SIM Report: Western & Northern Europe, Issue 5
The coronavirus (COVID-19) pandemic has dealt a devastating economic blow to countries across Europe. Economic dislocation, coupled with a need to quickly address rising unemployment and poverty, will create conditions for a range of emerging risks, including political instability and the growing resonance of populist narratives.
Below we explore some factors that will shape the political, social, and economic dynamics in post-COVID-19 Europe.
Looming economic recession will accentuate inequalities
A period of prolonged economic turmoil will almost certainly follow the pandemic’s aftermath. This will be the result of falling demand and highly restrictive lockdowns introduced across Europe to contain COVID-19. The impact has been most acute on countries that depend on highly affected sectors such as tourism and retail.
Restoring economic activity back to normal levels is unlikely to occur anytime soon. A consistent feature of the lockdown easing process is that it is gradual, lasting several weeks and months. Even once the various lockdowns are substantially eased, companies will likely face additional costs to ensure staff safety in workplaces and adopt stronger disease prevention measures. Any progress towards restarting economic activity, however, could be reversed if a second wave materialises later this year.
According to the European Commission’s Spring Economic Forecast, the EU GDP could contract by 7.5 per cent, a level worse than the 2009 financial crisis. A ‘U-shaped’ economic recovery – where a sharp downturn is followed by a slow rebound – remains the most likely outcome. Excluding EU members, global GDP is forecast to shrink by about 3 per cent this year. Exports from the Euro area will also experience a fall of around 13 per cent in 2020. Consumer patterns will resemble those since the outbreak escalated in the region, with the dominant trend being one of precautionary savings due to market and employment uncertainty. Uneven resumption of economic activity in the EU will mean a prolonged impact on firms with integrated supply chains and cross-border operations.
Economic inequalities between and within nations will also likely be accentuated post-COVID-19. The extent to which this occurs will depend on the future of a France-Germany joint initiative proposing a EUR500 billion recovery fund, in the form of grants that would top up the existing 2021-2027 EU budget, aimed at helping the countries and regions worst-hit by the crisis. However, resistance from the so-called ‘frugal four’ – Austria, Denmark, the Netherlands, and Sweden – may dim hopes for southern European members who stand to benefit from the grants. The frugal four argue that countries receiving the funds should repay the amounts borrowed and carry out more reforms to improve resilience.
Regional and domestic political tensions emerge
Political tensions invariably grow during periods of economic recession and uncertainty. No government response to COVID-19 has been without some level of public or political criticism. A recent trend of mistrust towards traditional political parties will likely become more widespread. Growing cynicism, particularly in relation to scientific research and expert opinion, has provided fertile ground for conspiracy theories to grow and extend their reach beyond traditionally more receptive, marginal audiences.
The main beneficiaries will be far-right political parties and nationalist groups, which have sought to tie the propagation of COVID-19 to migration. This will likely lead to an increase in xenophobia, particularly in countries worst-hit by the 2015 European Migrant Crisis. The lack of a co-ordinated EU response in the early stages of the crisis, will also fuel Eurosceptic sentiment, particularly in member states such as Italy.
Insecurity and social unrest will increase in the aftermath of outbreak
Falling income levels, rising unemployment, and the elevation of healthcare as a key priority in workplaces will leave scope for considerable labour unrest. While large-scale protests, similar to a pre-COVID-19 context, are unlikely, stay-at-home strikes could be embraced as a way to voice concerns. Awareness of issues such as healthcare and climate change will encourage more forms of social activism. Social discontent will also be expressed through forthcoming elections and continued political pressure on ruling parties. Likely tax rises to fund economic rescue packages will also increase the likelihood of unrest.
Possible Scenarios for post-COVID-19 Europe
A common thread across these scenarios is that the crisis has unveiled deep rooted fragilities within the EU and reinforced the protective role of the nation state over society. The likelihood of the three scenarios will partly depend on how the public perceives their government’s effectiveness in responding to the crisis as well as the future performance in the event of a potential second wave later this year.
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