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August 19, 2020

Europe

EUROPE: The differences between two waves

BY Antonio Barroso, Carsten Nickel, Luis Cornago

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( 5 mins)
  • European governments will only resort to nationwide lockdowns as a last resort.
  • Countries will probably continue failing to coordinate their border policies.
  • The coming days are crunch time for crucial decisions, such as whether to extend furlough schemes.

As the number of Covid-19 cases resurges across some European countries, governments are resorting to incremental solutions to try containing new outbreaks of the virus. These range from localized lockdowns introduced by regional and local authorities to the imposition of additional restrictions on social activities. The common thread to these measures is the apparent desire to avoid having to introduce a nationwide lockdown at all costs, given their unpopularity (see graph below) and the associated economic costs.

EUROPE: The differences between two waves 1

Beyond the obvious political and economic concerns, the evolution of the pandemic is also changing the incentives government face. The new cases seem to be affecting a larger proportion of younger individuals than at the height of the pandemic, and the number of deaths and hospitalizations remains far below its peak in mid-April. As a result, public authorities across Europe prefer to maintain or re-introduce incremental restrictions on social life in the hope that lockdowns can be avoided for as long as possible.

Capacity issues linger

Whether such a strategy will work will probably be contingent on the ability of countries to test individuals and trace new cases to contain the spread of the virus. Most countries have substantially increased their testing capabilities and put contact tracing systems in place, but capacity remains uneven. For instance, the new outbreaks in Spain revealed that some of the most populated regions such as Catalonia and Madrid had not sufficiently increased the staff devoted to contact tracing (their governments have tried to boost the numbers since). In terms of technology, the apps developed by countries such as Ireland and Germany have been downloaded by a large number of users. In contrast, the take up of apps such as the ones developed by the French authorities has been limited (and countries such as the UK have not even deployed one yet).

In other words, doubts remain about the ability of some countries to contain a second wave. To be sure, the supply of personal protective equipment (PPE) and respirators no longer seems to be an issue, and health authorities across the continent have stepped up their ability to expand the availability of intensive care. But governments would be under pressure to re-introduce certain restrictions on free movement if the number of hospitalizations was to increase again suddenly.

Meanwhile, an area where limited change seems to have taken place is the lack of coordination regarding the management of borders. European governments continue to take unilateral decisions regarding arrivals from abroad, from imposing quarantines to testing travelers upon entering the country. Were the pandemic to worsen, it is unlikely that policymakers would coordinate any decisions to implement border restrictions, despite the insistence of the European Commission and countries such as France.

Decision time

The rising number of cases is also going to make it more difficult for governments to deal with politically sensitive issues, such as reopening schools. Unlike at the beginning of the pandemic, there seems to be an overwhelming public consensus in favor of schooling (see graph below). But it is unclear whether school systems have the capacity to deal with the logistical requirements that socially distanced education requires. In fact, the restart of classes over the coming days has led some teacher unions to ask for a delay of the restart of the classes (e.g., in France) while others have even been organizing strikes (e.g., in the Madrid region in Spain).

EUROPE: The differences between two waves 2

On the economic front, several of the furlough arrangements that have been extended over the summer expire at the end of September. As unemployment numbers continue to deteriorate, governments have an incentive to maintain some kind of support scheme. But apart from the associated costs, there are concerns that support for short-term employment might also disincentivize a return to full-time work, while preventing the reallocation of resources across the economy. However, the phasing out of furlough schemes assumes a return to normal economic activity for most sectors, which is increasingly uncertain. Therefore, while most governments will most likely extend at least some of the existing support mechanisms, the main question is whether they will have the ability to fine-tune them enough to efficiently target those sectors and citizens most in need.

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