Today, the European Commission approved a fourth contract with pharmaceutical companies BioNTech and Pfizer, which provides for the initial purchase of 200 million doses on behalf of all EU Member States, plus an option to request up to a further 100 million doses, to be supplied once a vaccine has proven to be safe and effective against COVID-19. Member States can decide to donate the vaccine to lower and middle-income countries or to re-direct it to other European countries.
Today’s contract with the BioNTech-Pfizer alliance builds upon the broad portfolio of vaccines to be produced in Europe, including the already signed a contracts with AstraZeneca, Sanofi-GSK and Janssen Pharmaceutica NV, and the concluded successful exploratory talks with CureVac and Moderna. This diversified vaccines portfolio will ensure Europe is well prepared for vaccination, once the vaccines have been proven to be safe and effective.
President of the European Commission, Ursula von der Leyen, said:  “In the wake of Monday’s promising announcement by BioNTech and Pfizer on the prospects for their vaccine, I’m very happy to announce today’s agreement with the European company BioNTech and Pfizer to purchase 300 million doses of the vaccine. With this fourth contract we are now consolidating an extremely solid vaccine candidate portfolio, most of them in advanced trials phase. Once authorised, they will be quickly deployed and bring us closer to a sustainable solution of the pandemic.”
Stella Kyriakides, Commissioner for Health and Food Safety, said: “A safe and effective vaccine is the only lasting exit strategy from the pandemic, and is at the centre of our European Vaccine Strategy. Today’s agreement follows the encouraging first indications from the clinical trial results and is further evidence of our commitment to putting more Europe in the area of health. It is a very telling example of what the EU can achieve when working together, as a Union, and a case in point of what a future European Health Union will be able to deliver.”
BioNTech is a German company working with US-based Pfizer to develop a new vaccine based on messenger RNA (mRNA). mRNA plays a fundamental role in  biology, transferring instructions from DNA to cells’ protein making machinery. In an mRNA vaccine, these instructions make harmless fragments of the virus which the human body uses to build an immune response to prevent or fight disease.
The Commission has taken a decision to support this vaccine based on a sound scientific assessment, the technology used, the companies’ experience in vaccine development and their production capacity to supply the whole of the EU.
Background
The European Commission presented on 17 June a European strategy to accelerate the development, manufacturing and deployment of effective and safe vaccines against COVID-19. In return for the right to buy a specified number of vaccine doses in a given timeframe, the Commission finances part of the upfront costs faced by vaccines producers in the form of Advance Purchase Agreements. Funding provided is considered as a down-payment on the vaccines that will actually be purchased by Member States.
Since the high cost and high failure rate make investing in a COVID-19 vaccine a high-risk decision for vaccine developers, these agreements will therefore allow investments to be made that otherwise might not happen.
Once vaccines have been proven to be safe and effective and have been granted market authorisation by the European Medicines Agency, they need to be quickly distributed and deployed across Europe. On 15 October, the Commission set out the key steps that Member States need to take to be fully prepared, which includes the development of national vaccination strategies. The Commission is putting in place a common reporting framework and a platform to monitor the effectiveness of national vaccine strategies.
The European Commission is also committed to ensuring that everyone who needs a vaccine gets it, anywhere in the world and not only at home. No one will be safe until everyone is safe. This is why it has raised almost €16 billion since 4 May 2020 under the Coronavirus Global Response, the global action for universal access to tests, treatments and vaccines against coronavirus and for the global recovery and has confirmed its interest to participate in the COVAX Facility for equitable access to affordable COVID-19 vaccines everywhere. As part of a Team Europe effort, the Commission announced is contributing with €400 million in guarantees to support COVAX and its objectives in the context of the Coronavirus Global Response.
Compliments of the European Commission.
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The European Commission has informed Amazon of its preliminary view that it has breached EU antitrust rules by distorting competition in online retail markets. The Commission takes issue with Amazon systematically relying on non-public business data of independent sellers who sell on its marketplace, to the benefit of Amazon’s own retail business, which directly competes with those third party sellers.
The Commission also opened a second formal antitrust investigation into the possible preferential treatment of Amazon’s own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “We must ensure that dual role platforms with market power, such as Amazon, do not distort competition.  Data on the activity of third party sellers should not be used to the benefit of Amazon when it acts as a competitor to these sellers. The conditions of competition on the Amazon platform must also be fair.  Its rules should not artificially favour Amazon’s own retail offers or advantage the offers of retailers using Amazon’s logistics and delivery services. With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers.”
Statement of Objections on Amazon’s use of marketplace seller data
Amazon has a dual role as a platform: (i) it provides a marketplace where independent sellers can sell products directly to consumers; and (ii) it sells products as a retailer on the same marketplace, in competition with those sellers.
As a marketplace service provider, Amazon has access to non-public business data of third party sellers such as the number of ordered and shipped units of products, the sellers’ revenues on the marketplace, the number of visits to sellers’ offers, data relating to shipping, to sellers’ past performance, and other consumer claims on products, including the activated guarantees.
The Commission’s preliminary findings show that very large quantities of non-public seller data are available to employees of Amazon’s retail business and flow directly into the automated systems of that business, which aggregate these data and use them to calibrate Amazon’s retail offers and strategic business decisions to the detriment of the other marketplace sellers. For example, it allows Amazon to focus its offers in the best-selling products across product categories and to adjust its offers in view of non-public data of competing sellers.
The Commission’s preliminary view, outlined in its Statement of Objections, is that the use of non-public marketplace seller data allows Amazon to avoid the normal risks of retail competition and to leverage its dominance in the market for the provision of marketplace services in France and Germany- the biggest markets for Amazon in the EU. If confirmed, this would infringe Article 102 of the Treaty on the Functioning of the European Union (TFEU) that prohibits the abuse of a dominant market position.
The sending of a Statement of Objections does not prejudge the outcome of an investigation.
Investigation into Amazon practices regarding its “Buy Box” and Prime label
In addition, the Commission opened a second antitrust investigation into Amazon’s business practices that might artificially favour its own retail offers and offers of marketplace sellers that use Amazon’s logistics and delivery services (the so-called “fulfilment by Amazon or FBA sellers”).
In particular, the Commission will investigate whether the criteria that Amazon sets to select the winner of the “Buy Box” and to enable sellers to offer products to Prime users, under Amazon’s Prime loyalty programme, lead to preferential treatment of Amazon’s retail business or of the sellers that use Amazon’s logistics and delivery services.
The “Buy Box” is displayed prominently on Amazon’s websites and allows customers to add items from a specific retailer directly into their shopping carts. Winning the “Buy Box” (i.e. being chosen as the offer that features in this box) is crucial to marketplace sellers as the Buy Box prominently shows the offer of one single seller for a chosen product on Amazon’s marketplaces, and generates the vast majority of all sales. The other aspect of the investigation focusses on the possibility for marketplace sellers to effectively reach Prime users. Reaching these consumers is important to sellers because the number of Prime users is continuously growing and because they tend to generate more sales on Amazon’s marketplaces than non-Prime users.
If proven, the practice under investigation may breach Article 102 of the Treaty on the Functioning of the European Union (TFEU) that prohibits the abuse of a dominant market position.
The Commission will now carry out its in-depth investigation as a matter of priority. The opening of a formal investigation does not prejudge its outcome.
Background and procedure
Article 102 of the TFEU prohibits the abuse of a dominant position. The implementation of these provisions is defined in the Antitrust Regulation (Council Regulation No 1/2003), which can also be applied by the national competition authorities.
The Commission opened the in-depth investigation into Amazon’s use of marketplace seller data on 17 July 2019.
A Statement of Objections is a formal step in Commission investigations into suspected violations of EU antitrust rules. The Commission informs the parties concerned in writing of the objections raised against them. The addressees can examine the documents in the Commission’s investigation file, reply in writing and request an oral hearing to present their comments on the case before representatives of the Commission and national competition authorities. Sending a Statement of Objections and opening of a formal antitrust investigation does not prejudge the outcome of the investigations.
More information on the investigation is available on the Commission’s competition website, in the public case register under case number AT.40462.
The Commission has informed Amazon and the competition authorities of the Member States that it has opened a second in-depth investigation into Amazon’s business practices.
This investigation will cover the European Economic Area, with the exception of Italy. The Italian Competition Authority started to investigate partially similar concerns last year, with a particular focus on the Italian market. The Commission will continue the close cooperation with the Italian Competition Authority throughout the investigation.
More information on the investigation will be available on the Commission’s competition website, in the public case register under case number AT.40703.
There is no legal deadlines for bringing an antitrust investigation to an end. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertakings concerned cooperate with the Commission and the exercise of the rights of defence.
Compliments of the European Commission.
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Statement by President von der Leyen on 10 November, 2020 |
“A safe and effective vaccine is our best chance to beat coronavirus and return to our normal lives.
In the past months, the European Commission has been working tirelessly to secure doses of potential vaccines.
And tomorrow we authorise a contract for up to 300 million doses of the vaccine developed by German company BioNTech and Pfizer. This is the most promising vaccine so far.
Once this vaccine becomes available, our plan is to deploy it quickly, everywhere in Europe. This will be the fourth contract with a pharmaceutical company to buy vaccines. And more will come. Because we need to have a broad portfolio of vaccines based on different technologies.
We have already started working with Member States to prepare national vaccination campaigns.
We are almost there. In the meantime, let us be prudent, and stay safe.”
Compliments of the European Commission.
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Full discussion available as a PDF |
This discussion paper considers regulatory and supervisory issues relating to outsourcing and third-party relationships. It will facilitate a discussion on current regulatory and supervisory approaches to the management of outsourcing and third-party risks.
Financial institutions have relied on outsourcing and other third-party relationships for decades. However, in recent years, the extent and nature of interactions with a broad and diverse ecosystem of third parties has evolved, particularly in the area of technology. The financial sector’s recent response to COVID-19 highlights the benefits as well as the challenges of managing the risks of financial institutions’ interactions with third parties. The pandemic may have also accelerated the trend towards greater reliance on certain third-party technologies.
The discussion paper identifies a number of issues and challenges. For instance, financial institutions have to ensure that their contractual agreements with third parties grant to them, as well as to supervisory and resolution authorities, appropriate rights to access, audit and obtain information from third parties. These rights can be challenging to negotiate and exercise, particularly in a multi-jurisdictional context. The management of sub-contractors and supply chains is another challenge that was highlighted in the context of financial institutions’ response to COVID-19.
There is a common concern about the possibility of systemic risk arising from concentration in the provision of some outsourced and third-party services to financial institutions. These risks may become higher as the number of financial institutions receiving critical services from a given third party increases. Where there is no appropriate mitigant in place, a major disruption, outage or failure at one of these third parties could create a single point of failure with potential adverse consequences for financial stability and/or the safety and soundness of multiple financial institutions. Given the cross-border nature of this dependency, supervisory authorities and third parties could particularly benefit from enhanced dialogue on this issue.
Responses to the public consultation should be sent to fsb@fsb.org by 8 January 2021 with “Outsourcing and third-party relationships”. Consultation responses will help facilitate a discussion on current regulatory and supervisory approaches to the management of outsourcing and third-party risks. Consultation responses will be published on the FSB’s website unless respondents expressly request otherwise.
Compliments of the Financial Stability Board.
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The European Commission’s regulation increasing tariffs on U.S. exports into the EU worth $4 billion will be published in the Official Journal of the EU.
The countermeasures have been agreed by EU Member States since the U.S. has not yet provided the basis for a negotiated settlement, which would include an immediate removal of U.S. tariffs on EU exports in the Airbus WTO case. The World Trade Organization (WTO) formally authorised the EU on 26 October to take such countermeasures against illegal U.S. subsidies to aircraft maker Boeing. The measures will take effect as from tomorrow. The European Commission stands ready to work with the U.S. to settle this dispute and also to agree on long-term disciplines on aircraft subsidies.
Executive Vice-President for an Economy that Works for People and Commissioner for Trade Valdis Dombrovskis said: “We have made clear all along that we want to settle this long-running issue. Regrettably, due to lack of progress with the U.S., we had no other choice but to impose these countermeasures. The EU is consequently exercising its legal rights under the WTO’s recent decision. We call on the U.S. to agree to both sides dropping existing countermeasures with immediate effect, so we can quickly put this behind us. Removing these tariffs is a win-win for both sides, especially with the pandemic wreaking havoc on our economies. We now have an opportunity to reboot our transatlantic cooperation and work together towards our shared goals.”
The countermeasures bring the EU equal footing with the U.S., with sizeable tariffs on each side based on two WTO decisions related to aircraft subsidies. They include additional tariffs of 15% on aircraft as well as additional tariffs of 25% on a range of agricultural and industrial products imported from the U.S., thereby strictly mirroring the countermeasures imposed by the United States in the context of the WTO case on subsidies to Airbus.
Background
In March 2019, the Appellate Body, the highest WTO instance, confirmed that the U.S. had not taken appropriate action to comply with WTO rules on subsidies, despite the previous rulings. Instead, it continued its illegal support of its aircraft manufacturer Boeing to the detriment of Airbus, the European aerospace industry and its many workers. In its ruling, the Appellate Body:

confirmed the Washington State tax programme continues to be a central part of the U.S. unlawful subsidisation of Boeing;
found that a number of ongoing instruments, including certain NASA and U.S. Department of Defence procurement contracts constitute subsidies that may cause economic harm to Airbus, and;
confirmed that Boeing continues to benefit from an illegal U.S. tax concession that supports exports (the Foreign Sales Corporation and Extraterritorial Income Exclusion).

Today’s decision confirming the EU right to retaliate stems directly from that previous decision.
In a parallel case on Airbus, the WTO allowed the United States in October 2019 to take countermeasures against European exports worth up to $7.5 billion. This award was based on an Appellate Body decision of 2018 that had found that the EU and its Member States had not fully complied with the previous WTO rulings with regard to Repayable Launch Investment for the A350 and A380 programmes. The U.S. imposed these additional tariffs on 18 October 2019. The EU Member States concerned have taken in the meantime all necessary steps to ensure full compliance.
Compliments of the European Commission.
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Leaders from across the world offered their congratulations on Saturday, November 7 to U.S. President-elect Joseph R. Biden, Jr. and Vice President-elect Kamala Harris, following their projected win in the 2020 presidential election.
As partners with shared history and values, EU leaders were among the first to send well wishes to Biden and Harris. European Commission President Ursula von der Leyen said she looked forward to working with President-elect Biden, adding, “The European Union and the United States are friends and allies, our citizens share the deepest of links.” Read her full statement here, and watch her video message here.
High Representative Josep Borrell Fontelles took note of the record turnout in the election, which “expressed [the] will of the American people for change.”
Leaders of all 27 EU member states offered their own messages of congratulations, friendship, and hope for the new administration, which is expected to be sworn in on January 20, 2021.
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It has been said that the best preparation for tomorrow is doing your best for today. When the President of the French Republic confirmed France’s participation in the Paris Collaborative on Green Budgeting in December 2017, he could hardly have known that, less than three years later, green budgeting would become a central tool for developing France’s “green recovery” from a global pandemic. At the meeting of the Paris Collaborative on Green Budgeting earlier this month, French Treasury officials showcased to delegates from across the OECD how the government had used this tool to identify environment-compatible spending that helped France meet its goal of dedicating EUR 30 billion of its COVID-19 recovery plan to a green transition.
With the introduction of green budgeting, France can now identify how budget measures affect key environmental objectives. This autumn, the country tabled its first “green budget” alongside the Finance Bill for 2021. This is the world’s first budget to document both the positive and negative impact of measures on key aspects of the environment.
France is not the only country to use green budgeting to support a green response to the COVID-19 pandemic. Preliminary results of an OECD survey show that over half of OECD countries plan to use green budgeting tools to integrate green perspectives in recovery packages. In addition to green budget tagging used by France, countries will carry out environmental and climate impact assessments of individual measures or attach green conditionality to support measures. Some countries, such as Colombia, Denmark, Latvia, Portugal and Spain, plan to go further and propose an assessment of how the recovery package as a whole affects environmental and climate objectives.
In good humour, the Irish Chair of the Paris Collaborative on Green Budgeting recently suggested that France should slow down its green budgeting efforts to let other countries catch up. However, Ireland is making impressive progress of its own. In addition to introducing its own system of green budget tagging, the country has just announced an increase in carbon prices as part of its budget for 2021. Ireland recognises the central role that tax policy can play as part of an overall package of budget measures to support a green recovery from the pandemic.
Robust tax policy tools, in particular carbon pricing, can work ‘hand-in-hand’ with green stimulus to promote clean investment and spending decisions, and support a successful, long-term recovery, according to new OECD findings. Carbon pricing reinforces green stimulus measures and helps align traditional stimulus with climate objectives, even when it is not explicitly targeted towards decarbonisation. Given competing social and economic goals, it is not realistic for all public money to go directly to green projects. France’s green budgeting analysis, for example, showed that a majority of its annual expenditure is “grey”, i.e., neither environmentally harmful nor environmentally positive. Carbon taxes or emission permit trading encourage cleaner investment and consumption choices for all public and private spending, limiting CO2 emissions and local pollution. Households and businesses will embrace low carbon on their own if they know that carbon prices will rise over time, without the need for the government to identify the most promising technologies and spending choices in advance. This reduces the risk of stranded assets and stranded jobs in the future.
Reforming carbon taxes and emissions trading will be necessary to drive a green recovery. At present, 70% of energy-related CO2 emissions from advanced and emerging economies are entirely untaxed and some of the most polluting fuels remain among the least taxed. Emissions trading systems result in significant prices for electricity and industry in some countries, but even combined with taxes, the overall carbon price signals are not in line with decarbonisation targets.
The opportunity exists for tax and spending policies to be implemented in tandem, which could make green recovery measures more acceptable from a political economy perspective. The 2021 Irish budget, presented on 13 October 2020, is a case in point. Not only did the government announce that it would spend EUR 8.5 billion on supporting people and businesses affected by COVID-19, but it will also increase the carbon tax by EUR 7.50 a tonne, from EUR 26 to EUR 33.50, while raising rates for cars taxed on CO2 emissions and extending a registration tax relief for battery-powered electric vehicles. To support the purchasing power of vulnerable groups, the government also increased a means-tested income transfer to support households during winter months. Additional spending measures to ensure a Just Transition include investments in energy efficiency, social protection and pilot environmental programmes in agriculture.
Expenditure policy can prepare the ground for a green tax shift later. For example, spending measures that support energy efficiency programmes or subsidies for R&D that unlock clean technologies can help reduce carbon emissions and make it easier in the longer term to introduce carbon pricing. Tax policy tools, such as carbon pricing, have the capacity to improve environmental outcomes, while also raising government revenues that can be used to manage the trade-offs among environmental, economic and social goals.
Doing your best today to prepare for tomorrow will involve making the most of what both green budgeting and tax policy tools have to offer. The twin challenges of COVID-19 and climate change are so great that neither green budgeting nor tax policy tools alone will be enough for a successful green recovery. By combining them, countries will be able to “build back better” from the COVID-19 crisis and provide long-term certainty to their economies.
Authors:

Elsa Pilichowski, Director of Public Governance, OECD

Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration, OECD

Compliments of the OECD.
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​​​​​​​​​​​​​​​On 21 October, the European Committee of the Regions, EUROCITIES, CEMR, PLATFORMA and Regions4 organised a workshop on the role of the SDGs in the crisis recovery.
Estelle Göger, member of Cabinet of Commissioner for Economy, Paolo Gentiloni, represented the European Commission and intervened following a debate with speakers representing the diversity of local and regional authorities in the EU – regions, cities, big and small, south, north, East and West of the EU.
While there is a real risk of a backsliding of the SDGs, in particular at national and EU level, all local and regional speakers confirmed that in their regions and cities, SDGs were more relevant than ever to manage our way out of the pandemic and recover from the crisis.
Mrs Aras, President of the Parliament of Baden-Württemberg, Germany, insisted that the region relies on tried and tested instrument for a sustainable recovery based on SDGs. On the contrary, Mr Rodriguez, Commissioner for the 2030 Agenda, speaking for Barcelona, Spain, explained how the pandemic reshuffled priorities of the city within the SDGs framework. The city issued the Barcelona Pact, Barcelona recovery strategy based on triple sustainability – economic, social and environmental.
All speakers echoed this focus on triple sustainability and the absolute need to operate digital transition to enable it. A strong message was that there is no certainty on how and when the classical services models we rely on will resume (for example tourism, restaurants). It is therefore indispensable to attract new talents and ideas, and rely on SDGs rather than on traditional models. Micke Larsson, Senior Strategist in Aland Islands, Finland, explained the region is using its multi-stakeholders’ platform to gather inputs to formulate its recovery strategy while Barcelona set up a task force and launched on innovation competition to collect ideas from all stakeholders, including citizens and businesses.
Participative approaches, raising awareness, creating ownership among people and organisations are key. Baden-Württemberg insisted on the impact of organising Sustainability Days to mobilise people on SDGs. Likewise, Mrs Soens, Councillor from Korkrjik, Belgium, recalled the impact of a Sustainability Week in the middle of September during the pandemic. She also paid tribute to the support national association of cities such as the VVSG – Flemish Association of Cities provide to smaller cities and their multiplying power to coach numerous cities to localise SDGs.
In the end, SDGs are much more about listening to stakeholders than talking to them. This is about empowerment of individuals and generosity towards others and future generations.
In addition to the confirmation of SDGs as the needed framework for recovery, all speakers agreed that the implementation of SDGs, even at local and regional level, need leadership from the European Commission. It is essential to show people on the ground that their region/city’s strategies operate in a wider EU framework and this is part of a coherent plan at EU level. It is also important to show continuity of action and coherence between policy actions as well as the EU plays its accompanying role for the localisation of SDGs.
The SDGs should have been implemented through their integration within the European Semester, the EU economic coordination mechanisms. However, this year saw a clear focus of the European Semester on the EU recovery fund – the Recovery and Resilience Facility (RRF) – at the detriment of the SDGs. Participants all agreed that for the recovery to be sustainable, both the RRF and the Multiannual Financial Framework should finance sustainable projects and be based on the SDGs. Mrs Göger representing the European Commission recognised that there is a risk of backsliding of SDGs because of the current crisis but also noted that as all speakers reported, SDGs has never been so relevant before.
While SDGs are barely mentioned in the current European Semester process, all underlying initiatives linked to the recovery are linked to SDGs. For example, the Green Deal, the Digital Strategy, the RRF, the Just Transition Mechanism, the Circular Economy Action Plan, the Farm to Fork Strategy and the European Pillar of Social Rights Action Plan.
Mrs Göger recognised that there is undoubtedly an issue in terms of narrative and tagging of SDGs which is absent. However, she argued that in substance, the European Commission is still working on and committed to use the SDGs framework to guide future action.
For instance, to access the RRF 672.50 Billion EUR funding, EU countries will have to detail how they will operate their green and digital transition. The European Commission will have a crucial role in accepting or negotiating the National Recovery and Resilience plans EU countries will submit. This will have to be in line with objectives underpinned in the SDGs.
Mrs Göger hinted that the RRF legislative process is still ongoing and that the lack of visibility of SDGs in the proposal – notably in the reporting of national authorities – could be reflected upon, as should a better tagging of SDGs in the European Semester. She also insisted that the European Commission is supporting a participatory approach notably via its guidelines to EU countries, requesting them to consult local and regional authorities to draw their National Recovery and Resilience Plans, and asking whether and how consultations took place. This is an excellent opportunity as Mr Sinkevicius, Mayor of Jovana, Lithuania, recalled that the pandemic fostered closer links between the national and the local level in his country.
While the online connection with Mrs Göger was interrupted, Bert Kuby for the CoR formulated follow-up remarks such the importance of not only tagging SDGs within the European Semester but to ensure policy coherence between them in this mechanism.
In conclusion, Ivy Moraes for Regions4 and Masha Smirnova for EUROCITIES recalled that the SDGs were more important than ever for EU policy-making and that it should not be a case of either or, but that the RRF should be based on SDGs. The commitment of regions and cities in keeping implementing SDGs is also key to ensure continuity on the work of SDGs, while clearly there is a need for the European Commission to take full responsibility and leadership on the SDGs. A joint EC-CoR Forum on the RRF could help foster cooperation between all government levels on a sustainable recovery. Likewise, the soon-to-be published Staff Working Document on the implementation of SDGs should link recovery and SDGs, assign clear responsibilities within the European Commission, and integrate the role of cities and regions in the localisation of SDGs.
Compliments of the European Committee of the Regions.
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The coronavirus pandemic represents a very large shock for the global and EU economies, with very severe economic and social consequences. Economic activity in Europe suffered a severe shock in the first half of the year and rebounded strongly in the third quarter as containment measures were gradually lifted. However, the resurgence of the pandemic in recent weeks is resulting in disruptions as national authorities introduce new public health measures to limit its spread. The epidemiological situation means that growth projections over the forecast horizon are subject to an extremely high degree of uncertainty and risks.
An interrupted and incomplete recovery
The Autumn 2020 Economic Forecast projects that the euro area economy will contract by 7.8% in 2020 before growing 4.2% in 2021 and 3% in 2022. The forecast projects that the EU economy will contract by 7.4% in 2020 before recovering with growth of 4.1% in 2021 and 3% in 2022. Compared to the Summer 2020 Economic Forecast, growth projections for both the euro area and the EU are slightly higher for 2020 and lower for 2021. Output in both the euro area and the EU is not expected to recover its pre-pandemic level in 2022.
The economic impact of the pandemic has differed widely across the EU and the same is true of recovery prospects. This reflects the spread of the virus, the stringency of public health measures taken to contain it, the sectoral composition of national economies and the strength of national policy responses.
Rise in unemployment contained compared to drop in economic activity
Job losses and the rise in unemployment have put severe strains on the livelihoods of many Europeans. Policy measures taken by Member States, together with initiatives at EU level have helped to cushion the impact of the pandemic on labour markets. The unprecedented scope of measures taken, particularly through short-time work schemes, have allowed the rise in the unemployment rate to remain muted compared to the drop in economic activity. Unemployment is set to continue rising in 2021 as Member States phase out emergency support measures and new people enter the labour market, but should improve in 2022 as the economy continues to recover.
The forecast projects the unemployment rate in the euro area to rise from 7.5% in 2019 to 8.3% in 2020 and 9.4% in 2021, before declining to 8.9% in 2022. The unemployment rate in the EU is forecast to rise from 6.7% in 2019 to 7.7% in 2020 and 8.6% in 2021, before declining to 8.0% in 2022.
Deficits and public debt set to rise
The increase in government deficits is expected to be very significant across the EU this year as social spending rises and tax revenues fall, both as a result of the exceptional policy actions designed to support the economy and the effect of automatic stabilisers.
The forecast projects the aggregate government deficit of the euro area to increase from 0.6% of GDP in 2019 to around 8.8% in 2020, before decreasing to 6.4% in 2021 and 4.7% in 2022. This reflects the expected phasing out of emergency support measures in the course of 2021 as the economic situation improves.
Mirroring the spike in deficits, the forecast projects the aggregate euro area debt-to-GDP ratio will increase from 85.9% of GDP in 2019 to 101.7% in 2020, 102.3% in 2021 and 102.6% in 2022.
Inflation remains subdued
A steep fall in energy prices pushed headline inflation into negative territory in August and September. Core inflation, which includes all items except energy and unprocessed food, also fell substantially over the summer due to lower demand for services, especially tourism-related services and industrial goods. Weak demand, labour market slack and a strong euro exchange rate will exert downward pressure on prices.
Inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), is forecast to average 0.3% in 2020, before rising to 1.1% in 2021 and 1.3% in 2022, as oil prices stabilise. For the EU, inflation is forecast at 0.7% in 2020, 1.3% in 2021 and 1.5% in 2022.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “This forecast comes as a second wave of the pandemic is unleashing yet more uncertainty and dashing our hopes for a quick rebound. EU economic output will not return to pre-pandemic levels by 2022. But through this turbulence, we have shown resolve and solidarity. We have agreed unprecedented measures to help people and companies. We will work together to chart the course to recovery, using every tool at our disposal. We agreed a landmark recovery package, NextGenerationEU – with the Recovery and Resilience Facility at its heart – to provide massive support to worst-hit regions and sectors. I now call again on the European Parliament and Council to wrap up negotiations quickly for money to start flowing in 2021 so that we can invest, reform and rebuild together.”
Paolo Gentiloni, Commissioner for Economy, said: “After the deepest recession in EU history in the first half of this year and a very strong upswing in the summer, Europe’s rebound has been interrupted due to the resurgence in COVID-19 cases. Growth will return in 2021 but it will be two years until the European economy comes close to regaining its pre-pandemic level. In the current context of very high uncertainty, national economic and fiscal policies must remain supportive, while NextGenerationEU must be finalised this year and effectively rolled out in the first half of 2021.”
A high degree of uncertainty with downside risks to the outlook
Uncertainties and risks surrounding the Autumn 2020 Economic Forecast remain exceptionally large. The principal risk stems from a worsening of the pandemic, requiring more stringent public health measures and leading to a more severe and longer lasting impact on the economy. This has motivated a scenario analysis for two alternative paths of the pandemic evolution – a more benign one and a downside one – and its economic impact. There is also a risk that the scars left by the pandemic on the economy – such as bankruptcies, long-term unemployment and supply disruptions – could be deeper and farther reaching. The European economy could also be impacted negatively if the global economy and world trade improved less than forecast or if trade tensions were to increase. The possibility of financial market stress is another downside risk.
On the upside, NextGenerationEU, the EU’s economic recovery programme, including the Recovery and Resilience Facility, is likely to provide a stronger boost to the EU economy than projected. This is because the forecast could only partially incorporate the likely benefits of these initiatives, as the information available at this stage on national plans is still limited. A trade agreement between the EU and the UK would also have a positive impact on the EU economy from 2021 compared to the forecast baseline of the UK and EU trading based on WTO Most Favoured Nation (MFN) rules.
Background
The forecast was prepared in a context of severe uncertainty, with Member States announcing major new public health measures in the second half of October 2020 to limit the spread of the virus.
The forecast is based on the usual set of technical assumptions concerning exchange rates, interest rates and commodity prices, with a cut-off date of 22 October 2020. For all other incoming data, including information on government policies, this forecast takes into consideration information up until and including 22 October. Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.
The forecast hinges upon two important technical assumptions. First, public health measures are assumed to remain in force to some degree throughout the forecast horizon. However, after their significant tightening in the fourth quarter of 2020, the stringency of the measures is expected to gradually ease in 2021. It is also assumed that the economic impact of a given level of restrictions will diminish over time as the health system and economic agents adapt to the coronavirus environment. Second, given that the future relations between the EU and the UK are not yet clear, projections for 2021 and 2022 are based on a technical assumption that the EU and the UK will trade on WTO Most Favoured Nation (MFN) rules from 1 January 2021 onwards. This is for forecasting purposes only and reflects no anticipation nor prediction as regards the outcome of the negotiations between the EU and the UK on their future relationship.
The European Commission’s next forecast will be an update of GDP and inflation projections in the Winter 2021 Economic Forecast, which is expected to be presented in February 2021.
Compliments of the European Commission.
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