The economic impact of COVID-19 on the EU: From the frying pan into the fire

The world is facing an unprecedented economic crisis due to the ongoing COVID-19 pandemic. At a time when the first instinct is to focus on the national level and greater sovereignty and self-reliance, the best strategy to answer the crisis lies in greater cooperation.

Fabian Zuleeg analyses the onset of this crisis and provides sound predictions of future economic impacts by applying lessons from previous recessions. There are ten key takeaways: 

1. The uncertainty surrounding the current global economic crisis will not cease, which carries implications for recovery strategies and policymaking.
2. This crisis will be unprecedented. There will be at least two phases: a period of lockdown, followed by a rebound; and a long-term recession or even depression. Policies must be tailored to deal with these distinct phases.
3. It is necessary to provide bridging support to companies and individuals during the lockdown. This will limit the accumulation of liabilities that hinder a reactivation of activities. For the subsequent recession, a continuous stimulus will be necessary.
4. There is a real possibility of a second wave of the pandemic. Its likelihood will increase if restrictions are loosened prematurely.
5. We will not return to the pre-crisis economic environment any time soon. Policies will need to ensure that jobs and economic activity that will not restart post-crisis are not maintained indefinitely. Governments will need to manage permanent reductions in demand.
6. The economic impact of the crisis will vary, depending on different trajectories of the crisis as well as specific vulnerabilities and capacities of governments. Countries and regions that reopen first are likely to have an advantage in the market.
7. Government action, including coordination across borders, will matter. Governments will also be much more involved in many parts of the economy. However, the capacities of governments will also be more limited.
8. Global and European interdependence will persist in the post-crisis environment. But European and international supply chains will potentially be disrupted and, at times, permanently altered in the aftermath of the pandemic. To maintain Europe’s current living standards in a more restrictive global environment, reliance on each other, including the Single Market, will be crucial.
9. The world’s approach to economic development will alter. In some countries, the crisis will generate an impetus towards a more sustainable and socially just society. However, many governments will be tempted to focus on jobs and growth solely.
10. The only effective instrument that is already in place to deal with cross-border challenges like this pandemic and its aftermath is the European Union. However, success depends on whether Europe can muster the will to act fast and decisively and in unconditional solidarity.

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