A2| Monday, December 7, 2020 **** THE WALL STREET JOURNAL.
U.S. NEWS
ECONOMIC
CALENDAR
Tuesday:Economists expect
China’s exportsaccelerated in
November as surges in Covid-
cases in Europe and the U.S.
supported demand for medical
and other goods. Already, data
from China’s official purchasing
managers index show export or-
ders improved in November, sup-
porting growth in the factory
sector.
Thursday:TheEuropean
Central Bankis set to offer
more support to an economy
that has been struggling through
another round of restrictions
meant to control a new surge of
Covid-19 cases. The central
bank’s latest stimulus package
could include billions more of
bond purchases as well as an in-
terest-rate cut and cheaper
loans for banks.
U.K. gross domestic product
in October may have contracted
for the first time since April as
the government, businesses and
consumers responded to rising
cases of Covid-19. Britain is one
of the few major world econo-
mies to report monthly GDP,
which offers a timely window
into economic trends shaping
the region.
U.S.initial claims for unem-
ploymentbenefits are expected
to have ticked higher in the
week ended Dec. 5, payback for
some seasonal-adjustment is-
sues during the Thanksgiving
week but also a reminder that
layoffs remain historically ele-
vated.
U.S.consumer pricesare ex-
pected to have increased only
modestly in November, reflecting
weak demand and plenty of
slack across the American econ-
omy as businesses and house-
holds navigate the coronavirus
pandemic.THE WALL STREET JOURNAL
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interest rates low.
As a consequence, govern-
ments aren’t as worried
about a potential surge in
borrowing costs as they
were a decade ago.
A key attraction of the re-
covery fund is that it would
give Europe a capacity the
U.S. has long taken for
granted regarding its states
and regions: the ability to
transfer funds within the
bloc to the parts that have
suffered most.
Secondly, the ECB is now
openly setting policy to
make it easier for govern-
ments to spend more. By
buying their bonds, the bank
helps keep borrowing costs
down, making it cheaper to
provide fiscal stimulus.
“In these circumstances, itis crucial that monetary pol-
icy ensures favorable financ-
ing conditions for the whole
economy: private and public
sectors alike,” ECB President
Christine Lagarde said in a
speech last month.
That is in stark contrast
to the message from one of
her predecessors, Jean-
Claude Trichet, who regu-
larly urged governments to
cut spending, and in some
cases threatened to cut off
support for a country’s
banks if they didn’t.T
he ECB is now encour-
aging governments to
spend freely in part
because its own ability to
provide interest-rate stimu-
lus has been weakened by
lowering rates so much afterTHE OUTLOOK|By Paul Hannon
Europe’s Pandemic Rx: Spend More
Europe
hopes to spur
an economic
recovery from
the pandemic
by boosting
government spending, a shift
in strategy from the 2008 fi-
nancial crisis that econo-
mists say could lift the
global economy.
Two events in the coming
week are set to underscore
the change.
First, European Union
leaders on Thursday will be-
gin a series of virtual meet-
ings aimed at gaining final
approval of a €750 billion
fund, the equivalent of $
billion, borrowed by the bloc
as a whole to aid countries
hit hardest by the pan-
demic’s effects.
The European Central
Bank the same day will al-
most certainly announce an
expansion of its bond-pur-
chasing program, with the
explicit aim of keeping down
borrowing costs for govern-
ments, thereby enabling
them to spend more freely.
That combination is in-
tended to place government
spending at the heart of ef-
forts to stimulate Europe’s
economy in 2021 and be-
yond.
“This is money that we
are borrowing from future
generations,” said European
Commission President Ursula
von der Leyen in a speech
last month. “We want to use
it not only to recover, but to
come out of the crisis with a
better economy: greener,
more digital, more resilient,
fit for the next generation.”
Compared with the EU’s
policy approach after the
2008 financial crisis and up
until 2015, “this seems to me
to be a paradigm shift,” said
Vivien Schmidt, a professor
of politics at Boston Univer-
sity. There are two major
differences.F
irst, the recovery fund
aims to boost spending
by governments in
countries such as Italy and
Spain that already have high
levels of debt and are reluc-
tant to borrow more.
A decade ago, the EU in-
stead pressured governments
in that position to cut spend-
ing, arguing that would build
confidence among investors
and lead to lower borrowing
costs for businesses. That
didn’t happen.
Instead, economists say,
weak growth in southern Eu-
rope made bond investors
more nervous, pushing bor-
rowing costs higher. Europe
soon slid into an economic
contraction from early 2012
through mid-2013, when it
emerged with even higher
debt relative to economic
output.
Over recent years, interest
rates on European govern-
ment bonds have fallen
sharply, even for countries
such as Greece. Global sav-
ings are high compared with
investments, while central
banks have become signifi-
cant purchasers of govern-
ment bonds, helping to keepthe last crisis. The central
bank in October left its key
interest rate at minus 0.5%.
While all 27 EU member
governments agree the tem-
porary recovery fund is
needed now, some are wor-
ried it will become a perma-
nent tool, encouraging a
dangerous buildup of debt.
Germany’s central bank
has long been one of Eu-
rope’s most powerful voices
in warning of the perils of
too much government bor-
rowing.
In a speech last month,
the central bank’s president,
Jens Weidmann, accepted
the need for the recovery
fund, but said governments
must again aim for “fiscal
soundness” after the pan-
demic has passed.
The fund’s supporters
generally agree that bor-
rowed money will be wasted
if governments don’t adopt
structural changes to make
them more competitive.
The eurozone’s economy
has been among the hardest
hit during the pandemic.
With infections on the rise,
new restrictions came into
forceattheendofOctober,
and economists expect gross
domestic product to fall in
the current quarter from the
three months through Sep-
tember.
Even with the recovery
fund in place, economists
generally forecast that a re-
turn to levels of economic
activity recorded at the end
of last year is unlikely before
early 2023.TheeurozonerecoveredmuchmoreslowlythantheU.S.fromthe
2008financialcrisis,andithopesincreasedspendingwillhelpit
dobetterafterthepandemic.Grossdomesticproduct,quarterlySource: Organization for Economic Cooperation and DevelopmentNote: Seasonally adjusted$12131415161718trillion2008 ’09 ’10 ’11 ’12 ’13 ’14 ’U.S.Eurozoneappropriations committee had
been signaling last week that
the full-year spending bill
needed more work and likely
wouldn’t be ready by the
deadline. Republicans and
Democrats have been hashing
out differences over funding
for construction of the wall
along the border with Mexico,
detention beds for immigrants
and environmental provisions,
among other matters.
House Speaker Nancy
Pelosi (D., Calif.) and Senate
Majority Leader Mitch McCon-
nell (R., Ky.) said last week
that they hoped to attach vi-
rus relief to the full-year
spending package, a compen-
dium of the 12 bills needed to
fund the government known
as an omnibus.
“He and I, being appropria-
tors, know that if you are go-
ing to do that, you have to
have an omnibus bill,” Mrs.
Pelosi said. “And so, we have
to work through all of the
provisions that are still unre-
solved there. We’re makingprogress.”
Meanwhile, an expanding,
bipartisan group of lawmakers
has been trying to settle on a
coronavirus relief agreement
to help businesses and fami-
lies through March. Lawmak-
ers and aides said Sunday that
they hoped to have legislative
text ready early this week.
A bipartisan group of law-
makers last week unveiled a
$908 billion framework for an
emergency relief package that
would provide $180 billion for
unemployment insurance, in-
cluding $300 a week through
March in enhanced benefits.
The framework also includes
$288 billion for small-busi-
ness relief, including for the
Paycheck Protection Program;
$16 billion for the distribution
of a coronavirus vaccine; $
billion for schools; and $
billion for rental assistance,
according to lawmakers and
aides. Democratic leaders
swiftly said it should become
the basis of renewed negotia-
tions.“It would be what I call stu-
pidity on steroids if Congress
doesn’t act, and we are going
to keep at it,” Sen. Mark War-
ner (D., Va.), part of the group
that introduced the bipartisan
proposal, said Sunday on CNN.
Lawmakers worked over
the weekend, including a
three-hour call on Sunday, to
hash out the details of some
of the most contentious com-
ponents: rental assistance,
$160 billion in funding for
state and local governments,
which Democrats have long
sought, and a short-term lia-
bility shield for businesses
and other entities operating
during the pandemic. Mr.
McConnell has made clear that
legal protections for busi-
nesses, health-care providers
and schools are one of his top
priorities.
Democrats have long op-
posed the idea of extending
additional legal protections to
employers, pushing instead for
legislation that would bolster
safety standards for workers.WASHINGTON—Lawmak-
ers expect to pass a one-week
spending bill soon that would
keep the government funded
through Dec. 18 and buy more
time for complex, year-end ne-
gotiations on a long-term fund-
ing measure and virus relief.
Congressional leaders had
hoped to pass a full-year
spending bill this week, before
the government’s current fund-
ing runs out at 12:01 a.m. Sat-
urday. But lawmakers are still
ironing out disputes over both
the sprawling spending bill
and a Covid-19 relief package
that they hope to attach to it.
On Sunday, a House Demo-
cratic leadership aide said
lawmakers would likely vote
this week on a one-week con-
tinuing resolution, or short-
term spending bill. Leaders
want to combine a coronavirus
aid package with the full-year
spending bill, both of which
require some more time.
Senior lawmakers on the
BYKRISTINAPETERSON
Lawmakers Look to Interim Funding
Villeret
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