An evaluation of European economic prospects could being with the observation that we are in the throes of an exogenous shock, symmetrical in origin yet asymmetrical in its effects (the economic conditions at the outset of each country or region of the EU were different). It is therefore significant that, following an initial phase of hesitation, a common narrative has emerged along with shared attitudes on priorities and instruments.
The economic challenges are complicated by the fact that the arrest of activity has generated simultaneous demand and supply side shocks. This has led to deep concern as much regarding imbalances within the common market as Europe’s overall global competitiveness; and all this in the context of a partial de-globalization that was already under way and now appears inevitable and rapid.
The principal interventions enacted form a highly significant package that includes the SURE (unemployment fund), the EIB, use of the MES and the Recovery Fund. Important also is the stronger role and broad arsenal assigned to the Commission within this framework, even though the recession is going to be deep and will inevitably produce a chain reaction whose effects are as yet difficult to calculate.
Some doubts linger on the actual overall volume of resources to be made available by these instruments, especially in the absence of European bonds; specifically, the amount of funds could be insufficient to finance Italy’s predicted extra-deficit, therefore benefits risk being temporary and limited.
Some participants felt the emphasis on a new instrument and on the principle of mutualization, which has run into a host of obstacles, was not necessary; and that, indeed, economic support goals would have been achievable by modifying the MES parameters (as has been done) and adapting other existing instruments. The Commission already has the ability to create debt, which presupposes mutualization and a certain amount of risk sharing. These instruments are capable to some extent of reassuring markets and therefore of averting ulterior damage.
The role of the EIB is particularly important thanks to its greater flexibility compared with other bodies, which allows it to respond to financial liquidity crises, especially when it comes to small and medium-sized enterprises. Therefore, good coordination between the various European institutions is going to be essential to avoid overlaps.
In any case, discussion has now also begun of the overall amount of European resources, thus of the Union’s budget.
Over the coming months (and for an as yet indefinite period to come) there are going to be both social and political challenges to the government’s management of social distancing rules which, in turn, are going to have direct effects on work and the economy. According to some participants, the only solution to stimulating both supply and demand would be a major European plan for investments in infrastructure and in the green and digital transitions. Indeed, not only would that give a financial leg up to businesses and families, more importantly it would shore up consumption, manufacturing and European investments in Europe, and an incentive not to simply move production off the continent. Fundamental to that end are a growth strategy and, potentially, a new growth model for the targeted use of resources and shared undertakings. In the specific case of Italy, public investments have dropped by more than the European average over recent years; this trend now needs to be inverted, but it becomes a critical that funds be spent where they can be the most productive. It was also emphasized that support for equity is going to be necessary, particularly for Italian companies with under-capitalization problems.
In the months following the recovery of economic activity, consumer spending will probably bounce back, with the inevitable benefits to the manufacturing sector. However, it is undeniable that even the most optimistic outlooks are going require massive and operationally efficient public intervention (at European, national and local levels) in both earmarking resources and using them.