Despite Historic Plunge, Europe’s Economy Flashes Signs of Recovery

LONDON — Before the pandemic, a traditional state of play prevailed in the enormous economies on the opposite sides of the Atlantic. Europe — full of older people, and rife with bickering over policy — appeared stagnant. The United States, ruled by innovation and risk-taking, seemed set to grow faster.

But that alignment has been reordered by contrasting approaches to a terrifying global crisis. Europe has generally gotten a handle on the spread of the coronavirus, enabling many economies to reopen while protecting workers whose livelihoods have been menaced. The United States has become a symbol of fecklessness and discord in the face of a grave emergency, yielding deepening worries about the fate of jobs and sustenance.

On Friday, Europe released economic numbers that on their face were terrible. The 19 nations that share the euro currency contracted by 12.1 percent from April to June from the previous quarter — the sharpest decline since 1995, when the data was first collected. Spain fell by a staggering 18.5 percent, and France, one of the eurozone’s largest economies, declined 13.8 percent. Italy shrunk by 12.4 percent.

European confidence has been bolstered by a groundbreaking agreement struck in July within the European Union to sell 750 billion euro ($892 billion) worth of bonds that are backed collectively by its members. Those funds will be deployed to the hardest hit countries like Italy and Spain.

The deal transcended years of opposition from parsimonious northern European countries like Germany and the Netherlands against issuing common debt. They have balked at putting their taxpayers on the line to bail out southern neighbors like Greece while indulging in crude stereotypes of Mediterranean profligacy. The animosity perpetuated the sense that Europe was a union in name only — a critique that has been muted.

The United States has spent more than Europe on programs to limit the economic damage of the pandemic. But much of the spending has benefited investors, spurring a substantial recovery in the stock market. Emergency unemployment benefits have proved crucial, enabling tens of millions of jobless Americans to pay rent and buy groceries. But they were set to expire on Friday and there were few signs that Congress would extend them.

Europe’s experience has underscored the virtues of its more generous social welfare programs, including national health care systems.

Americans feel compelled to go to work, even at dangerous places like meatpacking plants, and even when they are ill, because many lack paid sick leave. Yet they also feel pressure to avoid shops, restaurants and other crowded places of business because millions lack health insurance, making hospitalization a financial catastrophe.

“Europe has really benefited from having this system that is more heavily dominated by welfare systems than the U.S.,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “It keeps people less fearful.”

The French oil giant Total saw demand for its products in Europe drop by nearly one third in the second quarter of the year, but a powerful recovery has been gaining momentum, said the company’s chairman and chief executive, Patrick Pouyanné.

“Since June, we have seen a rebound here in Europe,” he said during a call with analysts. “Activity in our marketing networks is back to, I would say, 90 percent of the pre-Covid levels.”

France, Europe’s second largest economy, has been buttressed by aggressive government spending. President Emmanuel Macron has mobilized more than 400 billion euros ($476 billion) in emergency aid and loan guarantees since the start of the crisis, and is preparing an autumn package worth another 100 billion euros.

Those funds paid businesses not to lay off workers, allowing more than 14 million employees to go on paid furlough, stay in their homes, accumulate modest savings and continue spending. Delayed deadlines for business taxes and loan payments spared companies from collapse.

In the second quarter, when France was still partially locked down, the country’s economy contracted by nearly 14 percent. Tourism, retail and manufacturing, the main pillars of the economy, ground to a halt.

But services, industrial activity and consumer spending have all shown signs of improvement. The Banque de France, which originally expected the economy to shrink more than 10 percent this year, recently forecast less damage.

In Spain, a sense of recovery remains distant. Its economy shrunk by nearly 19 percent from April to June. The nation’s unemployment rate exceeds 15 percent, and could surge higher if a wage subsidy program for furloughed workers is allowed to expire in September.

Spain officially ended its coronavirus state of emergency on June 21, but has since suffered an increase in infections. The economic impacts have been compounded by Britain’s decision to force travelers returning from Spain to quarantine for two weeks. Tourism accounts for 12 percent of Spain’s economy.

Italy is also highly exposed to tourism. Its industry is concentrated in the north of the country, which saw the worst of coronavirus. The central bank expects the Italian economy to contract by nearly 10 percent this year.

But exports surged more than one-third in May compared with the previous month. That left them below pre-pandemic levels, yet on par with German and American competitors, according to Confindustria, an Italian trade association.

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