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Riding to the rescue

Rachana Shanbhogue: finance editor, The Economist

The European Commission will turn on the spending taps—and become mightier
as a result

The view in Brussels

EUROPE’S ECONOMY is hobbling into 2021. The pandemic hit it hard and southern
economies have suffered the most. Output in Italy and Spain shrank by a tenth or more
in 2020. As furlough schemes are pared back, unemployment could well reach 20% in
Spain. By comparison Germany, with its downturn of 5% in 2020, will seem to have
escaped relatively unscathed.

This north-south divergence would once have spelt disaffection with the European
Union and caused strains on the currency union, especially as southern countries,
burdened by high levels of public debt, have much less capacity to stimulate their
economies than northern ones. But 2021 will bring a break with the past. For the first
time the EU itself will act to redress the balance, through its €750bn ($888bn) recovery
fund, which will be financed by debt issued by the European Commission and jointly
backed by its member states. It will begin doling out the dosh through loans and grants.