LONDON – Prior to the pandemic, a traditional state of play predominated in the huge economies on opposite sides of the Atlantic. Europe, full of old people and full of problems with politics, seemed stagnant. The United States, ruled by innovation and risk-taking, seemed to grow faster.
But alignment has been rearranged through contrasting approaches to a terrifying global crisis. Europe has generally had control of the spread of coronavirus, which has allowed many economies to reopen while protecting workers whose lives have been threatened. The United States has become a symbol of independence and discord in the face of a serious emergency, causing deeper concerns about the fate of work and maintenance.
On Friday, Europe released economic figures that were terrible on the face. The 19 nations that share the euro contracted 12.1 percent between April and June of the previous quarter, the sharpest drop since 1995, when data were first collected. Spain fell an incredible 18.5 percent and France, one of the largest economies in the eurozone, fell 13.8 percent. Italy has fallen 12.4 percent.
Europe looked even worse than the United States, which a day earlier recorded the worst three-month stretch in its history, falling 9.5 percent in the second quarter.
But, below the main figures, Europe flashed promising signs of strength.
In Germany there was a drop in the number of unemployed, surveys found evidence of growing confidence amid an expansion of factory production, while the euro continued to strengthen against the dollar as investment flowed. in European markets, signs of improved sentiment.
These contrasting fortunes underscored a central truth of a pandemic that has killed more than 670,000 people worldwide: the most important cause of economic pain is the virus itself. Governments that have more adequately controlled its spread have commanded greater confidence from its citizens and investors, putting their economies in a better position to recover from the worst global crisis since the Great Depression.
“There is no economic recovery without a controlled health situation,” said Angel Talavera, a eurozone economist at Openford Economics in London. “It’s not a choice between the two.”
European confidence has been bolstered by an innovative deal concluded in July in the European Union to sell 750 million euros ($ 892 million) of bonds with its members backed collectively. These funds will go to the countries most affected, such as Italy and Spain.
The agreement transcended years of opposition from parsimonious northern European countries such as Germany and the Netherlands against the issuance of common debt. They have wanted to put their taxpayers online to rescue southern neighbors like Greece while engaging in the raw stereotypes of Mediterranean profiling. The animosity perpetuated the sense that Europe was just a union in name – a critique that has been silenced.
The United States has invested more than Europe in programs to limit the economic damage from the pandemic. But most of the spending has benefited investors, which has led to a substantial recovery in the stock market. Emergency unemployment benefits have proven crucial, allowing tens of millions of unemployed Americans to pay rents and buy groceries. But they expired on Friday and there were few signs that Congress would extend them.
Experience in Europe has highlighted the virtues of its most generous social security programs, including national health care systems.
Americans feel compelled to go to work, even in dangerous places like meat-packing plants, and even when they are sick, because many do not have paid sick leave. But they are also pushing to avoid affected shops, restaurants and other businesses because millions of people do not have health insurance, making hospitalization a financial catastrophe.
“Europe has really benefited from having a system more dominated by healthcare systems than the United States,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “He’s less afraid of people.”
The most promising situation in Europe is neither true nor complete. Spain remains a major concern, as the spread of the virus endangers life and life. Italy has emerged from the submerged calculation of mass death in the chronic condition of persistent economic problems. The tragic mishandling of the pandemic in Britain has shaken faith in the government.
If short-term factors seem more beneficial to European economies, long-term forces may favor the United States, with a younger population and higher productivity.
The feeling of European-American rivalry has been provoked by the bombing of an American nationalist president, making the pandemic a morbid opportunity to get the score.
“There’s a certain amount of triumphalism,” said Peter Dixon, Commerzbank’s global financial economist in London. “People say, ‘Our economy has survived, we’re doing well.’ There are a number of Europeans schadenfreude, if I may use that word, given everything Trump has said about the United States. “
But for now, the moment of confidence in Europe is palpable, especially in Germany, the continent’s largest economy.
Although the German economy declined 10.1 percent from March to June, its worst fall in at least half a century, the number of officially unemployed people fell in July, in part due to government programs that have heavily subsidized workers.
Surveys show that German executives, who are not a group leaning towards sunny optimism, have seen expectations for future sales return to almost previous levels. This buoyancy translates directly into growth, empowering companies for strong workers at Rehire.
Ziehl-Abegg, a manufacturer of ventilation systems for hospitals, factories and large buildings, has recently broken with an expansion of 16 million euros ($ 19 million) in a factory in southern Germany.
“If we wait to invest until the market recovers, it’s too late,” said Peter Fenkl, the company’s CEO. “There are billions of dollars in the market ready to be invested and they are just waiting for the signal to go out.”
According to FactSet, the euro has gained more than 5 percent against the dollar so far this year. European markets have increased international money which translates into so-called stock exchanges buying European stocks. The Stoxx 600, an index made up of companies from 17 European countries, looks like a second consecutive month of gains higher than the S&P 500.
French oil giant Total saw demand for its products in Europe fall by almost a third in the second quarter of the year, but a strong recovery has been gaining momentum, said the company’s president and CEO , Patrick Pouyanné.
“Since June, we have received a rebound here in Europe,” he said during a call with analysts. “Activity in our marketing networks has again said, I would say, 90 percent of previous levels at Covid.”
France, Europe’s second largest economy, has been hit by aggressive government spending. President Emmanuel Macron has mobilized more than 400 billion euros ($ 476 billion) in aid guarantees and emergency loans since the beginning of the crisis and is preparing an autumn package worth more of 100 million euros.
These funds paid companies not to lay off workers, allowing more than 14 million employees to move abroad, stay at home, accumulate modest savings, and continue to spend. Delayed corporate tax delays and loan payments prevented companies from collapsing.
In the second quarter, when France was still partially blocked, the country’s economy contracted by almost 14 percent. Tourism, retail and manufacturing, the main pillars of the economy, stop.
But services, industrial activity and consumer spending have shown signs of improvement. The Bank of France, which initially expected the economy to have shrunk by more than 10 percent this year, recently predicted less damage.
In Spain, the feeling of recovery is still far away. Its economy shrank by about 19 percent from April to June. The nation’s unemployment rate exceeds 15 percent and could rise if the wage subsidy program for indulgent workers is allowed to expire in September.
Spain officially ended its state of emergency coronavirus on June 21, but has since suffered an increase in infections. The economic impacts were exacerbated by Britain’s decision to force people returning from Spain to quarantine for two weeks. Tourism represents 12 percent of the Spanish economy.
Italy is also highly exposed to tourism. Its industry is concentrated in the north of the country, which saw the worst of coronaviruses. The central bank expects the Italian economy to contract by almost 10 percent this year.
However, exports increased by more than a third in May compared to the previous month. This left them below pre-pandemic levels, but at the same time with German and American competitors, according to Confindustria, an Italian trade association.
“We are slowly starting to recover from the most violent fall of the last 70 years,” said Francesco Daveri, an economist at Bocconi University in Milan.
Europe’s fortunes rise to the occasion because its people are more likely to trust their governments.
Denmark acted early, imposing a strict blockade while paying wage subsidies that limited unemployment. Denmark suffered far fewer deaths per capita than the United States and Britain.
With the virus largely controlled, Denmark increased restrictions before, while the Danes responded to the call to resume commercial life. The Danish economy is expected to contract 5.25 per cent this year, according to the European Commission, with a substantial improvement in the second half of the year.
In the United States, people have been tired of disconcerting and conflicting advice from above in a context of more than 150,000 deaths.
The result has been record increases in new cases along with a syndrome that is likely to persist: aversion to being close to other people. This reflects the lower prospects of retail, hotels, restaurants and other wealthy areas in the employment of the US economy.
Liz Alderman reported from Paris. Emma Bubola contributed to the publication of reports from Milan, Raphael Minder from Madrid and Stanley Reed and Eshe Nelson from London.