In recovery race, Europe’s wealthy north spends big

In this news, we discuss the In recovery race, Europe’s wealthy north spends big.

LONDON (Reuters) – With the pandemic pushing all austerity talk on the sidelines, the race is on in Europe to pull its economies out of recession and return to some semblance of normalcy.

While the total amount of money thrown at the challenge amounts to trillions of euros, this masks deep national differences between the amount and type of aid offered.

In short, the rich north is able to support critical parts of the economy with cash that will never have to be paid back, while the poorer south is more dependent on providing short-term relief in the form of loans and tax holidays.

Of course, the objective of the European Union’s 750 billion euro recovery fund is to iron out these differences and ensure that the wealth gap does not widen. But this money will only be available from next year, and even slowly.

In the meantime, national differences prevail.

The Brussels think tank Bruegel estimates the total amount of outright non-refundable support that Germany has been able to offer to its businesses and citizens at 8.3% of its economic output – close to the figure of 9.1% in the USA.

This includes 100 billion euros to recapitalize and buy stakes in companies affected by the coronavirus, 23.5 billion in wage subsidies for those working reduced hours and 18 billion in direct subsidies to the small businesses that need it most. .

Compare that with the much less generous amounts offered in the economies that were at the center of the 2009 sovereign debt crisis: Portugal’s direct stimulus aid represents only 2.5% of output, 3.1% for Greece, 3.7% for Spain and 3.4% for Italy.

Chart: Government support for European economies –

For an interactive version of the graphic above, see tmsnrt.rs/3jTsUP7

Rome has offered more than € 220 billion in moratoriums on small business loans and mortgages – but as it stands, at the end of January they will have to continue where they left off with loans as large as before.

Madrid face a similar dilemma. The government has supported 140 billion euros in loans to businesses and banks have negotiated grace periods with businesses on repayment schedules. But as those grace periods begin to run out, fears of a wave of bankruptcies are mounting and Spain is looking to offer more help.

Friday’s announcement of a much stronger-than-expected rebound in the eurozone economy in the third quarter therefore tells only half the story – before a second wave of infections set in in October and that even the poorest economies still benefit from state support.

As new restrictions start to hit activity, the darker ones may still be to come.

Chart: Euro area GDP –

(This story is renewed to correct the typo in the title)

Editing by Kirsten Donovan

Original © Thomson Reuters

Originally posted 2020-11-02 22:16:10.

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