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The dark déjà vu for the European economy when virus cases jump

LONDON (AP) – The European economy was just catching its breath from the worst recession in modern history. The resumption of coronavirus cases this month is a sharp blow that is likely to turn what was supposed to be a recovery period for the economy into a weak winter of job losses and bankruptcies.

Bars, restaurants, airlines and countless other businesses are affected by new restrictions as politicians desperately try to curb the rise in infections. this quickly fills hospitals.

The rise in the pandemic last spring caused the economies of the 1

9 countries that use the euro to fall by a whopping 11.8% in the April-June quarter from the previous quarter. About 1.5 million more people registered as unemployed during the pandemic. The damage is limited only by the quick decision of governments to spend hundreds of billions of euros (dollars) to save another 45 million for payrolls and operating companies.

While the new restrictions have so far not been as drastic as the almost complete suspension of public life imposed in the spring, they are kicking an economy in decline. For many Europeans, there is a premonition of deja vu.

“It’s a disaster,” said Thomas Metzacher, who owns a restaurant in Germany’s financial center, Frankfurt, of the government’s decision to impose an evening class.

He noted that even before the new restrictions, many people in his industry could survive. Curfew means that people who come to eat do not delay for a few extra beers or schnapps, where restaurants earn most of their profits. “Now it’s: go eat, finish your drink, pay, go home,” he says.

Experts say the course of the global economy depends on the health crisis: Only when the pandemic is brought under control will it recover.

Countries like China, which have so far avoided a major revival like Europe, are doing better economically. The United States has failed to control its first wave and its economy remains stagnant from him.

Europe had reduced the number of infections much faster than the United States and managed to keep the unemployment cover. But the narrative that contrasted Europe’s successes with the Trump administration’s failure to control the pandemic is being quickly revised.

As coronavirus cases increase again in Europe, economists are lowering their forecasts.

Ludovic Subran, chief economist at financial services firm Allianz, says there is a high risk that the economies of France, Spain and the Netherlands will shrink again in the last three months of the year. Italy and Portugal are also at risk. While there is an increase in infections in Germany, this is not so bad and the economy seems more resilient.

“We see an increased risk of a double recession in countries that are again resorting to targeted and regional blockades,” he said.

The pandemic is getting worse just as governments try to alleviate the huge amount of financial support they provide to households and business owners.

Many governments have programs that pay most of the wages of redundant workers in the hope that they will be able to return to work quickly after the pandemic. In France and the UK, which cover a third of the workforce at one point and 20% in Germany. They also distribute cash to households and grants to business owners.

Governments are now gradually removing some of this support and seeking to provide more targeted assistance to people directly affected by the new restrictions. This will not help people whose jobs are affected indirectly. For example, a pub facing curfews would be eligible for salary assistance for its staff, but the brewery that supplies it may not.

The impact will vary from country to country – as the UK moves to a more comprehensive wage support plan., Germany has expanded its program.

As with the initial outbreak of the pandemic in the spring, the sectors in Europe most affected by the constraints of public life are services, including travel and hospitality – those that depend most on personal contact between people.

Countries like Spain, Portugal and Greece rely heavily on tourism. It represents almost 12% of the Spanish economy, compared to less than 3% for the United States and about 7% for France.

Major airlines in Europe expect to operate at about 40% of normal levels this winter and reduce the number of flights again. Lufthansa, British Airways and others are cutting tens of thousands of jobs as they do not expect a quick return to what was before the pandemic – even with state aid.

Even where there are no strict restrictions, health hazards frighten customers, so stores are likely to see less business.

The EU is providing € 750 billion ($ 880 billion) in financial support to member states to deal with the consequences. Governments like Spain have planned to invest in long-term projects such as renewable energy and technology. Now it seems that they will have to spend more to simply maintain the economy. The European Central Bank is injecting 1.35 trillion euros ($ 1.6 trillion) into the economy, which continues to borrow cheaply even from countries with weak finances such as Spain and Italy.

But the longer the pandemic drags on, the more financial aid decisions will become political, says Subran, an economist. Political parties are arguing over how to allocate resources, and unions are on strike to influence the debate. It reflects the turmoil in the United States, where a much-needed stimulus package has been postponed.

For Louis Nicolas-Etienne, a Parisian food grower among the stalls in the central square of the Bastille, this was a foretold tragedy. He blames people who did not follow safety recommendations during the summer to have fun and communicate after months of locking up.

“I was expecting this,” he said, wearing a mask outdoors the day France declared a state of emergency. “Some people are not responsible enough, so good people pay for bad ones.”


Oleg Cetinic of Paris and Christoph Nolting of Frankfurt contributed to this report.

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