EU’s timebomb set to explode as eurozone’s recession ‘far worse’ than in US

Ursula von der Leyen announces vaccination rollout across EU

The EU has a target of vaccinating at least 70 percent of the adult population in each member state by the end of the summer, but this objective is at risk. So far, Europe has approved two vaccines, one from Pfizer Inc. and BioNTech SE and another from Moderna Inc., but their supply is insufficient. Meanwhile, AstraZeneca, whose shot is set for approval by the European Medical Agency this week, said it will deliver 50 million fewer doses to the EU than it had expected.

The bloc has only managed to administer about 8.9 million doses in total, about two for every 100 citizens. On the other hand, the US and the UK are running at seven and 10.5 respectively, while Israel is at 43.

Since all vaccines that have been approved so far require two jabs to work to full efficiency, it appears to be a very steep mountain to climb to get the EU’s program back on track.

Political commentators believe the consequences of this failure could be disastrous if they are not addressed quickly.

The head of Oxford-based think-tank Euro Intelligence Wolfgang Munchau claimed that with its disastrous vaccine procurement policy, the EU committed the ultimate mistake: it has given people a rational reason to oppose European integration.

In a recent column, though, Professor of History at Columbia University and financial commentator Adam Tooze argued the economic consequences of the pandemic pose a much greater risk.

He wrote: “Since last summer a bubble of complacency has surrounded the European Union’s recovery package and the vision it holds out of a greener future.

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“Europe’s constructive response to the crisis contrasts pleasingly with the dark political drama played out on the other side of the Atlantic.

“But 2021 may bring disillusionment, as the frailty of Europe’s economic position is once again exposed.”

Prof Tooze claimed that by virtually every measure, the recession in Europe in 2020 was far worse than that suffered by the US and the policy response less adequate.

According to the Organisation for Economic Co-operation and Development, in 2020 euro-area gross domestic product fell by 7.6 percent.

Far worse than the setback suffered in 2008-09 or the worst years of the eurozone crisis and also far worse than the US, where GDP contracted by 3.5 percent in 2020.

The historian continued: “While Brussels was feting the Recovery Fund, gross fixed-capital formation in the euro area fell by more than 10 percent, compared with ‘only’ 1.7 percent in the US. To put that in round figures, the European Commission estimates that the shortfall in private investment will come to €831 billion in 2020 and 2021—greater than the offsetting recovery package.

“It should be particularly concerning that investment slumped most severely in southern Europe, which has been suffering chronically low investment since 2010.

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“To counter the slide, the ECB has pulled many of its policy levers. Thanks to its asset purchases, every sovereign in Europe can borrow, as other sovereigns all over the world, at record low rates.

“But though avoiding a sovereign-debt crisis is the necessary condition of a recovery, it is not sufficient.”

No one would advocate the US model as an alternative, Prof Tooze noted, but the case for Europe doing more is unanswerable.

The European Central Bank is moving, discreetly, in a Japanese direction, targeting interest rates and spreads, it has been claimed.

According to the historian, this eliminates the risk of panic but it will not by itself restore growth.

Prof Tooze concluded in his piece for the Social European: “More ‘targeted longer-term refinancing operations’ lending to European banks might help. And there may be an argument for even more adventurous use of dual interest rates to incentivise further lending.

“But what Europe needs most of all is a second big fiscal push. And this is where complacency is most problematic.

“The Recovery Fund is undoubtedly a political triumph —but economically it is simply not big enough.”

Mr Tooze’s comments have also been echoed by former Greek Finance Minister Yanis Varoufakis, who has criticised the Recovery Fund, claiming it will take Europe another step towards “disintegration”.

Speaking to LBC, Mr Varoufakis said: “The EU has failed to take into account the dynamic process of disintegration that has begun.

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“I don’t think there’s going to be another exit, I don’t think there’s going to be Italy leaving or Greece leaving. I don’t think that’s going to happen.

“The worst threat for the European Union is an under-the-surface, slow deconstruction. Already, we’re seeing it.

“France and Germany, their economies are moving in opposite directions. The German economy is recovering very fast from the pandemic, the French economy is not.

“The north and the south are becoming different continents, the east and the west.”

He added: “And you already have a re-nationalization of many policies in the context of the European Union which is shifting further and further away from any federation.”

Mr Varoufakis suggested the shifts taking place among member states has elicited the fear of European leaders that the union will become “irrelevant”.

He continued: “I remember some years ago, I was in Moscow and I was walking down the street and I noticed a building that said ‘the Commonwealth of Independent States’.

“And I remembered the CIS was the successor of the Soviet Union when Gorbachev was overthrown. They created the CIS.

“That has a building, it exists, it was never disbanded. The greatest fear of the European Union is that it’s going to become irrelevant.”

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