Abstract
This paper discusses the uneven consequences of the macroeconomic fallout from the Coronavirus and related economic policy responses against the background of an analysis of longer-term macroeconomic divergence in the Eurozone. We show that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account will suffer from limited impact in the medium to long run.
Highlights
The Coronavirus and the resulting lockdowns and economic restrictions are severely testing the structural resilience of European economies
While this article focuses on the latter aspect—by asking how the Corona crisis may contribute to the amplification of economic polarisation within the Eurozone—a common observation worth spelling out in both the domestic as well as in the European context is that existing social divisions limit the collective resilience of societies in public health terms
The analysis above suggests that—in the absence of adequate coordinated European policy interventions—the Corona crisis will contribute to a further deepening of macroeconomic divergence and structural polarisation between Northern and Southern Eurozone countries
Summary
The Coronavirus and the resulting lockdowns and economic restrictions are severely testing the structural resilience of European economies. While this article focuses on the latter aspect—by asking how the Corona crisis may contribute to the amplification of economic polarisation within the Eurozone—a common observation worth spelling out in both the domestic as well as in the European context is that existing social divisions limit the collective resilience of societies in public health terms In both contexts, weaker actors are hit harder, but have fewer resources and leeway to cope with the immediate consequences of the crisis. Government spending is forecast to increase more in the Northern Eurozone countries, reflecting a stronger response by automatic stabilizers as well as bigger discretionary efforts to counteract the Corona crisis (see Fig. 2) Against this background, there is a risk that—under current institutional conditions—Italy and other Southern Eurozone countries will be able to finance only the most urgent measures, while Northern Eurozone countries with a better starting position—especially Germany, Austria or the Netherlands—have more fiscal space to support a rapid recovery once the economy is jump-started. The present paper highlights that increased macroeconomic polarisation in pre-Corona years has fuelled political polarisation, which has become visible in recent Corona policy debates concerning the appropriate response to
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