LONDON – Before the pandemic, the traditional situation prevailed in the vast economies on opposite sides of the Atlantic. Europe – full of older people and full of contentious policies – seemed stagnant. The United States, driven by innovation and risk-taking, seemed poised to grow faster.
But this alignment was ordered by contrasting approaches to a terrible global crisis. In principle, Europe has dealt with the spread of coronavirus, which allows many economies to reopen, while protecting workers whose livelihoods are threatened. The United States has become a symbol of futility and strife in conditions of serious urgency, raising deepening concerns about the fate of jobs and alimony.
Europe looks even worse than the United States, which the day before recorded the worst quarterly stretch in its history, falling 9.5 percent in the second quarter.
But beneath the headlines, Europe flashed promising signs of power.
Germany saw a drop in the number of unemployed, surveys found evidence of growing confidence amid rising factory production as the euro continued to strengthen against the dollar as investment poured into European markets – signs of improving sentiment.
These contrasting conditions underscored the central truth of the pandemic, which killed more than 670,000 people worldwide: The most significant cause of economic pain is the virus itself. Governments that better control its spread have commanded greater confidence from their citizens and investors, putting their economies in a better position to recover from the worst global downturn since the Great Depression.
“There is no economic recovery without a controlled health situation,” said Angel Talavera, a leading eurozone economist at Oxford Economics in London. “It’s not a choice between the two.”
European confidence was underpinned by an innovative agreement reached in July within the European Union for the sale of bonds worth € 750 million ($ 892 million), which are collectively supported by its members. These funds will be distributed to the worst affected countries, such as Italy and Spain.
The deal went beyond years of opposition from parsimonious Nordic countries such as Germany and the Netherlands to issuing a common debt. They decided to introduce their taxpayers to save their southern neighbors like Greece, while indulging in harsh stereotypes of Mediterranean depravity. The hostility perpetuated the feeling that Europe was a union in name only – a critique that was silenced.
The United States has spent more than Europe on programs to limit the economic damage from the pandemic. But much of the cost has benefited investors, leading to a significant recovery in the stock market. Emergency unemployment benefits have proven crucial, allowing tens of millions of unemployed Americans to pay rent and buy groceries. But they were set to expire on Friday, and there were several signs that Congress would extend them.
Europe’s experience has highlighted the virtues of its more generous social assistance programs, including national health systems.
Americans feel compelled to go to work, even in dangerous places like meat processing plants, and even when they are sick because many people lack paid sick leave. Still, they are under pressure to avoid shops, restaurants and other crowded businesses because millions do not have health insurance, which turns hospitalization into a financial disaster.
“Europe has really benefited from this system, which is more dominated by social assistance systems than the United States,” said Kersti Hoagland, chief economist at DNB Markets, an investment bank in Oslo. “It makes people less scared.”
The more promising situation in Europe is neither secure nor comprehensive. Spain remains a major concern as the virus spreads, threatening lives and livelihoods. Italy has gone from the gloomy reckoning of mass death to the chronic state of lasting economic problems. The tragic abuse of the British pandemic has shaken faith in the government.
If short-term factors seem more beneficial to European economies, long-term forces can benefit the United States with a younger population and higher productivity.
The feeling of European-American rivalry was provoked by the explosion of a nationalist American president, which turned the pandemic into a sick opportunity to preserve the result.
“There is a certain triumph,” said Peter Dixon, a global financial economist at Commerzbank in London. “People say, ‘Our economy has survived, we’re doing well.’ There is a certain amount of European malice, if I may use that word, given everything Trump has said about the United States. “
But for now, the European moment of confidence is palpable, especially in Germany, the continent’s largest economy.
Although the German economy shrank by 10.1 percent from March to June – the worst decline in at least half a century – the number of officially unemployed fell in July, in part because of government programs that subsidized indiscriminate workers.
Studies show that German managers – not a group prone to solar optimism – see expectations for future sales to return to near-previral levels. This buoyancy translates directly into growth, inspiring companies to inspire workers.
Ziehl-Abegg, a manufacturer of ventilation systems for hospitals, factories and large buildings, recently collapsed with a 16m-euro ($ 19m) expansion at a factory in southern Germany.
“If we wait to invest until the market recovers, it’s too late,” said Peter Fenkel, the company’s chief executive. “There are billions of dollars on the market ready to be invested and just waiting for the signal to start.”
This year, the euro has accumulated more than 5 percent against the dollar, according to FactSet. European markets have been lifted by international money flowing into so-called exchange-traded funds that buy European stocks. The Stokes 600, an index compiled by companies in 17 European countries, seems set for a second consecutive month of earnings ahead of the S&P 500.
French oil giant Total saw demand for its products in Europe fall by nearly a third in the second quarter of the year, but the powerful recovery is gaining momentum, said the company’s chairman and CEO Patrick Puyan.
“Since June, we have seen a recovery here in Europe,” he told analysts. “Activity in our marketing networks goes back to, I would say, 90 percent of pre-Covid levels.”
France, Europe’s second-largest economy, has been backed by aggressive government spending. President Emmanuel Macron has mobilized more than 400 billion euros ($ 476 billion) in emergency aid and loan guarantees since the crisis began, and is preparing an autumn package worth another 100 billion euros.
These funds paid businesses not to lay off workers, allowing more than 14 million employees to continue to pay, stay in their homes, accumulate modest savings and continue to spend. Delayed deadlines for business taxes and loan payments saved companies from collapse.
In the second quarter, when France was still partially closed, the country’s economy shrank by nearly 14%. Tourism, retail and manufacturing, the main pillars of the economy, have stopped.
But services, industrial activity and consumer spending have shown signs of improvement. The Bank de France, which initially expected the economy to shrink by more than 10 percent this year, recently predicted less damage.
In Spain, the feeling of recovery remains distant. Its economy shrank by nearly 19 percent from April to June. The country’s unemployment rate exceeds 15 percent and could rise higher if the wage subsidy program for overdue workers is allowed to expire in September.
Spain officially ended its coronavirus emergency on June 21, but has since seen an increase in infections. The economic impact is compounded by Britain’s decision to force travelers to return from Spain in quarantine for two weeks. Tourism accounts for 12 percent of Spain’s economy.
Italy is also heavily exposed to tourism. Its industry is concentrated in the northern part of the country, where the worst of the coronavirus is observed. The central bank expects the Italian economy to shrink by nearly 10 percent this year.
But exports jumped more than a third in May from the previous month. This left them below pre-pandemic levels, but still on par with German and American competitors, according to Confindustria, an Italian trade association.
“We are slowly recovering from the most violent decline in 70 years,” said Francesco Daveri, an economist at Bocconi University in Milan.
Europe’s happiness comes with the amendment, as people are more inclined to trust their governments.
Denmark acts early, imposing a strict blockade while paying wage subsidies that limit unemployment. Denmark has suffered far fewer deaths per capita than the United States and the United Kingdom.
With the largely controlled virus, Denmark lifted the restrictions earlier, while the Danes complied with the call for a resumption of trade. The Danish economy is expected to shrink by 5.25 percent this year, according to the European Commission, with a significant improvement in the second half of the year.
In the United States, people are tired of puzzling and contradictory advice from above amid more than 150,000 deaths.
The result is a record influx of new cases, along with a syndrome that is likely to continue – aversion to intimacy with other people. This points to weaker prospects for retail, hotels, restaurants and other areas rich in employment in the US economy.
Liz Alderman reported from Paris. Emma Bubola brought reports from Milan, Rafael Minder from Madrid and Stanley Reed and Eshe Nelson from London.