In the second quarter of 2021, the North American economy should already return to the pace of economic production it was at the end of 2019, before the outbreak. By contrast, most European countries will not achieve this until mid-2022 … “Maybe”. Eric Nielsen, Chief economist at UniCredit and former chief economist at Goldman Sachs for Europe, has a simple explanation for this “one-year delay” of the European recovery: The United States is pumping money as if there is no tomorrow, While European governments have an obsessive debt scare And they approach the problem with the logic of saving – They are wrongThe economist says in an interview with the Observer.
Eric Nielsen recently posted a Analysis note Where are you talking “The striking difference in the approach to dealing with the crisis”When comparing what the Biden administration expects to spend (this year only) in combating the impact of the economic crisis, in contrast to what European countries are planning to do in terms of responding to the budget. What is the subject of the dispute, in the European case, is not the so-called “bazooka” – “Our accounts have very little [dinheiro] Coming from there, “says Nielsen, not least because it has not been fully approved yet. Here it is about The total budget effort each country has made for itselfTo support their businesses and their fellow citizens.
These total budget efforts are then compared to the ‘product gap’ – and Output gap – a bad word from Economics Which, in this case, can be understood in a simple way as the difference between the wealth that the economy is able to generate, in a given period of time, and on the other hand, what this product would be in the event that the shock epidemic did not occur.
When entering into 2021 Output gap In the United States it was among the Ultimately $ 900 billion and $ 1 billion from “ lost activity ”, An activity that usually occurs but that did not happen because of the epidemic, ”explains Eric Nielsen.“ It is the gap caused by the collapse of GDP, between what existed and what is estimated to have existed without the shock, in this case the Covid-19 pandemic, ”he explains. ..
in Europe , In the eurozone, This gap also had a similar value: About one billion euros, Counts as Chief Economist at UniCredit. “Imagine that the economy is moving at full speed, with little unemployment, and suddenly, the shock arises – the first thing that happens is that the private sector is contracting, people do not consume much and companies stop investing, out of fear or impracticality,” explains Eric Nielsen, to simplify the gap that is They take shape instantly.
At that moment, assuming that depends on the prevailing economic and political philosophy or ideology in a particular country or region, what most people agree on is The state should intervene at that pointThe economist explains: “By providing tax cuts and increasing public spending to try to bridge this gap.” Now, if the gap has a similar value in the USA and the European bloc, then the The boldness with which to bridge this gap could not be different., As shown in the illustration from UniCredit.
Source: UniCredit Research
The gray bars on the Erik Nielsen chart are the product gap, and Output gap Which has a similar value in the US and the Eurozone (whereas in the US we speak in dollars and in the Eurozone we speak in Euros – every euro today equals about $ 1.19). On the other hand, there is a greater discrepancy between the red bars – they denote the fiscal stimulus launched in both places (on the left, the US, on the right, the Eurozone).
In the US, facing a gap of less than $ 1 billion, it has advanced by as much as 2.3 billion (only in 2021) – the bulk of which was Joe Biden’s massive economic stimulus package, of 1.9 billion. In other words, “the economy will be stimulated by more than twice what is estimated as the output gap,” notes the economist. In the replay, In the eurozone, the € 1 billion gap will not be “closed” (almost) completely by fiscal stimulus measures.
The red bars include discretionary spending, that is, what governments have announced in special programs to support the economy (and UniCredit has made an effort to achieve real implementation, the real value that has reached “the ground”, Eric Nielsen explains). But the red bars also include the so-called Automatic stabilizersAnother concept of Economics But this basically has to do with the money that the state puts into the economy without having a plan behind it – that is, someone loses their job and starts receiving unemployment benefits, for example.
These economic stabilizers have a slightly greater impact in Europe than in the US, according to UniCredit’s calculations. But this is far from compensating for “the vast difference between the planned 2021 budget response in the United States and Europe,” the economist says, arguing that in a crisis like this, “it is up to governments to increase spending or cut taxes to try to compensate for this gap, and protect citizens. The most vulnerable and also to reduce the phenomenon healing In economics, that is, the destruction of productive capacity“This punishes entire generations and makes recovery difficult.
“Europe has already suffered a bigger blow than the US in 2020 – that is Gap The public authorities are charged with filling them in. Given the severity of this crisis and the uncertainty surrounding the future economic outlook, we believe so Doing more is better than doing lessHe defends UniCredit.
