Countries that have implemented the stringency are now able to defend themselves better

The new economic growth forecasts made known in recent days by the European Commission have been taken up by the majority of the media in their general aspects. But few of the media have analysed in detail the marked differences between the various EU countries and the possible reasons for these. Yet, looking at the data, it immediately catches the eye that the countries that support the rigor in public finances are once again the ones that hold up best - and that, in this case, they are more likely to limit the economic damage caused by the coronavirus. Countries that in fact have not given priority in the past to curb deficits and public debt confirm their presence in the lower part of the ranking on growth instead.

Austria and Scandinavia

Overall, the Commission worsened the forecasts for 2020 and 2021 compared to what it had indicated in May. For the Gross Domestic Product (GDP) of the European Union of 27, Brussels now indicates a -8.3% for 2020 and a + 5.8% for 2021; for the Eurozone GDP at 19, the forecast is -8.7% for this year and + 6.1% for the next. Having said that, the differences between the various countries are not secondary, especially as regards the fall in economic growth forecast for this year. Given that public indebtedness will increase in 2020 for all, given the huge anti-virus economic plans, there are however countries that until the end of 2019 have limited deficits and debts and others that have not done so and that now register a more marked increase in the burden.

Let's see what the growth forecasts are for 2020, for some of the countries of rigor. The Commission plans for Germany -6.3%, for Finland as well. As for the four so-called frugal countries, which oppose part of the concessions to highly indebted countries that are materializing by the EU, this is the situation: Holland -6.8%, Austria -7.1%, Denmark - 5.2%, Sweden -5.3%. As you can see, they are all significant contractions of GDP - due to the virus - but still significantly lower than the EU and Eurozone averages. Outside the EU, Switzerland, which has a low public debt, with a -6.2% (SECO forecast for June) is in fact in the same category.

Portugal and Greece

Significantly larger falls in GDP in 2020 are instead expected for countries that have clearly higher public debt. Among these, Italy with -11.2%, Spain with -10.9%, France with -10.6%, Portugal with -9.8%, Greece with -9 %. In all these cases, these are contractions of GDP clearly above the EU and Eurozone averages. As for countries outside the EU, it can be seen that in June the OECD forecast for the United Kingdom in -11.5 %% (-9.1% for the Eurozone) and the IMF forecasts for the same country a -10.2% (same percentage for the Eurozone). The UK, which also sees Brexit uncertainties added to the effects of the virus, has higher public debt than the EU average.

The EU Commission expects, like all major international institutions, a clear rise in economies in 2021, always assuming that there is no broad return of the coronavirus. An elaboration of the economic newspaper "Il Sole 24 Ore" on the Commission's data shows how much the various economies of the Eurozone will remain below the level of 2019 at the end of 2021. Taking the forecasts for the fall 2020 and the rebound 2021 and assuming that the GDP 2019 is equal to 100, Germany is 98.7, Austria 98.1, Holland 97.5, Finland 96.3. Only the latter, among the countries of rigor, is below the Eurozone average, indicated at 96.9. Here is the situation of some of the most indebted countries: Italy 94.2, Spain 95.2, Portugal 95.7, France 96.2, Greece 96.5; they are all below the Eurozone average.

Past and future

We'll see if the forecasts turn out to be spot on. Meanwhile, it must be said that the data of these months are in fact confirming the best hold of many of the countries of rigor. The economic effects of the virus are in practice accentuating what has already been seen previously. In other words, expanding public deficits and public debt in the long run slows down the economy, because interest on high debt takes resources away from growth and because highly indebted countries attract less productive investments, both domestic and foreign. This year the increase in public debt was made inevitable by the virus (even for the countries of rigor, but these had precisely put hay on the farm in the past). The data say that when the emergency is over.