Before the Corona Virus global outbreak, a conventional state of play prevailed in the enormous economies on the opposite sides of the Atlantic. Europe which is full of older people, and rife with bickering over policy appeared to be stagnant. The United States, governed by innovation and risk-taking, seemed ready to grow faster.
But that alignment has been reordered by opposing approaches to a terrifying global crisis. Europe has generally gotten a handle on the spread of the coronavirus, enabling many economies to reopen while shielding workers whose livelihoods have been menaced. However, the United States has become a symbol of fecklessness and disharmony in the face of a grave emergency, yielding deepening concerns about the fate of jobs and sustenance.
On Friday, Europe released economic numbers that on their face were dreadful. The 19 nations that share the euro currency contracted by 12.1% from April to June from the previous quarter – the sharpest decline since 1995, when the data was first recorded. Spain fell by an astounding 18.5%, and France, one of the eurozone’s biggest economies, declined 13.8%. Italy shrunk by 12.4%.
Europe was doing even worse than the United States, which the day before recorded the single-worst three-month stretch in its history, dipping by 9.5% in the second quarter. But beneath the headline figures, Europe showed promising signs of strength.
Germany observed a drop in the numbers of unemployed, surveys found evidence of growing assurance amid an expansion in factory production, while the euro continued to strengthen against the dollar as investment flowed into European markets – traits of improving sentiment.
These contrasting fortunes underscored a central truth of a pandemic that has taken more 670,000 lives worldwide: The most substantial cause of the economic pain is the virus itself. Governments that have more adeptly handled its spread have commanded greater assurance from their citizens and investors, putting their economies in a much better position to recover from the worst global downturn since the Great Depression.
“There is no economic recovery without a controlled health situation. It’s not a choice between the two,” said Ángel Talavera, lead eurozone economist at Oxford Economics in London.
European confidence has been strengthened by a ground-breaking agreement struck in July within the European Union to sell 750 million euros ($892 million) worth of bonds that are supported collectively by its members. Those funds will be deployed to the countries like Italy and Spain which are severely hit.
The U.S government has spent more than Europe on programs to control the economic damage of the pandemic. But much of the spending has benefited investors, prompting a substantial recovery in the stock market. Emergency unemployment benefits have proved vital, allowing tens of millions of jobless Americans to pay rent and manage groceries. But they were set to expire on Friday and there were few signs that Congress would extend them.
Americans feel obligated to go to work, even at dangerous places like meatpacking plants, and even when they are ill, because many lack paid sick leave. Yet they also feel the pressure to avoid shops, restaurants and other jam-packed places of business because millions lack health insurance, making hospitalization a financial disaster.
There is a sense of European-American rivalry being provoked by the bombast of a nationalist American president, making the pandemic a dark occasion to keep score.
Peter Dixon, a global financial economist at Commerzbank in London said, “There is a certain amount of triumphalism. People are saying, ‘Our economy has survived, we are doing OK.’ There’s a certain amount of European emschadenfreude/em, if I can use that word, given everything that Trump has said about the U.S.”
But for now, Europe’s moment of confidence is tangible, most prominently in Germany, the continent’s leading economy.
Though the German economy dropped by 10.1% from March to June — its worst drop in at least half a century – the number of officially unemployed people fell in July, in part because of government programs that have subsidized furloughed workers.
In Spain, a sense of retrieval remains distant. Its economy dipped by nearly 19% from April to June. The country’s unemployment rate surpasses 15%, and could surge higher if a wage subsidy program for furloughed workers expires in September.
Spain officially marked its end on the coronavirus state of emergency on June 21, but has since suffered an increase in infections. The economic impressions have been compounded by Britain’s decision to force travelers returning from Spain to quarantine themselves for two weeks. Tourism accounts for nearly 12% of the country’s economy.
In the United States, people have drained of puzzling and conflicting advice from on high against a backdrop of more than 150,000 deaths.
Initially, President Donald Trump called the virus a hoax, then treated it as an emergency befitting wartime mobilization, and then insisted states to reopen to spur the economy. He fortified protesters who portrayed wearing masks as an insult to civil liberties.
The result has been a record spike of new cases along with a syndrome likely to persist – an aversion to being near other people. A factor of worry for retail, hotels, restaurants and other job-rich areas of the American economy.