Newsletter: Europe’s economic risks after the summer

Newsletter: Europe’s economic risks after the summer
Tuesday, 7 september 2021

Funcas Europe

Hello Future is blue readers,

This week we are taking a look at Europe’s main economic risks. What are the main concerns for policymakers as they come back to their office after the summer break? We’ve hosted a podcast conversation with Raymond Torres, Funcas Europe Director, and Carlos Carnicero Urabayen, Future is blue editorial coordinator. 

See at the end what we are reading these days.

New podcast available!

Recovery is well under way and unemployment keeps falling in most EU countries. Pre-pandemic jobs levels are expected in the next few quarters. However, there are a few concerns to keep a close eye on over the next few months.

We are seeing a very sharp increase in certain prices, such as those related to energy consumption, import costs of metals and semiconductors affecting electricity prices. The extent to which these cost pressures generate a genuine inflation process will be a major issue over the next months.

The ECB is facing the challenge of maintaining its ultra-loose policy, while at the same time avoiding a de-anchoring of inflation expectations. Recovery prospects of the EU, especially its most indebted members, depends crucially on how the ECB tackles this difficult balancing act.  

Materialisation of European recovery funds will enter now a crucial phase. The stakes for countries such as Italy, France or Spain are remarkably high. How well the plans will be implemented and to what extent execution will meet the promises are crucial factors here. Will the funds trigger reforms?

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Lockdowns as those of 2020 are out of the question

The EU has managed to fully vaccinate 70% of its adult population. The positive impact of the vaccination campaign on people’s health is undeniable. Yet infections caused by new variants are still a major concern and some parts of the world are still very far from acceptable vaccination levels. 

We will need to live with the pandemic for a longer period of time. We will need to combine economic life and human activity with a persistent pandemic. Luckily, businesses and people have learnt a lot over this process. Lockdowns as we saw during the spring of 2020 are out of the question.

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High debt. Public spending needs to be high quality

A majority of Europeans are living in countries with higher public debts of 100% of their GDP. This is a major challenge for the months and years to come. European countries need an economic growth trajectory solid enough so that public levels of debt are sustainable. For this to happen it is key that public spending is high quality and carried out wisely. This is why recovery plans, and efforts to improve the quality of public programmes, are so important. 

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What we are reading

Three questions on the German election
Good insights by CER’s analyst Christian Odendahl on what to expect from Germany’s election on 26 September.

This weather index measures climate related risks. Here is how
Global economic losses from natural disasters were estimated at $268 billion in 2020. Resilience and risk mitigation strategies are key to prevent climate related economic damages.

Global asymmetries strike back
Interesting essay by Pisani-Ferry on the many angles and implications of world economic asymmetries.

A renewed EU approach to jobs and skills
A comprehensive and coherent policy framework is needed to bring a social dimension to the new industrial strategy for Europe. 

Have a nice rest of the week!

Raymond Torres, Funcas Europe Director


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