According to the latest forecasts of the Association of Industrialized Countries of the Organization for Economic Cooperation and Development, economic output in the United States in 2022 will already be six percent higher than the level of 2019. In contrast, it will rise only 1% above the pre-crisis level in the euro area and Germany . According to these forecasts, economic activity in Spain and Italy, which have been hit hard by the epidemic, will be about 1.5% lower than in 2019.
The main reason for this discrepancy is fiscal policy. According to the calculations of the International Monetary Fund, which include all budget stabilization measures until the end of 2020, the United States ranks first with a volume of 16.7 percent of GDP. Germany has 11.0 percent, in Spain and Italy only 4.1 percent and 6.8 percent.
The massive fiscal stimulus of the US is reflected in a high budget deficit of 17.5 percent in 2020 and 11.8 percent in 2021. This is double the eurozone’s deficit of 8.4 percent and 5.9 percent.
Those numbers don’t even include President Biden’s program, which accounts for $1.9 trillion or about nine percent of GDP. The base item is a one-time payment of $1,400 for singles and 2,800 for couples with incomes of $75,000 and $150,000, respectively.
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In Germany, people are particularly concerned about the inflation risks caused by this policy. But one does not ask the question whether the monetary union also does not need a stronger fiscal stimulus and one should help those countries which do not see themselves in a position to adequately support the domestic economy due to their high indebtedness.
At the beginning of the pandemic, several proposals were made to create joint financing options for crisis management. The European Council responded to this through the Solidarity Fund for Reconstruction, which was approved in July 2020. However, the volume of direct grants is modest compared to the USA, with a value of just under three per cent of economic output.
Given the continuing uncertain lockdown and much less vaccination activity in Europe, it is dangerous for European politicians to sit back and believe that the Fund has already done all that is necessary at the European level.
The decision-making processes in the European Union are very slow. We should therefore begin the discussion on the need for more joint stabilization measures and the financial instrument required for that as soon as possible.
Otherwise, there is a huge risk, as with vaccines, that sooner or later we will realize that the US can simply do better than the EU. Not only would it be bad for the economy, but it would also damage Europe’s reputation politically.
more: Don’t spare the wrong ending – this should be Europe’s lesson from the pandemic.
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