A tale of two pandemics: Europe and US take different exits
On Massachusetts’ Cape Cod, things are looking up for the Red Jacket Beach Resort and its sparkling Atlantic views.
After a troubled year, the resort’s restaurants, swimming pools, deck chairs, and beach were crammed during last week’s public school spring break, and reservations for the summer season are pouring in.
“Memorial Day weekend will be gangbusters,” predicts company spokesman Matt Pitta. “People are itching to travel. We are looking at a record summer.”
On the other side of the Atlantic, though, Gigi Ansuini, whose family owns the Pizzicheria Romana delicatessen in Rome, is facing a much grimmer future. This Aladdin’s cave of hanging prosciutto hams, huge wheels of Parmigiano cheese, and bottles of extra-virgin olive oil is facing one of the toughest periods in its 480-year history.
“Business is down by 80%,” says Mr. Ansuini. “With the lockdown and ban on travel, we have been really hit hard. We live off tourism, so we’re in great difficulty.”
This contrast is playing itself out in thousands of places across Europe and the United States. While the eurozone has slipped into its second recession of the pandemic, the U.S. economy is growing at its fastest pace since 1984. By April, its gross domestic product was within a hair’s breadth of a full recovery, and the boom should continue, according to the International Monetary Fund (IMF).
This turnaround is as unexpected as it is dramatic.
A year ago, it seemed that Europe was better placed to recover from the pandemic. That the tables have now turned speaks volumes about the strengths and weaknesses of the continents’ respective government structures and the cultural values that underpin them. The lessons learned could help the U.S. and Europe cope better the next time a crisis looms.
For the U.S., the lesson may be that Europe’s national bureaucracies, built on a tradition of social welfare, are better suited to mitigate health and economic disasters than America’s more fractured, free enterprise-based system. Stronger safety nets in Europe meant fewer people with COVID-19 symptoms felt they had to go to work anyway, potentially threatening others.
“One of the reasons that the EU ... death toll is so much lower is that the European support system for people was much more solid,” says Richard Baldwin, an economist at the Graduate Institute of International and Development Studies in Geneva. That, and a great trust in government “led to better compliance with the restrictions.”
For Europe, the lesson may be that solving such crises requires a speed and size of federal action that the U.S. got right and that the European Union just can’t match.
“The fact that the U.S. has the ability to borrow ... as much as we need to, and we have one national economy, has made it easier for the U.S. to go big” in terms of stimulus, said Jacob Lew, former treasury secretary during the Obama administration, speaking at an Atlantic Council conference last month.
And crucially, Mr. Lew added, an ambitious U.S. vaccination program means that “we’ve finally got our hands around the health crisis,” boosting consumer confidence. “Europe is far behind in vaccinations,” he pointed out.
That frontier mentality
When the pandemic first hit early last year, both the U.S. and most European governments instituted lockdowns to keep citizens safe at home. As the weeks wore on, those restrictions began to chafe and worries about the economic effects of the lockdown grew.
In Rome, many restaurants and hotels around the Pizzicheria Romana shut down when Italy imposed its first lockdown – and they never reopened.
In the U.S., fears of a similar fate were rampant. “It was a dark time,” recalls David Gluck, regional director of the Northeastern Retail Lumber Association, which serves Cape Cod as well as all states from Maryland to Maine. “The experts said ... ‘Prepare for the worst recession you have ever seen.’”
Industries and some politicians on both sides of the Atlantic began to warn that the lockdowns were killing the economy. The voices were loudest and most effective in the U.S.
Conservative governors in Southern and Western states began opening up their states to commerce, partly in response to those economic concerns and partly because of distrust of big government – an American tradition dating back to frontier days.
“We certainly see your average American looking very different than your average European – looking much more individualistic in a variety of domains,” says Samuel Bazzi, an economist at the University of California, San Diego. “This frontier culture is very opposed to the government interfering in one’s pursuit of economic well-being.”
Mr. Bazzi began noticing a pattern: The response to the mitigation measures didn’t just vary by state; it varied by county. In a study, he and two colleagues found that the more time a county spent as part of the frontier during America’s historical westward expansion, the weaker its local effort to fight the pandemic with social distancing and other collective measures.
That frontier mentality fed a broader attitude. When Marcella Alsan, a Harvard economist and physician, and her colleagues surveyed nearly half a million people across 15 nations, they found that 23% of Americans were unwilling to sacrifice any rights, even during times of major crisis. That was higher than any European nation; France came in at 19%, Italy at 12%.
“In Europe, people listened to their national governments,” says Professor Baldwin.
Europe fumbles the ball
By early last summer, Europe could pat itself on the back. Government mitigation efforts seemed to have brought the virus under control. In Italy, new cases fell to near zero. While Europe had not yet authorized the kind of big stimulus package that the U.S. had provided, some 40 nations had introduced job retention programs, protecting 68 million jobs at the peak, according to the IMF.
European corporate bankruptcies also declined in 2020 despite the downturn, thanks to substantive and speedy credit to firms and debt moratoriums.
“We did not see a cascading of bankruptcies of corporates; we did not see widespread unemployment,” said Alfred Kammer, director of the IMF’s European department, in an online conference with reporters. “The lifelines kept these economies intact.”
In the U.S., which already held the record for the most COVID-19 cases and fatalities, the virus began to surge again in the fall – this time hitting hard the Dakotas and other rural frontier areas that were spared the first time. A big stimulus package, pushed through by the Trump administration, kept the recession from spiraling out of control. Unprecedented $1,200 checks to a large majority of taxpaying Americans pumped billions of dollars into the economy.
Still, unemployment briefly hit levels not seen since the Great Depression. Federal supplemental aid to unemployed people meant some Americans earned more on unemployment benefits than they had on the job. And a new program to funnel money to employers who didn’t fire or furlough workers was criticized for helping the biggest and best-connected firms rather than the small businesses struggling the most.
The Trump administration, in full reelection mode, tried to downplay the importance of the virus and sometimes outright contradicted the public advice that health professionals were giving.
In contrast to this messy, stumbling performance, the Europeans’ response looked smart, targeted, and efficient. Then, they fumbled the ball.
While the United Kingdom worked quickly to secure a deal for vaccines from pharma giant AstraZeneca, the EU dragged out negotiations for another three months in order to get better prices and guarantees on product liability. When the vaccine became available, EU members had to wait, and their national vaccination campaigns have since been “unacceptably slow,” the World Health Organization says. Only 10% of the European population has been vaccinated.
The U.S., meanwhile, has implemented a relatively smooth and effective vaccination program. The same frontier mentality that resisted collective government action began to coalesce around a government-aided, private industry initiative: the vaccine.
Federal authorities allowed Big Pharma to streamline drug trials and quickly issued experimental approval for two vaccines. And the Trump administration’s $14 billion program of rapid vaccine production and distribution, known as Operation Warp Speed, was expanded by President Joe Biden.
The result is that the U.S. has sprinted ahead as the only major economy to fully vaccinate more than 30% of its population. In turn, that has led to strong consumer confidence in the rebound. And with up to $3,200 in federal money from three separate stimulus programs – two under Donald Trump and one under Mr. Biden – the average American has money to spend.
Where’s the money?
These are signs of American resilience and practical flexibility.
In one sense, the U.S. had to act because its coronavirus crisis was so bad. Republican legislators compromised their fiscal conservatism to pass two stimulus bills. And those die-hards who said they would never give up their individual rights? It turns out that the more people experience a threat firsthand, the more likely they are to surrender their right to refuse to mask or social distance – in return for security, according to Professor Alsan, the Harvard economist. And that includes Americans.
And when Americans can agree on a solution – in this case, a fiscal stimulus and government aid to speed vaccine development and deployment – the federal government can move with remarkable speed and scale. That’s something the 27-member EU hasn’t delivered.
“Once the federal government gets behind an idea and rolls out all the capacities available, they can get a lot done within a couple of months,” says Arjen Boin, a crisis management expert at Leiden University in the Netherlands.
The European Commission, the EU’s Brussels-based executive arm, does not have that kind of power. “Europe is never going to be like the military operation you see in the U.S.,” Professor Boin adds. “It’s always the member states who have to find each other and work together.”
Europe is now putting its faith in the EU’s €750 billion ($904 billion) stimulus package to boost post-pandemic recovery, financed by mutualized debt issued for the first time by the European Commission.
The package will be divided roughly equally between grants and loans to member states, with Italy and Spain, the two hardest-hit European economies, as the largest beneficiaries. The money will be aimed largely at projects to build a greener Europe with a strong digital foundation.
“I believe the recovery fund, based on how it will be funded – common debt mutualization – will open up future opportunities for common European approaches to crises in the future,” says Mark Rhinard, professor of international relations at Stockholm University.
But the money will not be disbursed until all the bloc’s members have ratified the necessary legislation and the commission has approved all the member governments’ spending plans. That means no money until July 2021, nearly a year since EU governments agreed on the plan.
Some worry that is not soon enough, pointing out that the $1.9 trillion fiscal stimulus that the U.S. Congress passed last month was being implemented within days.
“Let’s be clear: We were very efficient last year in the adoption of the European recovery plan and on the decision on common debt issuance,” French Finance Minister Bruno Le Maire said on April 27. “Since then, we have lost too much time. China has resumed its growth. The U.S. is booming. The EU must remain in the race.”
It’s rough in Rome
Italy is still recording thousands of new COVID-19 cases a day and has registered the second worst death toll in Europe after Britain. With the economy shrinking last year by nearly 9%, it is estimated that around 1 million jobs have been lost, many of them in the tourism sector.
At the Pizzicheria Romana, not even locals are coming to the salumeria – the Italian word for delicatessen. Many office workers in Rome are working from home as a result of COVID-19, while even those who come into the center often bring their own lunch.
“They don’t want to be out and about because they are worried about catching the virus,” explains Mr. Ansuini. At least the deli is still open and doing business, but the regular staff of 10 has been reduced to three; the rest are temporarily laid off and living on government unemployment benefits.
On Cape Cod, the anticipation is palpable. “This summer is off the charts,” says Wendy Northcross, CEO of the Cape Cod Chamber of Commerce. Usually, summer visitors wait till the last minute to make reservations, hoping for a discount, she says. This year, they’re making reservations now to ensure they get a room.
And many of the locals who have found themselves working from home for the past year have decided that those homes could do with some improvement. The upshot? Lumber prices have tripled to reach record highs, and some building materials are being rationed.
“I’ve never seen shortages like this,” says Hamilton “Tony” Shepley, head of Shepley Wood Products, the cape’s biggest building materials company. But “tough times make tough people. Maybe we’re seeing a glimmer of the Greatest Generation” in today’s resilient business people.
Nick Squires in Rome contributed reporting to this article.
Editor's note: The article's description of the initial $1,200 pandemic stimulus has been corrected to accurately reflect the share of U.S. taxpayers who received it.