Comment

The US and Europe in the aftermath of COVID-19

John Springford / Aug 2020

Image: Shutterstock

 

The incompetent management of the pandemic in the US is largely – but not only – the fault of Donald Trump. He downplayed the severity of the virus, called upon state governors to end lockdowns prematurely (thereby “liberating” citizens, as he put it), and failed to expand testing and contact tracing sufficiently. But governors did not have to listen to him, and the conservative movement as a whole is responsible for politicising the virus: according to one reputable study, areas where more people watched Sean Hannity, a Fox News host who downplayed the severity of the pandemic, had higher infections and fatalities than areas with similar shares of conservative voters, Fox News viewers, and older and unhealthy people.

Progressive Europeans regard the US response to the pandemic with a mixture of worry and schadenfreude, not only because it demonstrates the costs of electing an incompetent populist, but also because their social models appear to be more resilient to the pandemic. It is true that European countries’ safety nets needed less emergency patching than that of the US. Universal health coverage and more generous support for unemployed people were helpful when the pandemic arrived in Europe. But the differences in policy – with the important exception of lockdowns – between the US and Europe have been exaggerated.

Germany’s long-standing Kurzarbeit scheme was copied in other European countries to keep workers attached to firms, and governments provided guarantees to ensure companies could borrow during the deep freeze of lockdown. However, the US also provided loan guarantees and provided a sizeable boost to unemployment insurance. The big jump in the unemployment rate in the US is misleading: many workers that are counted as unemployed are in fact furloughed, as they are in Europe, and the true unemployment rates on both sides of the Atlantic are similar. And Congress agreed that the taxpayer would fund treatment for poorer Americans who contracted the virus.

However, Europe and the US face different problems in the aftermath of the first wave. Emergency support for workers and firms is expensive, and the longer that it takes to find a vaccine, the more it will be necessary for workers in bars, cafes, airlines and cinemas to find jobs in more pandemic-proof sectors of the economy. This is a particular problem in Southern European countries – tourism makes up over 10 per cent of their economies. After the financial crisis, Northern European labour markets created new jobs far more easily (indeed, they performed better than the US, where it took a decade for the employment rate to recover). The new EU recovery fund will help to ease some of the fiscal pressure, but it is small in comparison to the scale of the recession, and higher debts in the public and private sectors will drag on the recovery. Further support for Southern Europe may be needed.

For its part, the US has plenty of fiscal firepower, and asset purchases by the Federal Reserve are not politically contested (as are those of the European Central Bank in Germany). But the virus does not only kill people: around 4-5 per cent of those who contract it will go on to have chronic health problems. The notoriously patchy US healthcare system provides some of the best care in the world to those who can afford it, but around 30 million people do not have health insurance. The US has greater income inequality and urban sprawl – and a poorer diet – than most European countries. As a result, American health outcomes are worse than European ones across a range of metrics – life expectancy; co-morbidities for coronavirus, such as obesity and heart disease; and suicide. Support for unemployed people – both in terms of unemployment pay-outs and funds for retraining – is far below the OECD average. If Joe Biden wins in November, he will only be able to permanently expand the US safety net if Democrats control Congress, and the last big effort – Obamacare – led to the emergence of the Tea Party and contributed to Donald Trump’s victory in 2016.

Governments have justified emergency support for the economy because the coronavirus pandemic is a once-in-a-century event. But it comes after the financial crisis of 2008-9, which was also a once-in-a-century event according to the banks’ faulty models that led them to misprice risks. The modern world is more accident-prone than it used to be: globalisation means that problems in one country can damage others. Germany’s surplus of savings has forced other countries to choose either to absorb them (and risk bubbles that pop) or to try to save to a similar agree (and suffer higher unemployment). International travel makes disease hard to contain. Low growth and high debt in Italy are a liability for other eurozone members. In order to retain the benefits of integration, the US and Europe need to share more risks, and, as we have seen, this usually results in a backlash from the right. Whichever side of the Atlantic succeeds will be in the stronger position in the coming decades.

 

For more on this, read Is the US or Europe more resilient to COVID-19?

 

John Springford

John Springford

August 2020

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