EU could suffer from ‘economic long-Covid’ hitting Italy and Greece

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After a turbulent start to the vaccine rollout appeared to hold back Europe’s economic recovery, there is now renewed optimism. The economy of the EU will bounce back more quickly than expected, owing in part to the quickening pace of its vaccination programme after a “slow start”, the European Commission has forecast. Brussels has put forward the positive prediction as the EU’s £686billion (€800billion) recovery package looks set to go ahead.

A sharper rebound in global trade than expected, thanks largely to the US and China, will also aid the recovery.

The Commission forecast the EU’s GDP would grow by 4.2 percent in 2021 and by 4.4 percent in 2022, compared with a prediction in February of 3.7 percent and 3.9 percent.

The eurozone’s GDP is forecast to grow by 4.3 percent and 4.4 percent, respectively.

The EU Economics Commissioner Paolo Gentiloni said: “The faster pace of vaccinations in recent months should allow restrictions to be eased further in the second half of the year, and in fact this is already happening, and thereby allow the economy to bounce back.”

Despite the more positive outlook, economist and London School of Economics Professor, Iain Begg, tells that some industries could endure “economic long-Covid”.

He said: “Any macroeconomic forecast at the moment you have to take with a bucketful of salt rather than the usual pinch because of uncertainty about potential new surges and so on.

“That said, the indications are that across Europe there is going to be a considerable bounce.

“We heard the Bank of England upgrading its forecasts, and you expect to see something similar in other countries as we emerge from the darkness.

“What concerns me at European level is whether there are any lingering effects of Covid – an economic long-Covid – where certain sectors like transport and tourism may have a permanent reduction in demand because we have become accustomed to not using them.”

Professor Begg warns that if this were to come into fruition, it would have a “disproportionate effect” on “vulnerable” countries such as Italy and Greece.

He added: “That may lead to new pressure inside the EU on divergence of economies – they will all recover – but it’s the pace of recovery and whether there are new vulnerabilities in certain sectors that we have to watch.”

Italy’s concerns over the recovery phase have already been made apparent, as the country’s Prime Minister Mario Draghi says the EU’s framework for controlling debt must be changed.

He argued that this would help the eurozone overcome economic damage caused by the coronavirus pandemic.

He said: “The current fiscal rules were inadequate and are even more inadequate for an economy exiting a pandemic.

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“Revision of the rules needs to ensure more ample margins for fiscal policy to work as an anti-cyclical stabilising force.”

The EU’s rules were suspended during the pandemic to allow member states to support households and businesses through repeated lockdowns.

Economy Commissioner Mr Gentiloni said on Wednesday that the suspension is expected to remain in place until the end of next year.

Last week, Greek Prime Minister Kyriakos Mitsotakis said he was “very, very sure” the country’s tourism sector could open soon thanks to falling COVID-19 case numbers and more vaccinations

He added: “I do expect the situation to improve dramatically over the next months.”

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