One day end with the American complex. While the European heads of state and government held a council on June 24 and 25 in Brussels to take stock of the progress of the joint recovery plan to 750 billion euros, many voices point to its insufficient amount for boost growth. Its level seems indeed very modest compared to the 8.5 trillion dollars (7100 billion euros) of the jumbo plans of the Trump and Biden administrations. But comparison is not right.
In reality, the Europe-United States match of budgetary initiatives intended to counter the deleterious effects of the Covid-19 crisis is proving to be tighter than expected. It includes two phases of play. To referee the first round, it is a question of weighing the efforts of emergency support to the American and European economies. On this aspect, some economists balance aid, including the famous Treasury checks, already pocketed by American households on the one hand, and on the other the national support plans of the 27 Member States of the Union, or $ 4,800 billion and € 3,100 billion. This represents a respective effort of 26% and 22% of the GDP. According to the calculations of the MEP Charles Grands, for
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France, this rate would be 20% of GDP.
But if we look at the budget deficit of each bloc in 2020, the American effort then appears much higher, with a GDP ratio of 12.1% last year – a historic record -, against 6.9% for Europe. “The money was spent more quickly in the United States, and the plans of the European countries were not entirely carried out”, slice Gregory Daco, specialist of the United States at Oxford Economics.
Read alsoGreen light from the 27 member states to the EU’s recovery plan
Timing crucial
On the menu for the second round, recovery plans. The United States has seen big, even if of the 2.3 trillion dollars announced by the White House, only 1.700 should remain after passing through Congress. Another downside: Joe Biden’s infrastructure program spans eight years, while that of the Commission focuses on five years. Assuming – very strong – that disbursements will be constant, the United States should spend 850 billion dollars (700 billion euros), over the first four years. On the European side, it is expected that 90% of the 750 billion will be disbursed over the period 2021-2023. But beware, the Next Generation plan includes subsidies to member states to the tune of 390 billion euros, but also a loan envelope of 360 billion. However, no one can say today which ones will borrow and how high.
However, even taking only the subsidy part, ie 390 billion euros, the European Union is on par, in terms of money disbursed, with the United States over the first two years. If and only if the Union keeps its commitment to pay 70% of subsidies over the period 2021-2022, i.e. 270 billion euros. “In such a scenario, the annual disbursement would be 135 billion euros for Europe, against 170 billion dollars for the United States, an effort of just over 0.8% of GDP”, calculates economist Patrick Artus (Natixis). The Union still has to keep its calendar.
Ursula von der Leyen, the President of the Commission, has just given her visa to the Portuguese and Spanish plans, and continues her continental tour with stops in Greece, Denmark and Luxembourg. But four member states have not yet submitted it to Brussels. And, in addition to validating national plans, the Commission must also affix its visa on investment files. “However, Brussels wants to avoid financing poorly structured projects, as was the case in the past. So it may take several months,” warns Ludovic Subran, chief economist of Allianz. On the American side, the first infrastructure projects could see the light of day in the first quarter of 2022. See you in a year.
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