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Is the Pandemic Heading Towards a Debt Crisis in 2021?

The euro zone economy will contract 9% in 2020, the European Commission worsened its previous forecast warning of the “exceptionally high risks” linked to the coronavirus and Brexit.

The extent and duration of the pandemic and the possible future measures of confinement necessary remain unknown,” says Brussels, whose forecast does not take into account a “second wave” of infections.

The Commission, which in May estimated a “historic” collapse of the 19 euro economies as a whole at 7.7% of Gross Domestic Product (GDP), thus exacerbates the drop to what the European Central Bank (ECB) estimates.

The International Monetary Fund (IMF) estimates a further drop in the eurozone, of 10% in 2020, above the 8% forecast for the United States and far from the most encouraging scenario projected for China, with growth of 1% this year.

Uncertainty presides over forecasts. “We should not think about the risk that the experience of the Spanish flu will repeat itself,” but “the possibility of living together for a certain time with the danger of a local outbreak,” explained Gentiloni.

The Commission expects a general rebound in GDP in 2021, to 6.1% in all 19 euro countries. The expansion would be 7.6% of GDP in France, 7.1% in Spain and 6.1% in Italy, as well as 6% in Portugal and 5.3% in Germany.

However, in this context of high uncertainty, the community executive does not rule out “a better recovery than expected,” especially if the situation of the pandemic “allows a faster lifting of restrictions”.

The discovery of a Covid-19 vaccine, as well as the rapid approval of a European economic recovery plan, currently under negotiation among the 27, could improve their expectations, according to Brussels.

The leaders of the European Union will meet on July 17 and 18 in Brussels, at their first face-to-face summit since confinement, to discuss the plan of 750,000 million euros (840,000 million dollars), proposed by the European Commission.

A group of countries adhering to fiscal rigor, nicknamed the “frugal” and led by the Netherlands, are trying to curb spending, which is mainly destined for the southern countries most affected by the Covid-19 epidemic.

British Finance Minister Rishi Sunak announced £ 30 billion ($ 37.6 billion) stimulus measures on Wednesday, including VAT cuts for certain sectors, subsidies to renovate buildings and support for youth employment.

The fund will take the form of guarantees, with which it will mobilize up to 400,000 million euros

The European Commission gave its approval on Wednesday to the public aid plan worth 500,000 million euros (US $ 566,992 million), with which Germany wants to support the companies most affected by the economic crisis caused by the spread of the coronavirus in the country.

The fund will take the form of guarantees, with which it will mobilize up to 400,000 million euros (US $ 453,594 million), subordinated loans and also instruments for recapitalization – up to 100,000 million euros (US $ 113,398 million) – of companies in difficulty, according to The community executive has indicated in a statement.

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Borja Salvador

Sales Account Manager
bsalvador@tvmarkets.com

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