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European Economies and COVID-19 – An Update

October 19, 2020 By Mircea Vasiu

The virus is back with a vengeance in the Eurozone countries and the second wave of infections already exceeded the first one. The good news is that the number of deaths did not follow the same path as the number of infections. 

At the same time, the bad news is that the new wave of infections triggered desperate moves in various countries, with a big economic impact. It seems that the European countries exhausted the solutions at hand as they resort to closing bars and restaurants. France, Belgium, the Netherlands, and Spain – they all limit bars and restaurants activity either completely or partially for the period ahead.

Further Pressure on the ECB

A central bank acts as a lender of last resort, but also as a bank for the government. In this case, the ECB is pressured to step up its quantitative easing program and maybe even get creative in finding new ways to ease the monetary policy.

If we look at the economic conditions in the Euro area, the covid-19 evolution, the Brexit negotiations, and the fact that winter is upon the continent, it seems like the perfect storm for the ECB lies ahead. For much of the hype at the start of the summer, the joint debt issuance and the new funds to fight the pandemic and its effects are still to come. In fact, the process turns out to be much slower than anticipated, pressuring the ECB to act.

The problem for the ECB is that it has its hands somehow tight. Its PEPP program designed to fight the pandemic seems too small at the moment and limited in both time and size. To change the market perception, the ECB should deliver a strong signal sooner rather than later.

Vaccine or Therapeutics?

One of the reasons why deaths did not follow the same path as infections in the second wave is the use of therapeutics. Doctors learned what works and what does not work, gained experience, shared information, and the results came.

But a real game-changer is a vaccine. The European Commission already contracted potential vaccines from various producers and started working on the infrastructure to be in place for and if vaccines will be ready in the near future.

For once, money is not an issue in Europe. Will it come in time to determine the lasting economic impact of the covid-19 recession?