After a harrowing first wave over the spring and summer, several European countries are once again breaking records for daily confirmed cases of COVID-19 and many analysts now say that Europe is in the full swing of a second wave of the coronavirus pandemic. While the first wave of the pandemic posed some of the toughest challenges ever faced by institutions of the EU, the European project ultimately prevailed and resulted in an economic relief plan that many hailed as a huge step forward for European integration. But, a new wave of infections—and the spectre of new restrictions that comes with it—could have a much more damaging and lasting impact both on the
speed of Europe’s economic recovery and on the hopes that the EU will exit this crisis as an even stronger political union.
Before jumping into the economic threat posed by a new wave, there are many characteristics that separate Europe’s current spout with the coronavirus pandemic from the very devastating first round earlier this year. First, COVID-19 testing across Europe is up and by a lot. According to the European Centers for Diseases Control and Prevention, across the EU, Eurozone, and the U.K., almost 1500 tests are being conducted for every 100,000 people, up from only 500 per every 100,000 in May and June. On top of that, Europe has not experienced the subsequent rise in deaths that would be expected from a second wave. Death rates across the continent have remained rather flat since the end of the first even as confirmed cases have risen to match the heights they reached in April. There is not too much that we can soundly extrapolate from this information, but it does seem to imply that a second wave likely will not precipitate the same level of crisis as the first which put a real strain on the commitments to the free circulation of people, goods, services, and capital that have been at the heart of the EU since the Maastricht Treaty. Luckily, the EU is better prepared with a new system put in place by the European Commission for issuing uniform travel restrictions across the bloc on countries and regions with heightened case numbers.
But, where Europe finds itself unprepared is in handling a new wave of layoffs that would likely accompany new lockdown restrictions. In comparison with the United States, the countries of Europe did a phenomenal job at preventing a mass wave of unemployment. This was in large part due to the fact that European countries did a much better job at quickly providing the cash that companies needed to keep employees on the payroll even if they had temporarily shut down. These furlough schemes prevented millions of Europeans from becoming jobless and painted an optimistic picture for the speed of Europe’s recovery. And, as Europe began to reopen, this plan seemed to be sustainable at least in the short run until a vaccine could be produced. But, as the pandemic has dragged on and cases have begun to rise again, the prospects of a quick recovery are beginning to fade rapidly.
Rising cases present two problems for economic recovery in Europe, one in the short term and the other in the long term. In the short term, if cases rise too much and deaths begin to rise as well, the likelihood of a second lockdown in many countries will rise with them. This would mean that governments would have to subsidize a great deal of workers’ wages in many industries in order to keep them on payroll, a herculean task for any government but especially so for the cash strapped nations of southern Europe. Of course, the EU approved an ambitious €750 billion relief plan as part of its next seven year budget specifically aimed at helping the southern members weather this crisis, but when compared to the $2 trillion relief plan executed by the American federal government for what is ultimately a smaller economic area and a smaller population, it becomes clear that what is ambitious for the EU is quite mundane elsewhere. For this reason, many European leaders have committed to using localized strategies to combat outbreaks as they pop up, including French President Emmanuel Macron who has totally ruled out the possibility of a second nationwide lockdown.
In the long term, a much bigger—and likely unavoidable—problem looms due to new projections of a slow recovery around the world. Many industries such as travel, entertainment, and tourism have been particularly devastated by the pandemic and the longer the pandemic lasts, the more likely it is that these sectors will take longer to recover. Many of these sectors will take years to recover and many of them also make up large parts of European economies. The problem is that, in hopes of avoiding deep recessions across the continent, many European countries have subsidized these industries during the pandemic, expecting them to quickly bounce back when this is all over. But, if these sectors do not bounce back after a vaccine or some other treatment becomes widely available, then there will be a lot more jobs in these sectors than they can support. Eventually, the furlough schemes currently in place will become unsustainable at which point in time, unemployment across Europe will likely skyrocket, much like it did in the United States when the pandemic first started.
What this means is that Europe is facing an impending crisis of unemployment and the current furlough scheme may have only delayed layoffs. Of course, the tourism, retail, and entertainment industries might surprise everyone and bounce back with the vigor of hundreds of millions people itching to finally leave their homes, but that seems unlikely given the time it will take to produce and administer enough of a given treatment to bring these sectors back to normal and it is much more likely that it will be some time before they fully recover. As such it seems that the conventional wisdom about economic shocks and recovery in the U.S. and the EU will prove to be right once again: the shock is toughest in America, but the recovery is slowest in Europe.