Spring 2021 Issue - 30

Peter Frankopan, Michala Marcussen

Europe's Governments Shifting as Economic
Output Remains Muted
In a general session of this year's ULI
Virtual Europe Conference, Peter Frankopan, a
professor of global history at Oxford University,
said that while many experts had been warning about the possibility of a global pandemic,
the lack of preparation and detection added
to its toll once the pandemic arrived.
" I was in Downing Street, advising the
prime minister's office in December 2019, and
I was asked what were the biggest challenges
facing the world in the next decade, " Frankopan noted. " And I said the biggest challenge
was a pandemic and our lack of awareness
and preparation for it. "
As part of the same discussion, Michala
Marcussen, group chief economist and head
of economic and sector research at Société
Générale, said, " What we've seen from this
crisis is truly exceptional. . . . It's raising quite
a few questions on our behaviors. If we think
back to the global financial crisis, we were not
in the same way questioning how we live and
work to the same magnitude. "
Marcussen did point to some improving
economic indicators. She pointed out that
gross domestic product (GDP) in France during
the first lockdown-or confinement, as the
French describe it-was 30 percent below the
fourth quarter of 2019. However, GDP in the
last quarter of 2020 was just 8 percent below
the same period in 2019.
" Now, the reason for those differences
was very much about what the government
allowed to continue to function during the
second confinement period, which was
keeping industry and construction open, "
Marcussen said. " Nonetheless, an economy
operating at 8 percent below its normal levels
is still very severe and has a devastating economic impact. "
Marcussen also pointed out that vaccination programs should allow economies to
open relatively soon and that government
support throughout the pandemic meant that
capacity had been protected, which would
support the recovery. " This temporary economic support during the social distancing
measures has basically allowed us to protect
our productive capacity, " she said.
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" When the economy is opened up again,
we see the economy restarting fairly
quickly. I think it's very important that
as we lift these various social distancing
measures, we get the right balance in
terms of easing the temporary support-
not too quick, but not too late either. "
-MICHALA MARCUSSEN, SOCIÉTÉ GÉNÉRALE
" And what we've also seen-and we
observed this last summer-is when the economy is opened up again, we see the economy
restarting fairly quickly. I think it's very
important that as we lift these various social
distancing measures, we get the right balance
in terms of easing the temporary support-not
too quick, but not too late either. "
Marcussen said that countries must accept
that there may be other pandemics in the
future. " We need to prevent a new crisis, "
she said. " We need to think about how we
can prevent new pandemics. And we need to
think about how we can be better prepared
to meet pandemics when they do happen. I
think we do have to recognize that that risk is
absolutely there. "
Marcussen warned that some jobs would
be permanently lost to the pandemic and said
that helping children and young people catch
up on lost education needed to be made a
priority. However, she added that she was
encouraged by the fact that most governments are putting the green agenda at the
heart of their recovery strategies. " In terms
of securing that longer-term recovery, we're
seeing a lot of governments think about the
green transition and this is something that I
very much welcome-also in terms of the digital transition, " she said.
Many governments have been talking about
investing in infrastructure, including green
infrastructure. Marcussen welcomed this but
warned that it would need to work alongside
shorter-term stimulus measures due to the
long time frames involved in infrastructure

projects. It typically takes three to eight years
to plan an infrastructure project plus three to
seven years to build it out.
" So, if we're thinking about getting the
recovery on track-hopefully in 2022-you
can appreciate that those lead times don't
make that type of policy a very good option
for short-term recovery. That's not to say we
shouldn't do it, because we need to think
about the medium to longer term as well. But
in the short term, what we're seeing is that
governments are focusing on other types of
policy support and also focusing very much
on upgrading existing infrastructure, which
can be done at a quicker pace. "
Marcussen said that maintaining low interest rates could lead to problematic inflation,
but she acknowledged that rates needed to
be kept low initially to support the recovery.
" I would expect to see the economy's restart
quite quickly, but I think the recovery behind
will be a slow and choppy one, " she said. " I
think we'll still be in a fairly low-interest-rate
environment for quite a long time. "
For Frankopan, one of the biggest questions
regarding the long-term impact of the crisis
relates to governance. Asian economies are
emerging from the pandemic with far lower
levels of public debt than their European counterparts and have been generally seen as being
more successful at protecting their citizens from
the virus. Moreover, countries in eastern Europe
are suffering from a brain drain to the West,
which was already hampering growth before the
pandemic struck. All of that combined could see
countries moving away from liberal democracy.
" Countries like Poland and Hungary [are]
going in another direction of looking for much
more radical types of governments, looking
towards Asia for its models, " he said. " And
that involves compromises around the press
freedoms, around freedom of speech . . . what
normal looks like. I think that Asian models
look attractive to lots of people for a reason. "
He added: " Ultimately, it will come down to
how good our central bankers are. How good are
the brains who work for the government? UL
A D A M B R A N S O N is a journalist based in London.

SPRING 2021

3/31/21 7:07 PM

Spring 2021 Issue

Table of Contents for the Digital Edition of Spring 2021 Issue