LONDON – Before the pandemic, a traditional state of play prevailed in huge economies on opposite sides of the Atlantic. Europe, full of older people and riddled with policy disputes, seemed stagnant. The United States, governed by innovation and risk-taking, seemed to grow faster.
But that alignment has been rearranged using contrasting approaches to a terrifying global crisis. Overall, Europe has managed the spread of the coronavirus, allowing many economies to reopen while protecting workers whose livelihoods have been threatened. The United States has become a symbol of recklessness and discord in the face of a serious emergency, raising increasingly deep concerns about the fate of jobs and livelihoods.
On Friday, Europe released economic figures that at first glance were appalling. The 19 nations that share the euro currency contracted 12.1 percent between April and June from the previous quarter, the biggest decline since 1995, when data was first collected. Spain fell a staggering 18.5 percent, and France, one of the eurozone’s largest economies, declined 13.8 percent. Italy fell by 12.4 percent.
Europe looked even worse than the United States, which had the worst three-month period in its history the previous day, falling 9.5 percent in the second quarter.
But below the headlines, Europe showed promising signs of strength.
Germany saw a drop in the number of unemployed, surveys found evidence of growing confidence amid an expansion in factory production, while the euro continued to strengthen against the dollar as investment flowed into European markets, signs of an improvement in feeling.
These contrasting fortunes underscored the central truth of a pandemic that has killed more than 670,000 people worldwide: The single most important cause of economic pain is the virus itself. Governments that have most skillfully controlled its spread have demanded greater trust from their citizens and investors, putting their economies in a better position to recover from the worst global recession since the Great Depression.
“There is no economic recovery without a controlled health situation,” said Angel Talavera, chief eurozone economist at Oxford Economics in London. “It is not a choice between the two.”
European confidence has been bolstered by an innovative agreement reached in July within the European Union to sell bonds worth 750 million euros ($ 892 million) collectively backed by its members. Those funds will be deployed in the most affected countries such as Italy and Spain.
The deal transcended years of opposition from parsimonious northern European countries such as Germany and the Netherlands against the issuance of common debt. They have refused to put their taxpayers on the line to rescue southern neighbors like Greece while indulging in the crude stereotypes of Mediterranean desecration. Animosity perpetuated the feeling that Europe was a union in name only, a muted criticism.
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 proven crucial, allowing tens of millions of unemployed Americans to pay rent and buy food. But they were scheduled to expire Friday and there was little sign of Congress extending them.
Europe’s experience has highlighted the strengths of its most generous social welfare programs, including national health care systems.
Americans feel compelled to go to work, even in dangerous places like meat packing plants, and even when they are sick, because many lack paid sick leave. However, they also feel pressure to avoid crowded stores, restaurants, and other places of business because millions lack health insurance, making hospitalization a financial catastrophe.
“Europe has really benefited from having this system that is more dominated by welfare systems than the United States,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “It keeps people less fearful.”
The most promising situation in Europe is neither secure nor global. Spain remains a major concern, with the spread of the virus threatening lives and livelihoods. Italy has emerged from the grim calculation of mass death to the chronic condition of persistent economic problems. The tragic mismanagement of the pandemic in Britain has shaken faith in government.
If short-term factors seem more beneficial to European economies, long-term forces may favor the United States, with a younger population and higher productivity.
The bombing of a US nationalist president has sparked a sense of European-American rivalry, making the pandemic a morbid opportunity to keep score.
“There is a certain amount of triumphalism,” said Peter Dixon, global financial economist at Commerzbank in London. “People say, ‘Our economy has survived, we are fine.’ There is a certain amount of European schadenfreudeif I can use that word, given everything Trump has said about the United States “
But for now, Europe’s moment of confidence is palpable, especially in Germany, the continent’s largest economy.
Although the German economy contracted 10.1 percent from March to June, its worst decline in at least half a century, the number of officially unemployed people fell in July, in part due to government programs that have subsidized laid-off workers. .
Surveys show that German managers, not a group bent on sunny optimism, have seen expectations that future sales will return to levels almost pre-virus. That buoyancy translates directly into growth, emboldening companies to rehire hired workers.
Ziehl-Abegg, a manufacturer of ventilation systems for hospitals, factories and large buildings, recently started a € 16m ($ 19m) expansion at a factory in southern Germany.
“If we wait to invest until the market recovers, it is too late,” said Peter Fenkl, the company’s chief executive. “There are billions of dollars on the market ready to be invested and waiting for the signal to start.”
The euro has gained more than 5 percent against the dollar so far this year, according to FactSet. European markets have been fueled by international money flowing into so-called exchange-traded funds that buy European stocks. The Stoxx 600, an index comprised of companies in 17 European countries, appears to be ready for the second consecutive month of earnings outperforming the S&P 500.
French oil giant Total saw demand for its products in Europe drop by almost a third in the second quarter of the year, but a powerful recovery has been gaining momentum, company president and CEO Patrick Pouyanné said.
“Since June, we have seen a rebound here in Europe,” he said during a call with analysts. “I would say that activity in our marketing networks returns to 90 percent of pre-Covid levels.”
France, Europe’s second largest economy, has been bolstered by aggressive public 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 a fall package worth another 100 billion euros .
Those funds paid companies not to lay off workers, allowing more than 14 million employees to receive paid leave, stay at home, accumulate modest savings, and continue spending. Delayed deadlines for business taxes and loan payments saved companies from collapse.
In the second quarter, when France was still partially blocked, the country’s economy contracted by almost 14 percent. Tourism, retail and manufacturing, the main pillars of the economy, were paralyzed.
But services, industrial activity and consumer spending have shown signs of improvement. The Bank of 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 almost 19 percent from April to June. The nation’s unemployment rate exceeds 15 percent, and could increase further if a wage subsidy program for laid off workers is allowed to expire in September.
Spain officially ended its coronavirus state of emergency on June 21, but has since seen an increase in infections. The economic impacts have been exacerbated by Britain’s decision to force travelers returning from Spain to quarantine for two weeks. Tourism represents 12 percent of the Spanish economy.
Italy is also very exposed to tourism. Its industry is concentrated in the north of the country, which saw the worst of the coronavirus. The central bank expects the Italian economy to contract by almost 10 percent this year.
But exports increased more than a third in May compared to the previous month. That left them below pre-pandemic levels, but on par with German and American competitors, according to Confindustria, an Italian trade association.
“We are slowly starting to recover after the most violent decline in the past 70 years,” said Francesco Daveri, an economist at Bocconi University in Milan.
Europe’s fortunes appear to be improving because its people are more likely to trust their governments.
Denmark acted early, imposing a strict blockade while paying wage subsidies that limited unemployment. Denmark suffered far fewer deaths per capita than the United States and Great Britain.
With the virus largely controlled, Denmark lifted the restrictions earlier, while the Danes answered the call to resume commercial life. The Danish economy is expected to contract 5.25 percent this year, according to the European Commission, with a substantial improvement in the second half of the year.
In the United States, people have grown weary of puzzling and conflicting advice from on high in a context of more than 150,000 deaths.
The result has been a record increase in new cases along with a syndrome that is likely to persist, an aversion to being around other people. That means slimmer prospects for retail, hotels, restaurants, and other job-rich areas of the US economy.
Liz Alderman reported from Paris. Emma Bubola contributed reporting from Milan, Raphael Minder from Madrid and Stanley Reed and Eshe Nelson from London.
