Ireland’s Gross Domestic Product is to shrink by greater than the European Union average this year, and the recovery next year will equal to that experienced on average by our European counterparts – that is according to the European Commission’s Spring 2020 forecast of Main Economic Indicators.
The economic downturn brought about by the COVID-19 pandemic is expected to decrease Ireland’s GDP by 7.9% in 2020. The average decrease in GDP forecast for EU countries in 2020 is 7.4%. Not surprisingly, every individual member state expects to experience a substantial decline in economic performance this year; with the best performing member state, Poland, forecast to experience a not insubstantial decrease of 4.3%. The poorest performer is expected to be Greece, where a 9.7% decrease in GDP is expected in 2020.
In better news, Ireland’s economy is expected to rebound by 6.1% in 2021, equalling the EU average. The more severely hit countries such as Greece, Spain and France are forecast to experience a sharper proportional increase in GDP in 2021, with expected growth figures of 7.9%, 7%, and 7.4% respectively.
On unemployment figures Ireland is thankfully expected to be well below the EU average for both 2020 and 2021, with expected figures of 7.4% and 7.0% respectively. This contrasts with the average EU forecasts for each respective year of 9.0% and 7.9%. Reflecting the sharp decrease expected in GDP figures for 2020, Greek workers are forecast to be the most severely hit in terms of unemployment figures this year, with nearly one-in-five workers (19.9%) expected to be out of work. They are followed by Spain (18.9%), Italy (11.8%), and Croatia (10.2%).
This forecast paints a dark picture of the European Union for 2020, with the decrease in GDP across the Union to eclipse that of the 2009 financial crisis. In the foreword to the forecast, the Commission’s Director General of Economic and Financial Affairs, Maarten Verwey, acknowledges that the recession could be deeper than presented in this forecast: “The danger of a deeper and more protracted recession is very real. The point forecasts presented in this document should therefore be understood as just one among several possible scenarios. Different assumptions to those made here about the length of the lockdowns, the confinement measures still necessary in the period ahead, and the effectiveness of the policy response would lead to very different projections. Another surge in infections, for example, could reduce GDP by an additional 3 percentage points.”
He continues to acknowledge that the economic impact of this virus could further exacerbate the divergences within the EU: “While the pandemic is a symmetric shock, the impacts differ across Member States, reflecting the severity of the pandemic and stringency of related containment measures, different exposures due e.g. to the size of the tourism sector, and the available space for discretionary fiscal policy responses.”
In a welcome call for solidarity, Verwey states that a “strong European recovery plan” is needed to “complement national action”. Without this, he states that the crisis could lead to “severe distortions within the Single Market and to entrenched economic, financial and social divergences between euro area Member States that could ultimately threaten the stability of the Economic and Monetary Union”.
However, with the German Constitutional Court ruling yesterday that the European Courts of Justice overstepped its legal authority in a 2018 case regarding the quantitative easing of 2015, further questions have been raised regarding the “debtors vs. creditors” nature of the Union. The Court’s request for a “proportionality assessment” from the European Central Bank, justifying that the QE adhered to the principle of proportionality which states that “the action of the EU must be limited to what is necessary to achieve the objectives of the Treaties”, has raised eyebrows regarding Germany’s commitment to standing in solidarity with other EU member states. Whilst the ruling does state that “the decision published today does not concern any financial assistance measures taken by the European Union or the ECB in the context of the current coronavirus crisis”, it could be seen as a vindication of the frustration felt by a large portion of the German public who worry they could be left funding the economically weaker, southern countries in the Bloc – as a poll from early April suggested.
Whilst it is perhaps natural that members of the public in wealthier member states may fear that their own interests will be harmed by countries with poorer economies, especially when the economic forecasts justify the polling data regarding their worries about the economy, the words of Maarten Verwey are worth further underlining. Without bloc-wide solidarity and a strong plan for recovery we risk the rise of increasingly dangerous brands of populism; increasing levels of divergence both within and between nations; and the death of the European project.
To prevent this it’s time for European individuals, European member states, and the European establishment to pull together – otherwise Europe risks being torn apart.