Gonzalo de Cadenas-Santiago

Director of Economic and Financial Research at MAPFRE Economics.


Many European countries share the same concern: increasing evidence that the second wave has arrived. In Spain, as well as in France and Germany, statistics on new cases (even when adjusted for increased testing) are looking more and more like those from March. The exception to this is Italy — a point that makes initial data even more striking. But once again, the jury is out on whether to continue or slow the return to normal activity, something that will determine whether this crisis permanently affects Europe.

In fact, before summer, my mind was made up (latest MAPFRE Economics Outlook report). The risk of a re-emergence of the pandemic was high and economies cannot afford to close down totally again; in any case, selective lockdowns and partial closures may be introduced instead. Now, however, we are seeing more and more factors that suggest a much more negative or stressed scenario: one where the crisis will impact not just short-term economic performance, but also long-term growth capacity, where internal demand would waver as new restrictions are introduced and ultimately fall below the levels of activity seen during the first wave. Financial damage would weaken the balance sheets of families and companies, preventing a recovery in consumption, which would persistently remain lower than in 2019 for the foreseeable future, as it did during the Lehman crisis. In this context of greater stress, the exit from the recession would be complex and long, not reaching the levels of the gross domestic product of 2019, at least until the year 2023.

In addition to renewed pessimism about the health scenario, the ghosts of uncoordinated response are returning, an ever-present weakness that we fail to notice until our defining insecurity returns. The implication of an accommodative monetary policy introduced by the European Central Bank, accompanied by the coordination of an expansive fiscal policy (fruit of the progress made by the European Commission), was an important step in terms of both the future recovery and the welcome convergence toward a structural integration of the eurozone. In this sense, the commitment to establish effective common mechanisms renewed confidence in the eurozone at a time of serious economic uncertainty. But this advance could be damaged by a lack of coordination at a local level, which will be key in this second wave.

Although members of the EU are working on this coordinated response with the aim of avoiding reclosing borders, not all measures bear fruit, and this is particularly true in domestic cases where boundaries close within countries. Local councils clash with central governments, leaving little room for coordination with EU representatives. All European countries are trying to avoid new shutdowns for fear of further economic difficulty and social unrest, but the only wider response comes from supranational organizations such as the European Commission and, principally the ECB, leaving little scope for regional consensus beyond monetary stimuli.

The only point on which we are slowly coming to the same conclusion is that it is much easier to shut down entire economies than it is to reopen them. And, in this context of gradual impoverishment as a result of this extremely severe measure, governments can start to look for accountability in neighboring countries, especially when some economies are seen to be doing better than others. Once again, this could undermine the very meaning of the Union.