World Economic Series: Rebooting the World Economy – European Union
With H.E. Mr João Vale de Almeida, the first Ambassador of the European Union to the UK and Mr Maarten Verwey, Director-General for Economic and Financial Affairs, EU Commission
Overcoming the economic legacy of Covid post-Brexit
Public Policy Projects and Diplomat Magazine joined forces to discuss the European Union’s vision for the future of the world economy, with the first EU Ambassador to the UK, His Excellency Mr João Vale de Almeida, and Mr Maarten Verwey, EU Commission Director General for Economic and Financial Affairs. It was the third webinar in the World Economic Series, delivered in partnership with Cigna Insurance whose Medical Director Dr Peter Mills put the discussion into a Covid-19 context.
The purpose of these webinars is to bring together the diplomatic community, the business community and the public service community to examine the economic implications alongside the health implications of Covid and see how we can build a future for ourselves in Britain, and also the wider world as part of the international community.
The EU Ambassador kicked off by stating that we are not living in normal times. A pandemic, Brexit and a global recession mean that the EU is facing enormous challenges, which he likened to piloting a plane in a storm while dealing with serious engine problems, and looking for a safe landing site on an airfield rather than a road.
Covid-19 presented a huge challenge but the immediate reaction was to save lives while prioritising research to find a long-term solution in the form of a vaccine. But alongside this was the challenge to address the huge economic side effects of the pandemic. In Europe there has been an 8 per cent reduction in GDP in 2020 with deep repercussions across many sectors. There has been a scramble to stabilise the situation with national and central banks trying to preserve Europe’s economic potential in this period.
He was insistent that any recovery would need to be green, digital and resilient. However, the good news is that, compared with the 2007-9 financial crisis, the financial sector is not part of the crisis. Indeed, it can be part of the solution. But lessons need to be learned from the pandemic and questions need to be asked about the autonomy of European economies regarding global partners. He gave the example that not a single paracetamol tablet is manufactured in any European country.
His opinion on Brexit was unsurprising: he considers it a bad idea, particularly at this time, but believes that we need to approach it with realism and pragmatism. For the EU a deal is better than no deal. “And we will do our best to reach a deal,” said the ambassador. “We want an ambitious deal and a big deal that is commensurate to the importance of the European Union and the United Kingdom, and the relevance of our cooperation in the future.”
Despite this, the EU is ready for a no-deal scenario, which will negatively impact both sides but inevitably will hurt the UK more. Although the EU is fully focused on finding the right solutions for both sides, he was insistent that the EU would never sell out the single market, which Britain played a huge role in creating. The pressure is on as Britain has decided not to extend the transition period and October is now the deadline for reaching a deal.
The economic outlook for EU member states
Joining from Brussels was Maarten Verwey, Director General of the Economic and Financial Affairs Directorate of the European Commission and formerly from the Dutch Finance Ministry. He began by saying that he expects the EU economy to be smaller in 2021 than in 2019 as the original economic forecasts for the pandemic’s effects were too optimistic. The predicted outlooks for EU member states also differ vastly, especially those with big tourist sectors such as Italy, Spain, Greece and France, which have been particularly hard hit with GDP contractions of close to 11 per cent.
The downward revision of the economic forecast is the result of the materialisation of a number of risks that the EU had already identified at the time of the spring forecast in early May. Firstly, the external environment turned out to be worse than expected, with a number of emerging countries continuing to see high growth in infections, requiring stricter and longer lockdowns. But more importantly, the lockdown period in the EU lasted longer than anticipated in the baseline scenario, whilst its relaxation was more gradual than predicted. On the upside, the policy response by many countries was more forceful than had been foreseen.
It is clear that the trajectory of the economy will be highly dependent on the trajectory of the virus. The crisis has had a profound and negative impact on the equity position of the non-corporate sector or the non-financial corporate sector which he considers will lead to an increase in corporate defaults and resulting unemployment.
The countries that have had past problems with potential growth, will be hit hardest. But the greatest impact will be on the single market as some countries will be unable to support their companies on a financial level. He also noted that if there is no demand there will be no export.
As a result the EU has proposed an ambitious plan of €100bn to fund short-term work plans. For the first time the EU is borrowing money to spend to allay the spread of the financial burden imposed by the crisis. Next Generation EU is worth €500bn in budgetary expenditure and provides an opportunity to support those member states most in need to recover without adding to their already high debt burden. The recovery and resilience plan will allow €250bn of loans to member states to enable them to implement schemes that will focus on green and sustainable recovery.
The healthcare context
Dr Peter Mills, Medical Director of Cigna, reflected that pandemics have affected mankind since the beginning of time but the difference this time is that we have learned a lot about Covid-19 in a short period. In the absence of a vaccine he considers that individuals and destinations need to be risk assessed and decisions made at a personal level. Not everyone needs to go back to work at the same time and this return will depend on the availability of testing.
This is also true of travel – he can envisage a situation where people intending to travel will need to be tested for the virus once a week. There is a great opportunity to have a coded test maybe once or twice a week that can be shown to authorities such as border control to help citizens to move and trade as they have done in the past. The final piece of the jigsaw is to ensure that modifications are in place to ensure safety.
However, he was clear that such outbreaks will continue to occur in the future as zoonotic viruses continue to move from animals to humans, and there will be more occurrences in the coming decades.
Discussions covered topics such as the global role of the UK following Brexit, given the changing face of the international scene as the USA relinquishes its role and new players jostle for position. It also examined the issues surrounding Brexit and whether the EU is being too harsh on the UK as it tries to find a deal before October.
According to a Thai representative, the economy in Thailand has contracted by more than 10 per cent, and due to further coronavirus outbreaks the recovery is more sluggish than hoped for. So as the global economic outlook is far from rosy, debate turned to how young people are affected by the pandemic. It was agreed that future generations are the ones who will have to deal with the repercussions in decades to come, so packages such as the EU’s recovery and resilience plan that focuses on green issues and climate change are even more pertinent to the future of the planet. The future of the EU, and indeed all nations, will depend even more on common values such as democracy, human rights, the rule of law and sustainable development.
The webinar concluded with the view that the EU regretted the departure of the UK from the union, but agreed that an ambitious deal is a goal that all will strive
Written By Sarah Cartledge
Group Editor, Public Policy Projects
22nd July 2020