- The COVID-19 crisis could see Eurozone GDP shrink by 7%.
- EU institutions and member states have put up $3 trillion to fight the crisis.
- Can a plan similar to one used 70 years ago help the continent’s economies survive?
In the midst of the COVID-19 crisis, the European Union is looking at how it can rebuild the continent’s economies in the years after the pandemic – and it says a plan implemented in the aftermath of World War II could provide a model to follow.
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“In this crisis, there can be no half-measures,” the president of the European Commission, Ursula von der Leyen, said. “And that will be the case for years to come as we seek to lift our economy out of the crisis valley. To do this, we will need massive investment in the form of a Marshall Plan for Europe. And at the heart of it should lie a powerful new EU budget.”
According to the Economist Intelligence Unit, the global economy will shrink by 2.5% in 2020 as a result of the pandemic. While in Europe, the effects could be even more severe – a drop in Eurozone GDP of up to 7% has been predicted.
Von der Leyen’s calls for a new Marshall Plan to help those of the continent’s economies that have been hit hardest by the coronavirus were echoed by the Spanish prime minister, Pedro Sanchez, who said: “If the virus doesn’t stop at borders, then financing mechanisms cannot do so either.”
The Marshall Plan was a US initiative to help reinvigorate the economies of Europe after the end of World War II. The war to defeat the Nazis raged for six years, and led to enormous loss of life. Millions died on the battlefields, in camps, and in towns and cities. Countless roads, railways, factories and houses were destroyed, too, leaving national economies in ruins.
To get Europe back on its feet, and put an end to any potential expansion of the Soviet Union, the US Secretary of State, George C. Marshall, created the European Recovery Program. It sent nearly $13 billion of aid to Europe between 1948 and 1951, including shipments of food, fuel and machinery, as well as investments in ongoing industrial development. That would be around $142 billion today.
In a speech given at Harvard University in June 1947, Marshall said: "The truth of the matter is that Europe's requirements for the next three to four years of foreign food and other essential products – principally from America – are so much greater than her present ability to pay that she must have substantial additional help or face economic, social and political deterioration of a very grave character.”
What is the World Economic Forum doing about the coronavirus outbreak?
Responding to the COVID-19 pandemic requires global cooperation among governments, international organizations and the business community, which is at the centre of the World Economic Forum’s mission as the International Organization for Public-Private Cooperation.
Since its launch on 11 March, the Forum’s COVID Action Platform has brought together 1,667 stakeholders from 1,106 businesses and organizations to mitigate the risk and impact of the unprecedented global health emergency that is COVID-19.
The platform is created with the support of the World Health Organization and is open to all businesses and industry groups, as well as other stakeholders, aiming to integrate and inform joint action.
As an organization, the Forum has a track record of supporting efforts to contain epidemics. In 2017, at our Annual Meeting, the Coalition for Epidemic Preparedness Innovations (CEPI) was launched – bringing together experts from government, business, health, academia and civil society to accelerate the development of vaccines. CEPI is currently supporting the race to develop a vaccine against this strand of the coronavirus.
A new plan for a new era
There was some ambiguity at the time around the status of some of the funds received under the Marshall Plan – were they loans or grants? Much of the debt was indeed written off or substantially reduced. The idea of a similar pooling of debt coupled with centralized borrowing is gaining favour across Europe today.
According to von der Leyden, Europe’s economic response to COVID-19 has been the strongest anywhere in the world. “We have made our state aid rules more flexible than ever before so that businesses big and small can get the support they need,” she said.” We have relaxed our budgetary rules more than ever before to allow national and EU spending to go quickly to those that need it. This has helped EU institutions and member states put up €2.8 trillion [$3 trillion] to fight the crisis.”
She, and others who agree with her, believe the EU budget can act as an “instrument of solidarity and modernization” to help those countries most in need – such as Italy and Spain, where the death tolls and economic shutdowns have been most severe.
“This is why the money in our next budget must be invested in a smart and sustainable manner. It must help preserve what is dear to us and renew the sense of belonging among Europe's nations,” she said.
But this strategy is not without its critics. Economists from some of Europe’s wealthier nations, such as Germany and the Netherlands, have expressed concerns about the idea. Michael Hüther, head of the German Economic Institute in Cologne, warned against the eurozone issuing common bonds to deal with sovereign debt. His fear was that it could undermine national fiscal policies and even discourage sound economic planning in some countries.