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From the moment that COVID-19 emerged as a global threat, it was clear that it would test the strength, resilience and responsiveness of all societies. Almost a year later, it is time to assess who passed the test and who did not.
From a public health standpoint, the answer is clear: East Asia, including Australia and New Zealand, passed the test with flying colors. For the rest, Europe performed unevenly, the United States stumbled heavily, and developing countries have struggled.
Luck undoubtedly played more than its part in explaining the initially uneven performance. In Europe, Italy and Spain were greatly affected by the first wave, because the then unknown coronavirus took root, without anyone noticing, until it exploded in full force. On the contrary, Germany and Poland saw it coming and were able to take effective measures in time.
But while governments may attribute an uneven number of deaths during the first wave to luck, the argument is not valid for the second wave. Lawmakers cannot shirk responsibility for the uncontrolled spread of the pandemic in the United States or its resurgence in Europe.
Two tradeoffs dominate discussions of the political response. The first, between disease control and individual rights, is difficult to avoid. Contact tracing and mandatory isolation are effective in combating the spread of the virus, but violate civil liberties. China is clearly distinguished by its disregard for individual freedom, but Western societies would also find it difficult to accept the intrusive tracing measures taken in South Korea or Singapore. Like it or not, there is a price to pay for the freedom and privacy we cherish.
The second compensation is no between saving lives and saving the economy. Rather, it involves a choice between being strict today and being forced to be more strict tomorrow. European societies opted for strict lockdown measures in the spring, and then almost ended social distancing during the summer. By October, the only option left was to retighten the screws. Australia made a different decision and moderately increased the stringency of its disease containment measures during its winter season. It was able to relax these controls just when European countries had to tighten theirs.
in a recent comment, the French economists Philippe Aghion and Patrick Artus criticized the intermittent approach of the European countries, arguing that it would have been better if they had maintained sufficient containment measures throughout the summer. In fact, despite being much less severe than the first, the second blockade is affecting already fragile companies and homes, thus darkening the economic horizon. In hindsight, Europe could have avoided it by keeping gyms and bars closed this summer.
The bottom line is that, whether on principle or inconsistency, Western societies made their choice and East Asia made a different one. And for the second time in little more than a decade, the other case is the global financial crisis, the West is caught in a whirlpool while, this time, Asia continues on its way.
As for the economic response, the interesting contrast is the ocean liner. America’s approach under President Donald Trump has been to allow companies to lay off staff (possibly with a promise to rehire), but to engineer massive fiscal support through additional tax cuts and unemployment benefits. European states, by contrast, have relied on widespread government-funded leave schemes that preserve income and employee status, while (outside of the UK at least) providing less direct budget support. As a result, the International Monetary Fund bill that the United States fiscal deficit in 2020 will reach a postwar peak of 19% of GDP, almost double the eurozone average.
Overall, therefore, America under Trump has deliberately put the economy first, opting for less public health protection and fewer safeguards for workers but more fiscal support. European countries have put public health and social protection first, relying on initially severe lockdown measures and indefinite support to preserve labor relations, with little additional budgetary stimulus.
The fall in production in the spring was inevitably much more pronounced in Europe than in the US (with the exception of Germany, where the lockdown was less strict). But the rise in European unemployment was much more limited. Jason furman from Harvard University Dear that what he calls America’s realistic unemployment rate jumped from 3.6% before the crisis to 20% in April. In Europe, by contrast, up to a quarter of the workforce was unemployed, but only temporary and temporary workers, as well as new entrants to the labor market, ended up unemployed. For the vast majority, the social safety net worked much better than in the United States.
Surprisingly, European production recovered abruptly when governments lifted the closures, despite relatively less generous fiscal support. Third-quarter GDP in Germany and France was about 95% of pre-crisis levels, exactly as in the US (It was lower in Spain, largely due to the collapse in tourism; data for Italy not available yet). Whatever scars these economies may have suffered during the blockade period did not remove their resilience.
So far, at least, Europe doesn’t appear to be paying a price for its decision to put health before the economy. And the United States is apparently not benefiting from its increased fiscal stimulus, because consumers reacted to unprecedented uncertainty by accumulating cash at record rates. Between January and April 2020, the US personal savings rate. it shot itself from 7% to 33%, and remains well above normal. The money injected into the economy helped the poor, but overall, it ended up increasing bank deposits rather than consumption and production.
It is true that the jury is still deliberating, awaiting the results of the second European blockade. But amid the fog of the pandemic war, one thing is already clear: while Europe may wonder if it was right not to emulate Australia’s pandemic full containment campaign, it has no reason to regret rejecting the wrong strategy from the United States.
Jean Pisani-Ferry, Principal Investigator at the Brussels-based Bruegel think tank, and Principal Non-Resident Investigator at the Peterson Institute for International Economics, holds the Tommaso Padoa-Schioppa Chair at the European University Institute.
Contributed by Jean Pisani-Ferry
