Home > Europe Might Face Some Tough Times Ahead Due to Brexit and Covid

Europe Might Face Some Tough Times Ahead Due to Brexit and Covid

Europe is one of the hardest-hit by the coronavirus pandemic. It stands as the only region forced to lockdown economies not once, but twice. While the measures taken by different governments differ, the economic hit remains. 

As we come closer to the end of the year, everyone focuses on what comes next? On December the 27th, the European vaccination days begin. The European Commission has planned thoroughly so that every country starts vaccination at almost the same time. However, criticism arose about how the Commission handled the pandemic, especially the negotiations regarding the vaccine purchasing.

Risks to European Cohesion

One positive thing that the pandemic brought was European unity. For the first time in history, Europe issued common debt – a critical step in the birth of a long-wanted integration in the fiscal space.

But a recent article run by Spiegel, a German newspaper, threatens the very cohesion talked about earlier. It appears that the E.U. has rejected an offer to buy 200 million vaccines from the German-based BioNTech to make sure that Sanofi (French-based) gets a similar order. In the meantime, Sanofi postponed its vaccine date by at least six months, and so the E.U. is left with fewer vaccines than other countries.

The story is yet to be verified, but if true, poses major risks as governments may start placing orders on their own – bypassing the Commission. Germans are extremely annoyed that the country lost the vaccine race against the U.S. and the U.K., despite the vaccine being first developed in Germany.

Strong Currency Weighs on Inflation

Another threat comes in the form of a strong currency. Euro, the common currency, sits close to 2020 highs, trading in the vicinity of 1.22. As the European Central Bank (ECB) mentioned many times, the strong currency poses a risk to inflation, as its strength weighs, and it makes the central bank’s mandate difficult to reach.

Voices call for the Euro to trade as high as 1.25 sooner rather than later, and judging by the price action at recent levels; we should not be surprised to see that in 2021.

Brexit

We still do not know what Brexit brings. Scenarios have been considered, but reality usually differs. The risk here is that Brexit will have a stronger negative impact on the European economies than initially thought.

All in all, these are three areas to consider as having the potential to generate risks for Europe and the European project in the year ahead. If we add the ongoing pandemic, the picture does not look bright at all.

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