A European recovery fund is in our best interests

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Europe is about to spend 750 billion euros – around 6 percent of the European economy – to stimulate the restart of the economy. It’s a realistic plan, in my eyes. The European Commission calculated that economic growth could accelerate by 1.8 percent next year and even 2.3 percent up to 2024.

If the rest of Europe has little to spend, we won’t be able to sell them our products and services. Sandra Phlippen Chief Economist ABN AMRO

That’s obviously good news, but it means Spain and Italy will get the biggest piece of the pie by far. Specifically, the European Commission proposes giving nearly twice as much in grants to both countries (around 90 billion euros) as in loans (50 billion euros).

As one of the most financially frugal countries in Europe, we could come up with arguments for vetoing this proposal. First of all, preliminary confidence data on the eurozone economy show that although we may still be in a recession, we’ve already bottomed out. So why stimulate the economy if it’s going to climb out of this pit by itself anyway?

This is a popular line of reasoning that unfortunately doesn’t hold water. First of all, even if the virus stays under control, the aftermath of unemployment, an uncertain investment environment and lack of consumer spending due to job losses will cause a second economic downturn later this year and next. At this stage we can still soften the blow of this downturn with a government stimulus package.

A second argument against the proposal is that we are in relatively good shape and the virus seems to have had a less severe impact on us than it has on Italy, Spain, France and even Germany. Why should we pay for the recovery of countries that have been harder hit than ours?

Not out of solidarity, or because a country like Italy can’t be blamed for its economy being battered what’s expected to be three times as hard as ours has been. It’s because it’s in our own best interests. Europe is by far our biggest export market, and exports account for two-thirds of our growth. If the rest of Europe has little to spend, we won’t be able to sell them our products and services.

But we’re talking about much more than just economic interests. The International Labour Organization, which researches work around the globe, has calculated that since the coronavirus outbreak, the number of hours worked has fallen by 11 percent. This means around 305 million full-time jobs have disappeared.

We’re lucky that under the Dutch government’s NOW scheme (Temporary Emergency Bridging Measure for Sustained Employment), some 2 million workers will remain in employment, but most countries aren’t as fortunate. We could shrug this off as bad luck for them – not our problem. But given that the coronavirus crisis has put one in six young people around the world out of a job, we’re looking at a potential source of social unrest, conflict and violence.

For that reason alone it’s important to maximise the chance of economic recovery. Not that we should be na├»ve about signing up to the proposal, but we should try to keep the bigger picture in mind.

Every week, Sandra writes a newspaper column for daily newspaper AD (in Dutch only), which can also be read here.


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