- By Jamie Shea
Giles Merritt assesses the likelihood of a ‘Great Depression’ being unleashed by renewed lockdowns, and suggests an imaginative EU response.
Let’s be clear about the corona crisis; Welcome as the news is of a vaccine, Europe is already in the grip of a recession so serious it risks turning into a depression. So far we have been insulated against its early symptoms, but the full impact will soon be upon us. The EU’s response must be a dramatic new package, not piecemeal add-ons to existing programmes.
The coronavirus crisis will continue to accelerate in the months ahead, and will demand more imaginative initiatives at both EU and national levels than policymakers have so far contemplated. We need to think creatively if we are to soften the inevitable economic slowdown.
What are the pointers to a recession so severe it might yet turn into a1930s-style Great Depression? Despite the promise of mass vaccination, they are rising unemployment, and the vulnerability of the 25 million small and medium-sized enterprises (SMEs) that account for two-thirds of Europe’s jobs. Ranging from mom-and-pop corner stores to companies with payrolls of up to 250 people, many have been kept afloat by government subsidies. That’s fast becoming unsustainable.
Simplicity is key to reassuring public opinion, but it’s hardly the EU’s strong suit
Recent polling of SMEs by McKinsey consultants suggests that a tenth of Europe’s SMEs will be bankrupt within weeks, and between a quarter and a third forced out of business next year. This autumn’s second wave of Covid-19 and the ensuing national lockdowns have led McKinsey to warn that nearly 60 million jobs are “seriously at risk”. As the EU’s total labour force is 215 million people, the consequences of so many SME closures hardly bear thinking about.
What might be the antidote to political and social turmoil on such a scale? The answer is a collective European project bearing little resemblance to normal EU programmes. Although the EU and its member governments reacted to the corona crisis with laudable speed and determination, much more than that will be needed to stave off the impact of company closures and job losses that are already under way.
If these turn into a tsunami of bankruptcies and redundancies sweeps, economic rather than healthcare panic may well trigger political chaos. Press releases citing the EU’s recovery fund, its Green Deal and its beefed-up InvestEU plan won’t allay fears of a meltdown. Economic analysts have been worrying about the resilience of the single currency, but ordinary folk will be thinking in terms of destitution and homelessness.
Simplicity is key to reassuring public opinion, but it’s hardly the EU’s strong suit. All the more reason to think big when heading off a depression. Ninety years ago in the US, the New Deal identified ‘Three Rs’ – Relief, Recovery and Reform. Europe should do likewise in clear and readily understandable language, complete with a strong slogan.
Recovery policies will need to go far further than the present €750 billion fund
Governments have all introduced their own national relief measures. But with southern and eastern Europe already hit the hardest, it’s time for an EU-wide support scheme to buttress failing SMEs. Recovery policies will need to go far further than the present €750 billion fund.
The most obvious mechanism would be an unprecedentedly ambitious housing drive because there’s nothing like construction to create semi-skilled local jobs for millions of unemployed, especially young people. The sector has 18 million workers, with another 25 million indirect jobs, and an all-out drive could boost these numbers substantially.
In any case, we badly need a drive on homebuilding. Europe’s housing shortages are a scandal; they lead to high rents that unfairly burden the poorest. Over 80 million families – a third of EU households – spend half their budget on keeping a roof over their heads. Although very many homes in Europe are old and inefficient, housebuilding has dwindled to half 1960s levels. Shortages of low-cost social housing also prevent job-seekers from moving to where employers are hiring.
Reform is the third element, and perhaps the trickiest. The gathering recession may be so severe that EU governments will at last reconcile their longstanding differences over the European Union’s future. That would be the silver lining to dark clouds that may soon be receding, but still risk wreaking terrible economic damage.
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