Spain: Beyond the economic and social crisis, opportunities to be seized

by Christine Rifflart

Spain has been hit hard in 2020 by the Covid-19 health crisis, which the authorities are struggling to control, accompanied by an economic recession that is one of the most violent in the world (GDP fell by 11% over the year according to the INE)[1]. The country’s unemployment rate reached 16.1% at the end of last year, a rise of 2.3 points over the year despite the implementation of short-time work measures. The public deficit could exceed 10% of GDP in 2020, and the public debt could approach 120% according to the Bank of Spain’s January 2021 forecasts. Europe has enacted large-scale support programmes for affected countries, and as one of these Spain will be the country receiving the most EU-level aid. It will benefit from at least 140 billion euros, with 80 billion of that (i.e. 6.4% of 2019 GDP) taking the form of direct transfers through the NextGenerationEU programme.

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Innovation and R&D in Covid-19 recovery plans: The case of France, Germany and Italy

by A. Benramdane, S. Guillou, D. Harrich, and K. Yilmaz

Economies have been dramatically affected by the pandemic of Covid-19 in 2020 (OFCE, 2020). In response, several emergency measures have been undertaken by governments to support the people and the firms that were directly and strongly hit by the lockdowns. After the first shock in spring 2020, which had an international dimension, all economies experienced a decline in their production which jeopardizes their future and the wellbeing of their population. In the near future, bankruptcies and unemployment are expected to increase and the slowdown of private investment will minor both quantitatively and qualitatively the future capacities of production. Meanwhile, the huge rise in public debt will complicate the States’ ability to invest and promote long term growth through public investment. To cope with this dismal future, in addition to emergency measures, many governments have implemented recovery plans to boost and support the economy and to sustain a return to previous levels of wealth. Some governments try, through the recovery measures, to orient their future growth toward specific objectives. In the EU, the Resilience Recovery Facility (RRF), which aims to finance part of EU members’ plan, is adopting this stance by demanding that part of member’s plan will include at least 20% of measures dedicated to digital improvement and 27% dedicated to green investment.

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What more could the central banks do to deal with the crisis?

By Christophe Blot and Paul Hubert

The return of new lockdown measures in numerous countries is expected to slow the pace of economic recovery and even lead to another downturn in activity towards the end of the year. To address this risk, governments are announcing new support measures that in some cases supplement the stimulus plans enacted in the autumn. No additional monetary policy measures have yet been announced. But with rates close to or at 0% and with a massive bond purchase policy, one wonders whether the central banks still have any manoeuvring room. In practice, they could continue QE programmes and increase the volume of asset purchases. But other options are also conceivable, such as monetizing the public debt.

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Central bank asset purchases: Inflation targeting or spread targeting?

by Christophe Blot, Jérôme Creel, and Paul Hubert

Five years after the ECB launched its asset purchase programme (APP), the Covid-19 crisis has put the ECB again at the center of euro area attention, with a new extension of APP and with the creation of the Pandemic Emergency Purchase Programme (PEPP). The simultaneity between APP’s extension and PEPP – they were decided within a two-week interval – could be interpreted as arising from the pursuit of the same objective. This interpretation may be misleading though and may bias the respective appraisal of these policies.

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Europe’s recovery plan: Watch out for inconsistency!

by Jérôme Creel (OFCE & ESCP Business School) [1]

On 27 May, the European Commission proposed the creation of a new financial instrument, Next Generation EU, endowed with 750 billion euros. The plan rests on several pillars, and will notably be accompanied by a new scheme to promote the revival of activity in the countries hit hardest by the coronavirus crisis. It comes on top of the Pandemic Crisis Support adopted by the European Council in April 2020. A new programme called the Recovery and Resilience Facility will have firepower of 560 billion euros, roughly the same amount as the Pandemic Crisis Support. The Recovery and Resilience Facility stands out, however, for two reasons: first, by the fact that part of its budget will go to grants rather than loans; and second, by its much longer time horizon.

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Sweden and Covid-19: No lockdown doesn’t mean no recession

By Magali Dauvin and Raul Sampognaro, DAP OFCE

Since the Covid-19 pandemic’s arrival on the old continent, a number of countries have taken strict measures to limit outbreaks of contamination. Italy, Spain, France and the United Kingdom belatedly stood out with especially strict measures, including lockdowns of the population not working in key sectors. Sweden, in contrast, has distinguished itself by the absence of any lockdown. While public events have been banned, as in the other major European countries, there were no administrative orders to close shops or to impose legal constraints on domestic travel[1].

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Effets contrastés des mesures de confinement au mois d’avril

Magali Dauvin et Paul Malliet

Dans les différents Policy Brief qui ont été publiés par l’OFCE depuis le déclenchement de la Covid-19[1], nous avons fait le choix méthodologique de fonder notre analyse à partir des tables input-output de la base de données entrées-sorties WIOD[2] publiée en 2016. Cette dernière permet de pouvoir évaluer l’impact sur la valeur ajoutée au niveau sectoriel (nomenclature NACE à 17 produits) du choc mondial de confinement que plusieurs observateurs ont qualifié The Great Lockdown.

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Germany on the slippery slope of the research tax credit

by Evens Salies and Sarah Guillou

After years of hesitation, the German parliament has just introduced a tax scheme to promote investment in R&D. The decision precedes the Covid-19 crisis, but it may well be heaven-sent for German business.

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How to spend it: A proposal for a European Covid-19 recovery programme

Jérôme Creel, Mario Holzner, Francesco Saraceno, Andrew Watt and Jérôme Wittwer[1]

The Recovery Fund recently proposed by the EU Commission marks a sea-change in European integration. Yet it will not be enough to meet the challenges Europe faces. There has been much public debate about financing, but little about the sort of concrete projects that the EU should be putting public money into. We propose in Policy Brief n°72 a 10-year, €2tn investment programme focusing on public health, transport infrastructure and energy/decarbonisation.

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The COVID-19 crisis and the US labour market: Rising inequality and precariousness in perspective

By Christophe Blot

In the United States as in France, the COVID-19 crisis has led to numerous measures restricting economic activities intended to limit the spread of the virus. The result will be a fall in GDP, which is already showing up in figures for the first quarter of 2020, and which will be much steeper in the second quarter. In a country noted for its weak employment protection, this unprecedented recession is quickly having repercussions on the labour market, as reflected in the rise in the unemployment rate from a low point of 3.5% in February to 14.7% in April, a level not seen since 1948. As Bruno Ducoudré and Pierre Madec have recently demonstrated in the case of France, the current crisis in the United States should also result in heightened inequalities and insecurity. And the shock will be all the greater in the US since the social safety net is less extensive there.

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