A high proportion of the economy is practically closed and forecasts about its openness or survival are unreliable. We only “know that we do not know”, in the popular expression of Donald Rumsfeld, neither the duration nor the severity of the pandemic.
We begin to know, however, that they will follow changes in consumption patterns and production models: electronic commerce, teleworking, virtual meetings, which also coincide with the objectives of digitization and ecological transition, for which the EU is going to allocate considerable resources in order to improve connectivity, promote electronic commerce, especially in SMEs, and promote efficient and responsible use of data as a driver of innovation.
It is digitization for the environment and transport, as well as for the agri-food and health sector. It also includes an action plan to improve connectivity in schools and a new cybersecurity strategy at the EU level. That is the goal, but to get there key objectives remain to be met, of which the most important, with a cyclist simile the queen stage, is to close the production gap in the economy of the EU and that of the United States.
In times of crisis, the private sector cuts consumer and investment demand and a production gap is generated between aggregate demand and supply. To solve this, they resort to an expansion of expenses and the postponement or cut of taxes, and thus protect the most vulnerable and avoid the destruction of productive capacity.
The two economies follow this policy of expanding expenditures, although there is a big difference between US and EU aid. The output gap in the United States is $ 900 billion, while in the EU it is one trillion euros. The Eurozone entered the crisis a year ago with a production gap of negative 2-2.5% and the United States zero. In 2020, the hit in demand in the EU economy has been stronger than in the United States.
Given the severity of the crisis and the high uncertainty that surrounds it it is preferable to increase the stimuli than to have to regret not having done it, but that does not seem to be the opinion of the authorities.
The American government has launched a fiscal stimulus plan of $ 2.8 trillion, including the $ 1.9 million Biden Plan; added the volume of 200,000 million dollars in automatic stabilizers (taxes on corporate profits, workers’ income, unemployment benefits …) the United States has injected into its economy two and a half times its total output gap.
That is one of the reasons why the markets are expecting an increase in inflation and that bond yields have risen, expectations that the Federal Reserve and the ECB want to reduce at all costs.
These figures contrast strongly with those of the Eurozone, which plans to inject 420,000 million euros this year and with automatic stabilizers, close to 300,000 million euros, only 70% of the gap would be covered.
In any strategic plan must be combined aspirations and capabilities. The aspiration to be a digital economy is laudable, but the capacities to achieve it need to be further strengthened.