Eye of the Storm

By Atif Shamim Syed | July 2020

Millions of people have been affected by the coronavirus in Europe and around the world. But the actual damage caused by the pandemic – from the perspective of healthcare, economy and society – is still unknown, and will become clear with the passage of time.

The European Union is experiencing an unprecedented slowdown in the bloc’s economic output which is estimated to be around 7 percent. The consequent recession will be a ‘historic’ one, the likes of which have never been seen by the continent’s prosperous population.

The pandemic has affected spending, investment, supply chains, and industrial output. It has also hit the white collar workforce because of dwindling demand for goods and services. The unemployment rate around the continent is expected to rise by 2 percent.

The magnitude of the recession, and the pace of recovery – if it happens – cannot be predicted at this moment. However, one of the main factors that will contribute towards Europe’s economic revival in the coming days will be the ability of its governments to lift lockdowns in a swift and efficient manner. It will also hinge on each country’s available financial resources, and the capacity of its hardly-hit sectors to spring back into action.

The virus has hit the entire continent with variable degrees of severity in each country. Italy, Spain and Greece are the hardest-hit while Luxembourg, Austria and Malta have been spared the scathing effects of the pandemic.

Countries severely hit by the pandemic will report growing budget deficits and increasing public debt. This will affect the economic outlook of the entire bloc.

Europe’s economic shock is further aggravated by the deteriorating situation in its immediate proximity. Its neighbours to the east and south are inching towards total disaster. They are likely to upset Europe’s own prospects of a swift economic recovery.

In the aftermath of the pandemic, European countries are ill-prepared to cope with the inflow of migrants.

Countries like Turkey, Egypt and Morocco are not deemed as prosperous. They are generally regarded as middle income countries with large poor populations. These countries do not have the means or the resources to cope with the looming recession. Further, the current global economic situation has rendered it extremely difficult – if not impossible – to raise much-needed funds through credit. Lockdowns, unemployment, and loss of income will culminate in social and political instability.

This is one of the worst-case scenarios that has petrified Europe’s policy makers since 2016 when they came up with a strategy to support economic and political progress in its adjacent regions in order to bolster Europe’s own security.

It is now obvious that Europe’s worst nightmares have come to pass. The situation that is slowly emerging in its neighborhood is exactly the one that it had been seeking to avoid for years.

Tourism is one of the most vibrant revenue-generating sectors in Egypt, Jordan, Tukey, and Morocco. It contributed a sizeable percentage to the overall GDP of their respective nations. Unfortunately, tourism has taken the worst pandemic-related hit. It has all but collapsed in the aftermath of the coronavirus, resulting in widespread unemployment reaching around 7 percent. This has come at a time when there is little to no chance of capital inflows from outside.

The export sectors of all these countries are set to take drastic hits owing to the dwindling demand for consumer goods within Europe. This will result in trade imbalances and further unemployment.

Widespread protests started in Lebanon and Syria. The worsening socio-economic situation will swell the ranks of protestors. They will likely spread to other countries where large swathes of population are experiencing unprecedented economic hardships. The situation may also trigger a new wave of immigrants trying to reach Europe’s prosperous shores.

The world – and especially Europe - is at a critical juncture. There is a storm brewing in its neighborhood waiting to explode at any time. In the aftermath of the pandemic, European countries are ill-prepared to cope with the inflow of migrants.

From a strictly European perspective, the coronavirus has not created any new problems, rather, it has reinforced the existing ones. Europe’s neighborhood was never stable and prosperous to begin with. Most of the countries along the Mediterranean were already going through socio-political turmoil. The first wave of migrants that started during the Syrian civil war has already torn Europe’s socio-political fabric.

A resurgent Russia has not only positioned itself as a global power, but has also anchored itself firmly in the Middle East. Meanwhile Donald Trump has all but done away with – once widely celebrated – the Trans-Atlantic unity.

Europe is increasingly isolated as it finds itself in the eye of a storm. Unfortunately, it does not have the tools to cope with this crisis which has no parallels in history.

Brussels

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