The scale and content of measures to fight the virus reflect the wealth of countries, and the generosity of aid did not depend on how much economic decline was expected, says Ivan Nikolic.
All European countries helped the economy and citizens endangered by the pandemic last year. The richest with the most money, which can’t be a surprise. The most generous was Germany, which adopted measures worth 43.3 percent of GDP. Next, Italy with 36.7, Lithuania with 28.6, and France with 23.2 and Spain with 22 percent.
The “most stingy” were Bulgaria (2.2), Romania (4.7) and Slovakia five percent. The total assistance of the state of Serbia to the citizens and the economy since the beginning of the pandemic, according to the announcement of the Ministry of Finance, reaches six billion euros, ie 12.7 percent of GDP. According to this relative indicator, Serbia is in the first place in the region of Southeast Europe.
These data for our paper are announced by Ivan Nikolic, director for scientific research development at the Institute of Economics, and his analysis includes publicly available measures in response to the crisis adopted by 27 EU countries in the period from March to August, except in the case of Serbia. The source of data for the EU is the European Court of Auditors and the European Commission.
“European countries have implemented a wide range of short-term fiscal and monetary measures in response to the health and economic crisis. However, their scope and content reflected first of all the economic capacity and relative wealth of the states, and not how much the crisis hit them hard. A good part of the measures were aimed at preserving jobs and state aid to maintain the company’s liquidity. However, with different scope and intensity, which had different effects on the movement of public debt and increased fiscal risks. As the pandemic crisis deepened, so did the state aid package. However, in absolute terms, the aid was determined by the country’s wealth, ie the level of GDP per capita. Thus, a higher GDP per capita corresponds to a more generous fiscal aid package. At the same time, the scale and content of the adopted measures reflect the relative wealth of the member states, and not necessarily the estimated reduction of economic activity,” says Nikolic.
The closest to the “optimum” were Cyprus and Luxembourg, followed by Denmark, Sweden, Slovenia, Malta, Hungary, Poland and Serbia. The “optimal” amount of assistance, according to this account, for Serbia is 745 euros per capita. As the aid package, according to the Ministry of Finance, reached the value of 841 euros by the end of 2020, the deviation upwards is exactly 96 euros, which is the value that corresponds to the payment of a one-time aid of 100 euros to all adult citizens.
“It is interesting that the level of indebtedness of the state was not an obstacle for the economy and citizens to help. Moreover, there is a positive interdependence between these indicators,” says Nikolic.
Most of the measures were aimed at preserving jobs and alleviating insolvency. Countries where aid was more restrictive on average recorded a higher increase in the unemployment rate during 2020.
The state’s help is not accidental, but it was the guidelines of economic policy that the European Commission sent to the member states on March 13. The document states that fiscal measures should be directed at households and companies, in order to strengthen the liquidity of companies and prevent mass layoffs. For now, it is not possible to determine the positive statistical impact of state aid on GDP growth. Moreover, the opposite is shown – higher relative state aid in the fight against the consequences of the pandemic has resulted in a deeper decline in GDP. In other words, a better GDP result is not positively correlated with a larger aid package.
“This seemingly unexpected result can be explained by various reasons. The economic situation in the countries differed significantly at the time of the escalation of the crisis. Serbia, along with Ireland, has been convincingly the best in the last quarter of 2019 since the third quarter of 2019, at the very top of Europe in terms of GDP growth. The effect of the current economic structure is also important. The largest decrease in GDP was recorded in countries that have a high share of services for which the demand has drastically dropped due to limited mobility of people, such as tourism, catering, traffic,” says Nikolic.
He adds that the crisis caused by the Covid 19 pandemic will further increase economic inequalities between European countries in the coming years. At the same time, the prospects for economic activity growth have changed. With all the previous limitations, the new unfavorable circumstances are different economic policies that, through fiscal instruments, seriously distort the current market competition, although countries have different capacities to implement state aid measures, Politika reports.
