Added value of a common EU response to the economic consequences of the coronavirus pandemic

17-04-2020

In addition to the tragic loss of human lives, the ongoing novel coronavirus pandemic will have severe consequences for the European economy. Common action at EU level and coordinated long-term strategic action at international level is more necessary than ever before. In particular, in addition to the measures taken after the 2008 economic and financial crisis, a resolute move towards greater common policy action and a deepening of the single market, more strategic autonomy, increased common investment, and a reasonable deepening of risk-sharing within the economic and monetary union (EMU), could help to achieve a rapid, broad based and sustainable recovery. Our simulations, which use growth models based on long-term scenarios to 2035, indicate that the cost of complacency could be substantial. In a pessimistic worst-case scenario, where the policy response is fragmented and where no risk-sharing takes place, potential added value growth would be reduced by 0.8 % in 2035. For 2020 to 2035, this would represent a cumulated €2.9 trillion of added value losses for the EU as a whole compared to the initial baseline. In a more optimistic scenario, we assume a decisive move towards more sustained common action at EU level. As a result, potential added value growth is initially less impacted and the common action boosts long-term growth prospects to levels surpassing the estimates from the baseline scenario. For 2020 to 2035, such a scenario would represent a cumulated gain of €0.5 trillion of added value for the EU as a whole compared to the initial baseline.

In addition to the tragic loss of human lives, the ongoing novel coronavirus pandemic will have severe consequences for the European economy. Common action at EU level and coordinated long-term strategic action at international level is more necessary than ever before. In particular, in addition to the measures taken after the 2008 economic and financial crisis, a resolute move towards greater common policy action and a deepening of the single market, more strategic autonomy, increased common investment, and a reasonable deepening of risk-sharing within the economic and monetary union (EMU), could help to achieve a rapid, broad based and sustainable recovery. Our simulations, which use growth models based on long-term scenarios to 2035, indicate that the cost of complacency could be substantial. In a pessimistic worst-case scenario, where the policy response is fragmented and where no risk-sharing takes place, potential added value growth would be reduced by 0.8 % in 2035. For 2020 to 2035, this would represent a cumulated €2.9 trillion of added value losses for the EU as a whole compared to the initial baseline. In a more optimistic scenario, we assume a decisive move towards more sustained common action at EU level. As a result, potential added value growth is initially less impacted and the common action boosts long-term growth prospects to levels surpassing the estimates from the baseline scenario. For 2020 to 2035, such a scenario would represent a cumulated gain of €0.5 trillion of added value for the EU as a whole compared to the initial baseline.