Covid-19 Crisis: Evaluating EU/EMU responses and proposal wiiw - - PowerPoint PPT Presentation

Philipp Heimberger heimberger@wiiw.ac.at

Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw)

wiiw webinar April 20th 2020

Covid-19 Crisis: Evaluating EU/EMU responses and proposal

Philipp Heimberger

The bigger macro picture on the Corona crisis in the € area

• Corona crisis politics (e.g. debates on ESM and the recovery fund) can be

better understood when you take the big macro picture into account

• Starting positions of euro area countries are very different
• Crisis will affect Southern euro area countries stronger than Northern

countries

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Philipp Heimberger

GDP per capita gaps have widened in pre-Corona years

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Source: AMECO; own calculations.

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2 4 6 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Difference of GDP per capita to EA-12 average (in thousand €)

GDP per capita in North/South (difference to EA-12 average in thousand €) 1999-2019

Northern euro area countries (BE, DE, NL, AT, FI) Southern euro area countries (GR, ES, ITA, PT)

Philipp Heimberger

Unemployment rates rise from a much lower level in Northern euro area countries

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Source: IMF WEO April 2020; own calculations.

3 5 7 9 11 13 15 17 19 21 1999 2002 2005 2008 2011 2014 2017 2020

in % of active population

Unemployment rates in EA North/South (population-weighted)

Northern euro area countries (BE, DE, NL, AT, FI) Southern euro area countries (GR, ES, ITA, PT)

Philipp Heimberger

Differences in how the Corona crisis will affect public debt

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Source: IMF Fiscal Monitor April 2020.

50 70 90 110 130 150 170 2012 2013 2014 2015 2016 2017 2018 2019 2020 in % of GDP

Public debt to GDP , 2012-2020

France Germany Italy

Philipp Heimberger

Fiscal policy responses have to far been very uneven

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10 20 30 40 50 60 70

Germany Italy Spain

in % of GDP

Discretionary 2020 fiscal measures adopted in response to coronavirus, % of 2019 GDP

Other liquidity provisions / guarantees Deferral Immediate fiscal impulse

Source: Bruegel DE IT ES

Philipp Heimberger

Summary: The broader context of the Corona crisis

• North/south divide in starting positions, but the Corona crisis will also have

asymmetric effects, hitting the Southern countries harder

• Macroeconomic problems are much more pressing in Italy and Spain than in

Germany and Netherlands

• Covid-19 shock requires strong European fiscal response
• Uneven fiscal response will lead to further divergence and put the survival of the euro

area at risk

• Macroeconomic divergence has fuelled political polarisation
• See debates on ESM and “Corona” bonds
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Philipp Heimberger

Covid-19 Crisis: Evaluating EU/EMU responses and proposal

Questions

• Are the current proposals coming from the Eurogroup and the Commission

enough?

• What can assure a sustainable recovery of the European economy?
• Can disparities between EU-North and EU-South be overcome?
• How will Europe emerge in the global context post Covid-19 crisis?
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