Contrasting economic data released on both sides of the Atlantic this week conveys a simple but powerful message: It pays to unleash enormous quantities of public money and vaccines in the face of a lethal, livelihood-destroying pandemic.
Europe engaged in less relief and spent the first three months of the year caught in the second leg of a so-called double-dip recession, a reality confirmed on Friday by an official estimate showing that the eurozone economy contracted by 0.6 percent.
The recession in the 19 nations that share the euro currency reflects far less aggressive stimulus spending and a botched effort to secure vaccines that has left many major economies contending with continued restrictions on daily life.
“It’s quite hard to see growth when most European countries are still facing restrictions,” said Ángel Talavera, lead eurozone economist at Oxford Economics in London. “The U.S. is going to grow more this year. The sheer amount of fiscal stimulus is going to create a boom.”
Still, economic growth figures are by nature a snapshot of the past, and recent weeks have produced encouraging signs that Europe is already on the mend. The alarming spread of the coronavirus in major economies like Germany and France has moderated, while factories have revived production.
Growing numbers of people are on the move in European cities, bearing money saved while they were sequestered at home during the worst of the pandemic — a reality that may presage a mighty surge of consumer spending as life returns to some semblance of normalcy.
“We are already where the arrows have pointed up once again,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo.
The German economy diminished by a sharp 1.7 percent from January through March, but that was better than anticipated, prompting some economists to forecast a speedier recovery in Europe’s largest economy.
The economies of Italy and Spain slipped by much smaller magnitudes — 0.4 percent in Italy and 0.5 percent in Spain. The French economy grew by a modest 0.4 percent, though its prospects face a fresh challenge in the form of new pandemic restrictions imposed in April by the government.
The initial lockdowns last year punished Europe’s economies, bringing large swaths of commercial life to a halt. But the current restrictions are calibrated to reflect improved understanding of how the virus spreads. Rather than closing their doors altogether, restaurants in some countries are serving meals on patios and dispensing takeout orders. Roofers, carpenters and other skilled trades have resumed work, as long as they can stay outside.
“We have sort of learned to live with the pandemic,” said Dhaval Joshi, chief strategist at BCA Research in London. “We are adapting to it.”
Vaccination rates are increasing throughout Europe, a trend likely to be advanced by the European Union’s recent deal to secure doses from Pfizer.
Most economists and the European Central Bank expect the eurozone to expand rapidly over the rest of 2021, yielding growth of more than 4 percent for the full year.
Still, even in the most hopeful scenario, Europe’s recovery is running several months behind the United States, a reflection of their differing approaches to economic trauma.
Since last year, the United States has unleashed extra public spending worth 25 percent of its national economic output toward pandemic-related stimulus and relief programs, according to the International Monetary Fund. That compares to 10 percent in Germany, and less in France, Italy and Spain.
To a substantial degree, the American recovery has been propelled by people using their stimulus checks from the federal government to buy cars, furniture, exercise equipment and other large purchases. American spending on these so-called durable goods increased by an annualized rate of 41 percent over the first three months of the year.
The nations of the European Union — which includes the eurozone plus eight other countries — are now debating proposals to distribute funds from a pandemic rescue fund of 800 billion euros, or $968 billion. That money should eventually stimulate growth, but the process confronts the typically fractious politics of Europe.
Finland, which tends toward frugality, has held up disbursement with demands for conditions on the use of the money. Further delays threaten to extend the downturn in southern European economies that are especially dependent on tourism, among them Greece, Italy, Spain and Portugal.
Any comparison with the American management of the pandemic must factor in the reality that Europe began the crisis with far more comprehensive social programs to aid people in trouble, and then adopted a different approach to minimizing the damage. While the United States directed cash to those set back by the pandemic, many European countries limited a surge in unemployment by heavily subsidizing wages at companies that agreed to retain their workers through the lockdowns.
The contrasting pace of economic recovery in Europe and the United States reflects fundamental differences in the animating values and structures of their societies.
The American economy is a study in inequality, with risks and rewards tending to extremes, and failure often capable of precipitating catastrophe, given that joblessness frequently severs people from their medical insurance policies.
Europe remains a relative bastion of social democracy in which higher levels of taxation finance national health care systems along with programs that automatically aid those who lose jobs.
In the United States, a family of two parents and two children in which one breadwinner loses a job is, six months later, subsisting on 28 percent of their previous income, according to data from the Organization for Economic Cooperation and Development. The equivalent family in Germany retains 75 percent of their previous income — a reflection of the country’s far more generous social safety net — while the same household in Denmark may count on 90 percent of its original income.
In short, the United States is far more dependent on economic growth and emergency infusions of relief when trouble emerges, while European countries generally seek to limit volatility. This is part of the explanation for why the American political system has more rapidly mobilized to distribute far larger sums of stimulus spending: because the consequences of not doing so are far more punishing in the United States.
“Europe has more insurance schemes,” said Ms. Haugland, the DNB Markets economist. “You don’t fall as hard, but you don’t rebound that sharply either.”
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