The Eurozone—and the wider European Union (EU)—suffered a significant economic contraction in the second quarter of 2020, due to the impacts of COVID-19 pandemic. The Gross Domestic Product (GDP) of the 19-country Eurozone dropped by 12.1% in comparison to the previous quarter, marking a record decline. Similarly, the GDP of the entire EU, which encompasses 27 countries, fell by 11.9%.
Unfolding Economic Situation in the Eurozone
The Eurozone comprises 19 out of 27 EU nations that have adopted the Euro as their official currency. Notable non-Euro users within the EU include Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden. Despite varying currency statuses, all EU countries saw considerable economic contractions during the April-June 2020 quarter.
The economic crunch experienced in this period stands as the most sizable on-record plunge for the Eurozone’s economy. No Eurozone country remained untouched by the global health crisis. Spain, in particular, bore the brunt of the situation with an alarming 18.5% GDP reduction.
Government Responses to the Pandemic-Induced Recession
In response to rapidly shrinking economies, European governments are launching extensive stimulus measures aimed at alleviating the financial distress. These measures involve key strategies such as providing loans to businesses, which facilitates their continued operation amidst these challenging times. Wage support programmes, another notable strategy, see the governments paying the salaries of workers to prevent mass unemployment and further economic destabilisation.
Concerted Efforts Towards Economic Recovery
In a unified effort, the leaders of the European Union have agreed to establish a 750 billion Euro recovery fund. This fund is backed by common borrowing and has been set up to bolster the region’s economy from 2021 onwards.
The Role of the European Central Bank
In addition to national governments, the European Central Bank (ECB) plays a critical role in tackling the economic challenges posed by the pandemic. As part of its recovery strategy, the ECB plans to infuse 1.35 trillion Euro of newly minted money into the region’s economy. This move aims to keep borrowing costs low, thereby reducing financial hardship for businesses and consumers alike.
The ECB, an official institution of the EU, serves as the central bank for the Eurozone nations. Its primary responsibility lies in maintaining price stability within the Eurozone, but during economic crises such as this, it undertakes extraordinary measures to support economic recovery.
Despite facing unprecedented challenges due to the ongoing pandemic, the Eurozone, backed by the coordinated efforts of the EU and ECB, is demonstrating resilience and strategic action in mitigating economic fallout and paving the way for recovery in 2021 and beyond.
