially when paired with a rapid vaccine rollout that has poised the U.S. economy for a faster recovery.As Americans buy more, they should spur trade and investment and invigorate demand for German cars, Australian wine, Mexican auto parts and French fashions.The anticipated economic rebound in the United States is expected to join China’s recovery, adding impetus to world output. China’s economy is forecast to expand rapidly this year, with the International Monetary Fund predicting 8.1 percent growth. That is good news for countries like Germany, which depends on Chinese demand for cars and machinery.Yet the United States is particularly important to the world economy because it has long spent more than it makes or sells, spreading dollars globally. China is one of the major beneficiaries of Washington’s largess because many Americans have spent their stimulus checks on video game consoles, exercise bicycles or other products made in China.The United States’ comparatively fast recovery was neither guaranteed nor expected: It was the result of a little bit of luck — new variants of the virus that have coursed through other countries have just begun to push infections higher in the United States — and a large policy response, including more than $5 trillion in debt-fueled pandemic relief spending passed into law over the past 12 months. Those trends, paired with the accelerating spread of effective vaccinations, seem likely to leave the American economy in a stronger position.“When the U.S. economy is strong, that strength tends to support global activity as well,” Jerome H. Powell, the chair of the Federal Reserve, said at a recent news conference.A year ago, it was not at all certain that the United States would gain the strength to help lift the global economy.The International Monetary Fund forecast last April that the U.S. economy might expand 4.7 percent this year, roughly in line with forecasts for Europe’s growth, after an expected slump of 5.9 percent in 2020. But the actual contraction in the United States was smaller, and in January, the I.M.F. upgraded the outlook for U.S. growth to 5.1 percent this year, while the euro area’s expected growth was marked down to 4.2 percent.Germany has extended its lockdown to April 18, and there is a good chance restrictions will be extended further.Lena Mucha for The New York TimesSince then, the U.S. government has passed a $1.9 trillion relief package, and the I.M.F. has signaled that the estimates for the country’s growth will be marked up further when it releases fresh forecasts on Tuesday.The recent relief package continues a trend: America has been willing to spend to combat the pandemic’s economic fallout from the start.America’s initial pandemic response spending, amounting to a little less than $3 trillion, was 50 percent larger, as a share of gross domestic product, than what the United Kingdom rolled out, and roughly three times as much as in France, Italy or Spain, based on an analysis by Christina D. Romer at the University of California, Berkeley.Among a set of advanced economies, only New Zealand has borrowed and spent as big a share of its G.D.P. as the United States has, the analysis found.In Europe, where workers in many countries were shielded from job losses and plunging income by government furlough programs, the slow pace of the European Union’s vaccination campaign will probably hurt the economy, said Ludovic Subran, the chief economist of German insurance giant Allianz.On Wednesday, France announced its third national lockdown as infected patients fill its hospitals.Mr. Subran also questioned whether the European Union can distribute stimulus financing fast enough. The money from a 750 billion-euro, or $880 billion, relief program agreed to by European governments in July has been slow to reach the businesses and people who need it because of political squabbling, creaky public administration and a court challenge in Germany.Karen Dynan, a former U.S. Treasury Department chief economist who is now at the Peterson Institute for International Economics, estimated that economic output would take at least a year longer to return to prepandemic levels in Europe than it would in the United States.“Fiscal policy has differed across countries in ways that are really shaping the experience they have now,” Ms. Dynan said.Vaccine supplies are limited in many developing economies, including Venezuela.Ariana Cubillos/Associated PressPoorer and smaller countries, facing severely limited vaccine supplies and fewer resources to support government spending, are likely to struggle to stage an economic turnaround even if the U.S. recovery increases demand for their exports. Places including Venezuela, Iraq and Namibia have administered only about 1 vaccine dose per 1,000 people, if that, based on New York Times data. In the United States, the rate is more than 400 doses per 1,000 people.Still, a booming American economy poses some hazard to other nations — and especially emerging markets — as economic fates diverge.Market-based interest rates in the United States are already climbing, as investors, sensing faster growth and quicker inflation around the corner, decide to sell bonds. That could make financing more expensive around the globe: If investors can earn higher rates on U.S. bonds, they are less likely to invest in foreign debt that offers either lower rates or higher risk.If the United States lures capital away from the rest of the world, “the rose-colored view that we are helping everyone is very much in doubt,” said Robin Brooks, chief economist at the Institute of International Finance.Philip Lane, chief economist of the European Central Bank and a member of the policymaking Governing Council, said the strength of the U.S. economy was generally good news for Europe. But, in an interview on Monday, he warned that rising market interest rates could be a burden for the eurozone economy.Imported goods at a cold storage port in China.Yao Jianfeng/Xinhua, via Associated Press“We do think it’s net positive for the European economy — positive for G.D.P., positive for inflation,” Mr. Lane said of the economic rebound in the United States. “But that’s based on the assumption that the increase in bond yields is very limited.” He noted that bond yields had so far risen faster than expected.Trans-Atlantic trade should get help from warmer relations between the United States and the European Union. The Biden administration has already moved to defuse trade tensions with Europe, which the Trump administration treated as an adversary. President Biden met online with European leaders last week.The U.S. stimulus packages “will be part of the water that lifts all boats,” said Selina Jackson, senior vice president for global government relations and public policy at Procter & Gamble, during a recent panel discussion organized by the American Chamber of Commerce to the European Union. “We are hoping for a calm slide out of this economic situation.”Keith Bradsher More