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September 24, 2020

Europe

EUROPE: Managing the pandemic – what we are watching

BY Antonio Barroso, Andrius Tursa, Carsten Nickel, Luis Cornago

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( 6 mins)

In this updated weekly piece, we provide snapshots of how selected European governments are dealing with the ongoing Covid-19 pandemic. Please do not hesitate to contact us if you want to discuss any of the countries mentioned in more detail.

Spain

  • With daily cases above 3,000, the Madrid region remains the main Covid-19 hotspot in the country (which has around 10,000-12,000 daily cases). Madrid’s regional government might introduce additional restrictions during the weekend and expand the number of areas where the freedom of movement is curtailed. A nationwide lockdown remains improbable.
  • Finance Minister Maria Jesus Montero has signaled that the draft budget for 2021 will not be sent to parliament until October. The PSOE-Podemos government needs the support of smaller parties to get next year’s accounts passed in the Congress of Deputies, which is far from guaranteed.
  • An extension of the state-sponsored furlough scheme expiring on 30 September is still likely to be adopted in the coming days.

France

  • The continued increase in daily cases (above 10,000) has led the government to announce on 23 September the creation of three new geographical categories (“alert,” “enhanced alert,” and “maximum alert”) where the incidence of the virus and ICU occupancy rates are exceedingly high.
  • New restrictions – including the potential closure of bars and restaurants – will be introduced in these areas of the country. President Emmanuel Macron remains unlikely to reimpose a nationwide lockdown.
  • According to official statistics, there are currently 1.3m workers under the state-sponsored furlough scheme, confirming a gradual decrease in its usage (they were 1.9m in July and 3.5m in June).

Italy

  • Italy has kept a second wave at bay (the rolling 7-day average of new cases is 1558) so far. However, it is still early for health experts to detect community transmission that could be spreading after the recent reopening of schools (14 September) and universities (21 September).
  • A humiliating defeat in the regional elections has triggered a new round on infighting within the Five Star Movement (M5S). While this is unlikely to put at risk the stability of the ruling coalition, intra-M5S turmoil will affect the government’s room for maneuver on the policy front.
  • Emboldened by its performance in the regional elections, the Democratic Party (PD) will seek to gain more influence on the government. This will likely include a renewed push to apply for around EUR 36bn of ESM funding – a highly contentious matter for many lawmakers across the whole political spectrum.

Germany

  • New infections keep rising gradually, now occasionally surpassing 2,500 cases per day. However, local hotspots can often still be traced back to specific events, such as a wedding party, which has triggered a dramatic increase in cases in the Westphalian city of Hamm.
  • Authorities are trying to prepare themselves for a further increase in autumn; Chancellor Angela Merkel and the heads of the 16 regional states will convene on 29 September to discuss next steps, including the setup of walk-in practices for people with coronavirus symptoms.
  • The government has agreed on the budget for 2021, which will once again be in breach of the constitutional “debt brake”; a return to the respective rule is envisaged for 2022, but next year’s Bundestag elections and the Merkel succession will raise questions around the future balance of investment and taxation in Germany.

United Kingdom

  • The number of daily new infections keeps rising, nearing the mark of 5,000 cases, while the testing regime continues to pose problems.
  • Given the worsening pandemic outlook and the limited institutional capacities in the testing and hospital systems, the government has changed course again, calling on employees to work from home, and limiting access to bars, pubs, and restaurants.
  • While the furlough scheme is still intended to run out at the end of October, three business loan schemes are now expected to be extended, shifting the political focus away from employees and back to the survival of companies as employers – a more traditional approach for a Conservative government.

Czech Republic

  • The country has among the highest rates of new Covid-19 infections per capita in Europe. As a result, the government will limit the opening hours of bars/restaurants until 10pm and tighten restrictions on public gatherings/events as of 24 September. Additional measures in the capital Prague – which is the epicenter of the disease – are expected to be adopted.
  • The worsening epidemiological situation has prompted the resignation of Health Minister Adam Vojtech (Action of Dissatisfied Citizens, ANO) earlier this week, while Prime Minister Andrej Babis (ANO) publicly apologized for the excessive easing of restrictions during the summer. The ruling party’s ratings are dropping ahead of the regional and senate (first round) elections scheduled for 2-3 October.
  • The cabinet is working on a new furlough scheme for employers based on the German “Kurzarbeit” model, which would replace the existing scheme at the start of November. A proposal to reduce personal income tax is also under consideration.

Hungary

  • The seven-day average of new daily Covid-19 infections increased by around 26% to 855. The death count (around 45) has more than doubled during the past week, while the hospital bed occupancy rate is around 53%.
  • Authorities are tightening the mask regime and stepping up restrictions on public gatherings. Catering and entertainment facilities must now close by 11pm. The government hopes that the increased healthcare capacity and previous experience of dealing with the “first wave” in spring will help sustain economic activity and public services despite the worsening outlook.
  • The moratorium on loan repayments will be extended by six months until the end of June 2021. However, the measure will apply only to various target groups, including families with children, unemployed, senior citizens, or businesses with a drop in revenue greater than 25%.

Graph of the week

EUROPE: Managing the pandemic – what we are watching 1

As the Covid-19 situation worsens in several counties, governments are putting forward new restrictive measures to combat the spread of the virus. However, public approval of these governments’ handling of the pandemic is much lower – particularly in the UK case – today than in the early days of the Covid-19 crisis. This might undermine citizens’ trust in the authorities’ actions to contain the virus. Meanwhile, positivity rates remain one of the main factors to watch in the coming weeks. In Denmark, where the number of cases has risen recently, the positivity rate has remained stable, which suggests it could be the result of more testing. The opposite is true in Spain and France, where both the number of cases and positivity rates are increasing, as well as Covid-19-related hospital admissions.

More by Antonio Barroso, Andrius Tursa, Carsten Nickel, Luis Cornago