Falling back into recession – another lost decade?

The new measures against Corona threaten to plunge the euro area back into recession. In France, Italy and Spain, it could take until 2030 to recover lost growth and balance the budget.

The French business paper “Les Echos” predicted “a black decade” for the budget as early as the beginning of October. In order to return to a balanced budget by 2030, France would have to massively step on the savings brake.

Now a lost decade of growth is threatening. With the new lockdowns, the economy is going downhill all over the eurozone. According to the “Handelsblatt”, Spain and Italy are threatening to plunge back into recession, as is France.

Germany is still in a slightly better position, thanks in particular to massive government support programmes. But even these are sewn to the edge. If the “lockdown light” lasts longer than the announced month, things could get tight.

Once again, the EU is not prepared for this new situation. It is still arguing about the financial pots that were designed as a response to the first wave of the Corona crisis. The celebrated Corona Reconstruction Fund can only pay and help in 2021 anyway.

Until then, the ECB is likely to step in again. ECB boss Lagarde has announced a further easing of her ultra-loose monetary policy for December. But even the last monetary policy measures have had little effect.

Only concerted action by the ECB and the EU, such as the announcement that the Corona relief fund would be made permanent (so far it is limited to three years) and continue to be financed by debt.

But that is where Chancellor Merkel comes in. While Finance Minister Scholz and Lagarde have already spoken out in favour of this option, Merkel remains firm. She is unlikely to change her mind before the Bundestag elections in autumn 2021…

Translated with DeepL. The original post (in German) is here