Europe and the global economy / Andr(c)♭ Sapir -- The governance of the European Union's international economic relations : how many voices? / Beno(c)ʾt Coeur(c)♭ and Jean Pisani-Ferry -- Trade policy : time for a rethink? / Simon J. Evenett -- Development policy : coordination, conditionality and coherence / Arne Bigsten -- External monetary and financial policy : a review and a proposal / Alan Ahearne and Barry Eichengreen -- Competition policy : Europe in international markets / Olivier Bertrand and Marc Ivaldi -- External financial markets policy : Europe as global regulator? / Marco Becht and Luis Correia da Silva -- Migration policy : at the nexus of internal and external migration / Herbert Br(c)ơcker and Jakob von Weizs(c)Þcker -- External energy policy : old fears and new dilemmas in a larger Union / Coby van der Linde
All European Union countries are undergoing severe output losses as a consequence of the COVID-19 crisis, but some have been hurt more than others. In response to the crisis, EU leaders have agreed on a Recovery and Resilience Fund (RFF), which will help all EU countries, but those hit hardest will benefit most.This Policy Contribution explores why some countries have been hit economically more than others by COVID-19. Using statistical techniques described in the technical appendices, several potential explanations were examined: the severity of lockdown measures, the structure of national economies, the fiscal capacity of governments to counter the collapse in economic activity, and the quality of governance in different countries. We found that the strictness of lockdown measures, the share of tourism in the economy and the quality of governance all play a significant role in explaining differences in economic losses in different EU countries. However, public indebtedness has not played a role, suggesting that that the European Central Bank's pandemic emergency purchase programme has been effective.We used our results to explore why some southern EU countries have been more affected by the COVID-19 crisis than some northern countries. Depending on the pairs of countries or country groupings that we compared, we found that differences in GDP losses were between 30 and 50 percent down to lockdown strictness, between 35 and 45 percent to the quality of governance and between 15 and 25 percent down to tourism. This could have implications for the allocation of the RRF between recovery and resilience expenditures. Supporting the recovery through a combination of demand and supply initiatives is important to ensure that countries rebound as quickly as possible from the COVID-19 crisis, without leaving too much permanent damage to their economies. But in many countries, especially some of the southern countries hit hardest by the COVID-19 crisis, resilience is a major sticking point. Too often, in some of these countries, the poor quality of governance has had a negative impact on their resilience, as the relatively large size of their GDP shocks has demonstrated. It is crucial therefore that RRF programmes devote sufficient attention (and resources) to improving the quality of governance in these countries.
AbstractWhen they joined the euro in 1999 Belgium and Italy were almost identical in two respects: both had public debts equal to 110 per cent of GDP and the same GDP per capita. Today the situation in the two countries is very different. This article looks at the evolution of public debt in Belgium and Italy since 1990 and uses the debt dynamics equation to explain the contrasting evolution in the two countries in the run‐up to the introduction of the euro, during the early years of the euro and since the beginning of the crisis. It argues that Italy's current predicament was not caused by the euro, as some have suggested. Instead, as the experience of Belgium suggests, the euro could have been used also by Italy to make a sufficiently large fiscal adjustment prior to the crisis to avoid the harsh adjustment that the crisis eventually imposed on the country.
During the 1970s and 1980s, Belgium and Italy accumulated huge amounts of public debt. In the early 1990s, at the time of the Maastricht Treaty, public debt reached a peak of nearly 140 percent of GDP in Belgium and nearly 130 percent in Italy. After Maastricht, both countries made major fiscal efforts in order to qualify for membership of the euro. When the euro was launched in 1999, public debt had been brought down substantially in the two countries, to roughly 110 percent of GDP. At the time Belgium and Italy were also identical in another respect: GDP per capita. Today the situation is very different. The level of public debt is 130 percent of GDP in Italy against only 100 percent in Belgium. Worse, in GDP per capita terms, Italy is now 20 percent poorer than Belgium. No wonder Italians are dissatisfied with their lot. This Policy Contribution looks at the evolution of public debt in Belgium and Italy since 1990 and seeks to explain the contrasting evolution in the two countries in the run-up to the introduction of the euro, during the early years of the euro and since the beginning of the crisis. It finds that, after substantial fiscal efforts during a relatively brief period before the launch of the euro, Italy's efforts tailed off, while Belgium continued to consolidate its debt at an impressive pace. Italy also did too little to improve its growth performance, which lagged significantly behind Belgium's and that of all other euro-area countries. When the crisis hit the two countries, Italy was therefore much more vulnerable to market sentiment than Belgium, especially when the sovereign debt crisis spread from Greece to other euro-area countries. Italy responded to the onslaught of markets with austerity measures, which made matters worse, sending GDP growth into negative territory and increasing the debt-to-GDP ratio. Politics has been central to the contrasting debt dynamics in the two countries. Bad domestic politics prior to Maastricht were responsible for the huge accumulation of public debt in Belgium and Italy up to the early 1990s. Maastricht brought fiscal discipline to both countries, but the constraint proved more binding on Belgium than on Italy once the two countries joined the euro. During the crisis, Belgium fared better than Italy because its political class displayed an absolute commitment to debt sustainability and to euro membership that was at times lacking in Italy.
