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Despite the historic slump, the European economy is showing signs of recovery



LONDON – Before the pandemic, the vast economies on the opposite side of the Atlantic were traditional. Europe – full of older people and full of political disputes – seemed to be stagnating. The United States, dominated by innovation and risk taking, seemed to be growing faster.

However, this direction has been rearranged by conflicting approaches to a terrible global crisis. Europe has generally gotten to grips with the spread of the coronavirus, which has enabled many economies to reopen, while protecting workers whose existence is at risk. The United States has become a symbol of recklessness and discord in the face of a serious emergency, leading to deeper concerns about the fate of jobs and livelihoods.

On Friday, Europe released economic figures that were terrible at first glance. The 19 countries that share the euro shrank 12.1 percent from the previous quarter from April to June – the sharpest decline since 1995, when the data was first collected. Spain fell an astonishing 18.5 percent, and France, one of the largest economies in the euro area, fell 13.8 percent. Italy shrank by 12.4 percent.

Europe appeared to be worse than the United States, which had the worst three-month trip in its history the previous day and fell 9.5 percent in the second quarter.

But under the headlines, Europe showed promising signs of strength.

The number of unemployed fell in Germany. Surveys showed signs of growing confidence as factory production expanded while the euro continued to appreciate against the dollar as investments flowed into European markets – signs of an improvement in sentiment.

This conflicting fate underscored the central truth of a pandemic that killed more than 670,000 people worldwide. The main cause of the economic pain is the virus itself. Governments that have better controlled their spread have a bigger one among their citizens and investors Trusted and their economies in a better position to recover from the worst global downturn since the Great Depression.

“Without a controlled health situation, there will be no economic recovery,” said Angel Talavera, euro area chief economist at Oxford Economics in London. “It’s not a choice between the two.”

Europe’s confidence has been strengthened by a groundbreaking agreement signed within the European Union in July to sell € 750 million ($ 892 million) of bonds that are jointly secured by its members. These funds are used in the most affected countries such as Italy and Spain.

The deal went beyond years of resistance by frugal northern European countries such as Germany and the Netherlands against joint debt issuance. They have refused to put their taxpayers on the line to save southern neighbors such as Greece while indulging in gross stereotypes of Mediterranean waste. Hostility perpetuated the feeling that Europe was only a union in name – a criticism that was subdued.

The United States has spent more than Europe on programs to limit the economic damage to the pandemic. However, much of the expenditure benefited investors and led to a significant recovery in the stock market. Emergency unemployment benefit has proven critical, enabling millions of unemployed Americans to pay rent and buy groceries. But they were due to expire on Friday and there was little evidence that Congress would extend it.

Europe’s experience has underlined the merits of its more generous social programs, including national health systems.

Americans feel compelled to go to work, even in dangerous places like meat packaging plants, and even when they are sick because many lack the paid sick leave. However, they are also under pressure to avoid shops, restaurants and other crowded shops, as millions of people are not insured, which makes hospitalization a financial disaster.

“Europe has really benefited from this system, which is more dominated by welfare systems than the United States,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “It makes people less anxious.”

The more promising situation in Europe is neither secure nor comprehensive. Spain remains a serious problem as the virus spreads and threatens life and livelihoods. Italy has developed from the bleak calculation of mass death into the chronic state of ongoing economic problems. Britain’s tragic pandemic abuse has shaken confidence in the government.

If short-term factors appear more beneficial to European economies, longer-term forces can benefit the United States, with its younger population and higher productivity.

A sense of European-American rivalry was created by the bombasticity of a nationalist American president, making the pandemic a morbid opportunity to collect points.

“There is a degree of triumph,” said Peter Dixon, a global financial economist at Commerzbank in London. “People say: ‘Our economy has survived, we are doing well.’ There are a certain number of Europeans malicious joyif I can use that word given what Trump said about the US

The moment of trust is currently being felt in Europe, especially in Germany, the continent’s largest economy.

Although the German economy shrank 10.1 percent from March to June – the worst decline in at least half a century – the number of officially unemployed people declined in July, partly due to government programs that subsidized workers on leave.

Surveys show that German managers – not a group that tends to be sunny optimistic – have brought expectations for future sales back to a level before the virus. This boost leads directly to growth and encourages companies to reinstate workers on leave.

Ziehl-Abegg, manufacturer of ventilation systems for hospitals, factories and large buildings, recently laid the foundation stone for an expansion by 16 million euros (19 million US dollars) in a plant in southern Germany.

“If we wait until the market recovers, it will be too late,” said Peter Fenkl, managing director of the company. “There are billions of dollars in the market that are ready to be invested and are just waiting for the signal to set in.”

According to FactSet, the euro has so far gained more than 5 percent against the dollar this year. European markets have been stimulated by international funds flowing into so-called exchange traded funds that buy European stocks. The Stoxx 600, an index composed of companies in 17 European countries, appears to be set for a second consecutive month with earnings above the S&P 500.

French oil giant Total saw its demand for its products in Europe decline by almost a third in the second quarter of the year, but a strong recovery has picked up speed, said the company’s Chairman and CEO, Patrick Pouyanné.

“We have seen a recovery here in Europe since June,” he said during a conversation with analysts. “The activity in our marketing networks is again 90 percent of the pre-Covid values.”

France, Europe’s second largest economy, was supported by aggressive government spending. President Emmanuel Macron has mobilized more than 400 billion euros in emergency aid and loan guarantees since the beginning of the crisis and is preparing an autumn package worth another 100 billion euros.

These funds paid the companies not to lay off workers and enabled more than 14 million workers to take paid vacation, stay in their homes, collect modest savings and continue to spend money. Delayed deadlines for corporate taxes and loan payments have saved companies from collapse.

In the second quarter, when France was still partially blocked, the country’s economy shrank by almost 14 percent. Tourism, retail and production, the main pillars of the economy, came to a standstill.

But Services, industrial activities and consumer spending have all shown signs of improvement. The Banque de France, which originally expected the economy to shrink by more than 10 percent this year, recently predicted less damage.

In Spain there is no feeling of recovery. The economy shrank by almost 19 percent from April to June. The country’s unemployment rate rises to 15 percent and could rise if a salary subsidy program for workers on leave expires in September.

Spain officially ended the Coronavirus state of emergency on June 21, but has seen more infections since then. The economic impact was exacerbated by the UK’s decision to quarantine travelers returning from Spain for two weeks. Tourism accounts for 12 percent of the Spanish economy.

Italy is also heavily exposed to tourism. The industry is concentrated in the north of the country where the worst corona virus has occurred. The central bank expects the Italian economy to shrink by almost 10 percent this year.

In May, however, exports rose by more than a third compared to the previous month. They were below the level before the pandemic and, according to Confindustria, an Italian trade association, were at the level of German and American competitors.

“After the most violent fall in the past 70 years, we are slowly recovering,” said Francesco Daveri, economist at Bocconi University in Milan.

Europe’s fate seems to be improving because the people tend to trust their governments.

Denmark acted early and imposed a strict block while paying wage subsidies that limited unemployment. Denmark suffered far fewer deaths per capita than the United States and the United Kingdom.

As the virus was largely controlled, Denmark lifted the restrictions earlier, while the Danes followed the call to resume business. According to the European Commission, the Danish economy is expected to shrink by 5.25 percent this year and improve significantly in the second half of the year.

In the United States, people are tired of receiving confusing and contradictory advice from up high against the backdrop of more than 150,000 deaths.

The result was record spurts in new cases and a likely persistent syndrome – an aversion to closeness to other people. This means leaner prospects for retail, hotels, restaurants and other busy areas of the American economy.

Liz Alderman reported from Paris. Emma Bubola reported from Milan, Raphael Minder from Madrid and Stanley Reed and Eshe Nelson from London.


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