By Zach Mellen
The global pandemic has accelerated implementation of the European Green Deal and transition to a digital single market, EU officials said at a year-end economic update and transatlantic trade webinar on December 15.
Speakers, including the top EU trade official in the United States, Tomas Baert, shared signs for optimism looking towards 2021 in the fourth of a series of virtual conversations organized by the EU Delegation and the European American Chamber of Commerce New York (EACC-NY) aimed at bringing the European economic situation into focus.
EU Economic Counselor Kris Orsini reported on an unexpectedly strong third quarter 2020 economic bounce back in Europe. While forecasts predicted a rebound in Q3 as businesses began to reopen, the magnitude exceeded projections, as GDP totaled nearly 95% of pre-COVID levels. This was due largely to a surge in savings in the first half of the year as the economy shut down, creating pent-up demand which was unleashed once major limits on commercial activity were lifted. In recent weeks the U.S. and the EU have both experienced a resurgence of COVID-19, making another economic contraction likely in Q4 2020. Economists expect another strong rebound in 2021 as vaccine distribution gets underway.
In stark contrast to the United States, the European Union has kept unemployment relatively low throughout the crisis.
“The decline in hours worked was similar to that in the U.S. in that lots of businesses shut down and people were practicing social distancing,” said senior EU economist Ben Carliner. But Europe’s social safety net programs—many of which were in place prior to the pandemic and were easily activated—coupled with short-work schemes helped to prevent mass layoffs. “When workers remained attached to their employers, not only do they continue receiving paychecks, but when this is over, they will more easily be reintegrated into the workforce,” Carliner said.
Apart from limiting economic hardships, the EU’s pandemic response has focused on maintaining the integrity of the single market and avoiding fragmentation. Despite the increase in deficit spending and sovereign debt, there have been no debt crises and interest rates have actually come down. One way the EU has prevented financial market stress is by providing backstops to Member States. Carliner discussed how the EU’s recent implementation of SURE bonds (Support to mitigate Unemployment Risks in an Emergency bonds), act as a second line of defense to support short-time work schemes and similar measures to help Member States protect workers and self-employed individuals against the risk of unemployment and loss of income. With backing from the SURE program, Member States can be certain that they will be able to fund their social insurance programs. Moreover, SURE bonds qualify as Environment Social Governance (ESG) bonds, which are a new type of financial asset that promotes sustainable investing. With SURE bonds and the upcoming Next Generation EU bonds that will support the economic recovery, the EU is taking the first steps towards creating a truly European safe asset. The EU is on track to become one of the biggest bonds issuers in Europe, and the EU will be the center of the world’s largest green bond market.
Remarking on a reinvigorated transatlantic relationship as talks begin with the incoming U.S. administration, Head of Trade Tomas Baert said he looked forward to a general easing of some transatlantic tensions in 2021. “People can deal well with complexity but not with uncertainty, thus dealing with the turbulence has always been the first priority,” he said. “The tensions and disputes are the first thing we look to deal with before we can begin to make progress in the overall relationship.”
Baert expressed confidence in the EU and U.S. overcoming any hurdles in the trade relationship to work more closely together to address top global concerns, including the climate crisis and challenges emanating from China.