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European recovery delayed by the pandemic

The European Union faces several challenges that will lead to a delay in its recovery from the pandemic. It is also facing a US forcefully trying to reset relations with China.

The European Union faces several challenges that will lead to a delay in its recovery from the pandemic. It is also facing a US forcefully trying to reset relations with China.

by
Charles Stanley

in Features

29.03.2021

The EU is somewhat shell-shocked by the upsurge in the virus, with difficulties procuring enough vaccine supply to make a difference. It is also taken aback by the new forcefulness of US diplomacy from a President they expected to be a friend.

When the European Council met at the end of last week there were more questions than answers. Rows over what to do about a shortage of vaccines led them into internal disputes about fair allocations of scarce product within the EU itself – as well as into further, more-public spats with AstraZeneca and the wider global community of health care companies.

Easing tensions

In the end, it appears the moderates managed to calm some of the tensions. They agreed that vaccines would be distributed according to the "population key" pro rata. Senior officials were asked to sort out speedy deliveries from the central resource in a "spirit of solidarity". They expressed concern about the serious epidemiological situation, and with regret accepted that meant continuing restrictions on cross border travel for people. They were keen to stress goods and services should continue to flow freely within the single market.

The hospitalisation and death rates have been worrying in many countries. The Czech Republic along with Slovenia and Belgium continue to have very high death rates per million people. There have now been 592,929 deaths in the EU, more than in the US which has a smaller population. All the time the vaccination rate remains low it remains vulnerable to rapid transmissions of the latest strains of this disease, compounded by the way some populations especially in Germany are tiring of lockdowns. All this points to a delayed recovery with more damage to tourism, hospitality and leisure. The summer season is now suffering from a lack of early bookings owing to the uncertainties.

The summit went on to consider the difficult foreign policy issues of Turkey and China. It now wishes to see if talks with Turkey can be progressed, claiming that Turkey has stopped illegal drilling. It hopes they can talk through the outstanding issues on Cyprus, refugees, health and the operation of the shared customs union. The EU remains very nervous about the 4 million Syrian refugees Turkey is housing close to the EU borders, but also wishes to get more compliance from Turkey under their Association Agreement and more co-operation on Cyprus and relations with Greece. The EU remains critical of Turkey's human rights record.

It reviewed digital policy and propose to try until the middle of this year to get an OECD Agreement about a digital tax. Otherwise it will press ahead with its own coming into effect on 1 January 2023. It wishes to increase integration of the data rules and data sharing in the EU and will set out more legislation to help bring this about. It envisages a more-detailed digital programme with more common data spaces and inter-operability.

China problem

Meanwhile, its actions in joining the Five Eyes Group in denouncing China over human rights may bring its own costs. Some Chinese consumers are now boycotting some western brands in protest at what they regard as unfair and untrue allegations about Chinese policy. The EU is beginning to mimic some of the Biden language about strengthening supply chains and having more local content, though there is not the same insistence on national resilience yet.

Markets favour European indices at the moment as they have plenty of scope for recovery. The indices have more of the losers from the anti-pandemic policies that have most to gain from the relaxation of lockdown. The problem is that recovery is a bit delayed – and the EU is having to adjust to a new, harsher world where it is increasingly difficult to have positive commercial relations with China and stay a good ally of the US.

The EU needs to make more progress with vaccinations, whilst hoping that the arrival of summer will help slow the virus and allow more normal economic activity. Germany is worried both about its attitude to China given the importance of exports to that country and its reliance on Russian gas, two points of disagreement with President Biden.

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