Key economic challenges for each European country
In Germany, Jörg Rocholl, President of ESMT Berlin, foresees GDP shrinking as a result of coronavirus, perhaps by as much as 20 per cent. “The exact magnitude will depend, not just on the length of the crisis and the severity of societal and economic restrictions, but also on the government’s fiscal policy reaction. What we need first and foremost is liquidity for companies and the government has already enormously increased guarantees to the KfW, the state owned bank, so that it can pass on more loans to SMEs.”
In another of the continent’s smaller countries, Austria, Jonas Puck, Professor of International Business at Vienna University of Business and Economics, is particularly concerned about two specific segments of the local economy.
In the Netherlands, Mathijs van Dijk, Professor of Finance at the Rotterdam School of Management, Erasmus University, points out that this trading-oriented nation will be particularly susceptible to any slowdown in global trade, but also highlights two other major challenges facing the Dutch economy. The first is whether the economic crisis will also turn into a financial crisis. “The Netherlands has a large financial sector and while it’s in better shape than before the 2008 global financial crisis a prolonged recession could undermine financial stability,” he says. “The second is whether the national crises in various European countries will result in another ‘euro crisis’ similar to the 2010-2012 Greek / European sovereign debt one. With government debt below 50% of GDP, the Netherlands is in a strong position to extend fiscal support to its businesses and households. But Italy, France, and Spain are in a thornier financial position, so the issue of European solidarity is firmly back on the table.”
In Northern Europe, Leif Anders Thorsrud, an Associate Professor at the BI Norwegian Business School and manager of its Centre for Applied Macroeconomics and Commodity Prices, says that Norway went into recession just three weeks into the virus outbreak. However, he also reveals that Norway may have a significant ‘get out of jail free’ card up its sleeve when it comes to dealing with the economic fall-out. “The fact that the virus is supressing global demand on a large scale means that the price of oil is dropping too and this is especially bad for an oil exporter like Norway. The value of our main driver of growth - the oil price - has dropped more than 60 percent since February. On the positive side, however, we’ve been saving oil revenue for a rainy day for over 20 years. This means that Norway has the luxury of increasing public spending to mitigate the crisis without having to take up public debt and will put the country in a favourable position going forward.”
And finally, what of Italy, arguably the country that has been hardest hit across Europe by the outbreak? Marco Giorgino, Professor of Finance and Director of the Master in Financial Risk Management at MIP Politecnico di Milano, says that small and medium companies play a large part in Italy’s economy and that their shortage of financial resources makes the country particularly vulnerable in any long-term shutdown.
As Europe slowly emerges from the Covid-19 lockdown, and looks to find its way towards growth and regeneration, collaboration will be key. For Professor Maurizio Zollo, Scientific Director of the new Leonardo Centre at Imperial College Business School whose mission is to develop a sustainable, smart, healthy and resilient society, “environmental health and societal wellbeing are on a par with economic value.”
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