by Thomas Fazi
Wednesday, 31
March 2021
Response
11:49

The EU falls behind America

The statistics don't lie — the bloc has been outperformed
by Thomas Fazi
Does Paschal Donohoe really believe what he has written in the Financial Times? Credit: Getty

Paschal Donohoe, the Irish finance minister and president of the Eurogroup, has written a preposterous article in the Financial Times claiming that the budgetary response of the EU and US to the pandemic has been more or less similar.

Donohoe states that “in 2020 alone, Europe implemented budgetary supports equal to 7 per cent of gross domestic product […], while the US stimulus figures [was] 10 per cent”. He thus concludes that “there is a difference, but it is not as significant as suggested by some”.

One could object to using overall budget changes (whether primary or not) to assess the fiscal stimulus in an economy, since to a certain degree the deficit increases automatically in a recession due to a fall in tax revenues. That’s why economists look at discretionary fiscal measures (spending increases and tax reductions) to assess the size and quality of an economy’s fiscal policy response.

Even using budget changes as an indicator, however, it’s not clear where Donohoe is getting his numbers from. Indeed, latest Eurostat data currently puts the EU’s current deficit (always a few notches above the euro area) at 5.8% of GDP. Considering that the EU’s deficit in 2019 was 0.6%, that’s an overall increase of around 5% in GDP — not 7%.

So where is Donohoe getting his 7% figure from? The link in the article leads to an ECB report which relays the same data, claiming a primary deficit increase for the euro area and for the US of 6.7 and 9.8% of GDP respectively.

Interestingly, the source for the euro area data is revealed to be the March 2021 ECB staff macroeconomic projections for the euro area, while the source for the US data is an October 2020 IMF report. Using data that is five months old for the US and new projections for the euro area is dodgy in itself, but we’ll overlook this detail. The point is that the ECB’s data — which puts the EU’s 2020 deficit at 7.2% (a year-on-year increase of around 6.5%) — conflicts with the Eurostat data, which puts the EU’s current deficit at less than 6% of GDP.

Even assuming that the ECB’s projections turn out to be right, the overall budget changes only tell us so much about what policymaker actively did to support the economy. For that we need to look at the discretionary fiscal measures. Now, according to the ECB’s own reports – which, funnily enough, take into account the grants from the EU’s Next Generation EU “recovery fund”, even though governments have yet to receive a single cent – the euro area’s discretionary fiscal stimulus in 2020 was 4.2% of GDP, while the US’ is put at 7.8%.

Even if these number were accurate, we’d still be looking at a discretionary fiscal stimulus in the US that is double the EU’s. Not exactly the small difference claimed by Donohoe.

However, even those numbers are dubious. Indeed, the IMF’s Fiscal Monitor Database of Country Fiscal Measures in Response to the Covid-19 Pandemic, which calculates the discretionary measures enacted by governments, offers a very different picture.

The IMF puts the EU’s discretionary fiscal stimulus at a paltry 3.8% of GDP, compared to a massive discretionary fiscal stimulus of 16.7% of GDP in the US — four times larger than the EU’s. Now, the discrepancy may have to do with the fact that the ECB (suspiciously) chose to use data dating back to October for the US, which wouldn’t account for the latest US budgetary measures. But this is the most updated comparative data we have, from a reliable source.

To conclude, the fiscal response of the EU and US is not even remotely comparable. The truth is that throughout the pandemic the UE/euro area has proven once again to be utterly dysfunctional, in macroeconomic as well as in organisational terms — just look at the vaccine roll out.

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Marcus Leach
Marcus Leach
1 year ago

It’s a sad reality that former publications that I used to regularly buy, such as the FT and Economist, have greatly debased their reputations by their fanatical support for the European Union.
The quality of the analysis in general has deteriorated precipitously. However, when the EU and Brexit are the subject, the shoddy partisanship is unbearably crude.

Last edited 1 year ago by Marcus Leach
George Bruce
George Bruce
1 year ago
Reply to  Marcus Leach

I used to think that the FT and the Economist were the most reliable, because a lot of the people reading them wanted information to base financial decisions on, and they would dump a publication that constantly misled them.
I have never been a regular FT reader, so have no comment to make on it, but I did read the Economist a lot, until I started noticing how ideological it had become.

Brendan O'Leary
Brendan O'Leary
1 year ago
Reply to  George Bruce

Those decision-makers whose own money is at stake have long since dumped the Economist and FT.
The new readers are innumerate Guardian types who think they know The Economy just like they think they know The Science.
the only economic decisions these people get to make involve OPM with no consequence for themselves.

Fraser Bailey
Fraser Bailey
1 year ago
Reply to  Marcus Leach

Yes, I gave up on The Economist and FT some years ago. They are both abhorrent.

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Fraser Bailey

I agree. The super elite who own the global money supply get more power and wealth no matter which party is in, Republican/Conservative, or Democrat/Lbour, it makes no difference as they control the global debt markets, and all economic activity is debt based – and they own the parties by being the ones who control campaign funds and party backing.

The difference is the flavor of how us, the people, are managed by the parties. The Left would have us all poor and controlled because we all would be dependent on gov handouts, wile the right would have the middle class be free and independent. This makes no difference to the Elites.

Thus the Economist and FT are not into Middle class, Working class, wealthy social issues, as they cater to finance, and finance is the Bit** of the elites, so how ‘We’ are doing does not matter to them.

Thus really The Economist and FT are really New World Order, Great Reset, supporters an that is the direction the global elites have sided towards.

Ian Barton
Ian Barton
1 year ago
Reply to  Marcus Leach

I have been reading the Economist for 40 years, and even though I agree with your partisanship comment, I think it is still more reliable for factual content than most other publications – so I accept the compromise.

Last edited 1 year ago by Ian Barton
Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Ian Barton

Did they call the 2008 bank collapse? Did they call the 1999 Tech (dot com) 80% collapse? Did they call the 1980 super recession? the 1929?

No, they give you the info to make the day to day guesses, but Recession is merely Harvesting worker’s savings by the super rich, and you have to be part of that crop which is taken by those events.

I tend to believe Harry Dent, Peter Schiff (youtube), and see the 60% collapses sometime by 2022. My current theory is to have my money in 30 year Treasures, to be pulled out so I can buy in at the bottom, (but I know this means I may miss the bull ride of a lifetime as Biden prints and prints, and all the world is caught up in the $ Global Reserve Currency deal) (IMF just printed half a Trillion more SDR paper!)

Terry M
Terry M
1 year ago
Reply to  Galeti Tavas

Peter Schiff called the 2008-9 collapse, but has been predicting another one for more than 10 years now. I’ve lost faith in his predictions, although his fiscal advice is solid.

Ian Barton
Ian Barton
1 year ago
Reply to  Galeti Tavas

I fully agree that economists (and their magazines) aren’t great at predicting, but at least the Economist had the dignity to suggest that Nigel Farage deserved a peerage – despite their editorial line being anti-Brexit.

Fraser Bailey
Fraser Bailey
1 year ago

You would have to Andrew Adonis to believe any figures produced by the EU or its fellow travellers. (And I write as one who was once one of the EU’s fellow travellers).

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Fraser Bailey

Fiscal or Monetary stimulus? As USA created 20% – 40% of all dollars ever produced in 2020, (depending on who you listen to)
“23.6% of All US Dollars Were Created in the Last Year”
2020″By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities”

Biden 2021 1.9 Trillion, coming soon 3-4 Trillion green deal,

Come on writer, give us the real story.

Jonathan Finger
Jonathan Finger
1 year ago

The premise of the article is that larger deficits and larger stimulus is better is open for debate. The US just passed a “stimulus” bill that is not only unnecessary, but has little to do with stimulating the economy.

All this money has to be paid back at some point.

Fraser Bailey
Fraser Bailey
1 year ago

None of this money will ever be paid back. Nor does it have to be.

Ernest DuBrul
Ernest DuBrul
1 year ago
Reply to  Fraser Bailey

Mr. Bailey–
Exactly! The interest in the only thing that must be paid. Aye, there’s the rub!

Galeti Tavas
Galeti Tavas
1 year ago
Reply to  Fraser Bailey

THIS MONEY IS PAID, BY THE MERE FACT IT IS PRINTED. The printing inflates the money supply, which, unless it also inflates production, means each dollar is devalued. Same goods – More Money = money worth less.

Interest rates drop, and that kills pensions and savings, and inflates stock prices, and that deflates real pensions. Also the WFH and on line shopping means commercial real estate may collapse, and pensions are a big part of that. Pensions are F** *ed.

Printing Monetary stimulus means money with no velocity, and money without velocity is mere taxation on savings as it goes somewhere, and that is to the stock market mostly, inflating stock prices, decreasing dividends, and will be corrected. It also drops interest, and that is a tax on money savings. And if it is merely inflated away, then so are your savings, and if it is paid back it is out of taxes, and so by you. The mega rich got the money – you pay it.

Terry M
Terry M
1 year ago

Yes, in fact the EU has performed better than the US if it indeed printed fewer Euros than we did dollars. This author has it exactly backwards on that score. The US has done better by imposing fewer economy-strangling lockdowns.
House prices have popped 30% in many locations in just the past year. This is partly plague driven as people abandon the hell-hole liberal cities, but is also inflated by the spendthrift ways of the Fed. We are doomed to a cataclysmic crash; I feel for my kids and grandkids who will be the ones to suffer.

Joe Lynn
Joe Lynn
1 year ago

It’s adorable when someone like the author above tries to ‘do statistics’. Lack of basic understanding of statistics is rather amusing.