With the Delta variant of Covid-19 spreading, Europe's economic recovery hangs in the balance

With a seven-day incidence rate of over 200, the UK is having the most cases of all European countries.
With a seven-day incidence rate of over 200, the UK is having the most cases of all European countries.PHOTO: REUTERS

BERLIN - As the economic recovery is gaining traction, Germans are rubbing their eyes in disbelief at the carefree attitude other countries are displaying in dealing with the Covid-19 pandemic.

During the current European football championship, stadiums from London to Budapest to Copenhagen have been packed with fans, as if Covid-19 were already a thing of the past.

"Honestly, this image is very irritating," said Mr Carl Watzl, secretary-general of the German Society for Immunology. "We have to curb the spreading of the Delta variant (of the coronavirus). Full football stadiums are certainly sending out the wrong signal."

Mr Watzl is clearly pointing at the caveat that comes with any optimistic economic forecast. Will the Delta variant of Covid-19 that is rolling through Europe stop the recovery dead in its tracks?

German minister of health Jens Spahn wants to speed up vaccinations as much as possible, to prevent that from happening.

"Double vaccinations protect against Delta," the minister reiterates at every possible occasion. "It is up to us whether Delta has a chance."

After a rather slow start, the vaccination campaign has gathered speed. Germany has even overtaken the United States, that had been much faster previously. Currently, close to 60 per cent of the population have received at least one jab, almost 40 per cent enjoy full immunisation and the seven-day incidence is down to five. This is the number of new cases in the country over seven days per 100,000 people.

But will that be fast enough to beat the Delta variant?

Progress in vaccinating the German population is only one element that decides whether the economic recovery will work. Besides private consumption, for export-heavy Germany, foreign trade is key. Government representatives are therefore looking with great concern at neighbouring countries where Covid-19 case numbers are on the rise again.

In Britain, the numbers have been climbing steadily, and the Delta variant now accounts for more than 90 per cent of new cases. Planned relaxations of pandemic restrictions had to be postponed for weeks, affecting retails sales and tourism.

With a seven-day incidence rate of over 200, Britain is having the most cases of all European countries. This may jeopardise the bullish economic outlook the Bank of England and the Confederation of British Industry recently published.

According to them, gross domestic product (GDP) in Britain could reach the pre-pandemic level by the end of this year. Growth rates were expected to be between 7.25 and 8.2 per cent this year, followed by 6.1 per cent in 2022.

Similar reservations about the economic forecast apply to France. French Finance Minister Bruno Le Maire echoed the German minister of health when he said economic progress will depend on the vaccination programme and the spreading of the Delta variant.

So far, the government in Paris is making its calculations with a growth rate of 5 per cent in 2021. With those numbers, France would do slightly better than the euro zone average, which is predicted by the European Central Bank to grow at 4.6 per cent this year.

Italy is also looking forward to a robust recovery of its GDP with a growth rate of around 5 per cent this year and the next.

Prime Minister Mario Draghi recently said that faster-than-expected growth will be essential to cutting Italy's debt burden, which has swelled during the pandemic as the government stepped in to support businesses.

At more than 150 per cent, Italy's debt to GDP ratio is the second highest in Europe, exceeded only by Greece with over 200 per cent. The rate indicates how much debt the government has accumulated. The higher the number the more a government has to pay out of its budget on debt servicing.

Another bottleneck that hampers a speedy recovery is supply chains. While Europeans and Americans are eager to make up for purchases that had been put on hold during the height of the pandemic, a shortage of ships, containers and a lack of available quays are slowing down shipments. The squeeze was earlier worsened by the blocking of the Suez Canal in March by a grounded container ship which brought supplies to a halt.

In Germany, the overall improved situation is already playing out on the labour market, where unemployment is dropping. On average, GDP is expected to increase by about 4 per cent in 2021 and could reach 5 per cent in 2022.

"Economically, all the signs are pointing to an easing after the tough year of 2020," said Mr Sebastian Dullien of the Macroeconomic Policy Institute in Dusseldorf.

Mr Dullien cites two main reasons: First, the leading central banks, including the European Central Bank, reacted quickly to the Covid-19-induced economic slump with a monetary policy that focused on keeping interest rates low.

Second, governments launched economic stimulus packages to support production and employment. "The coronavirus protection concepts are effective in most companies," Mr Dullien said.

Germany could actually be in for an export boom - spurred by strong growth in China, where GDP is expected to increase by around 8 per cent this year, and the US, which is expected to grow by 7 per cent. The Japanese economy - also supported by stimulus programmes and the strong recovery in the region and the US - is expected to grow by 4.6 per cent. This would be the strongest growth in Japan since 1990.

Exports to China and the US, the most important customer countries for German products, had already increased significantly during 2020. The euro countries, which take up around 40 per cent of German exports, will also noticeably expand their demand in the course of the recovery.

All eyes are now on the football event and a possible fallout. Indications are that the treating of Covid-19 as over by Uefa, the Union of European Football Associations, could play out badly.

According to Scottish health authorities, almost 2,000 Scottish fans contracted the aggressive Delta variant during the preliminary round match against England on June 18. Just under 400 of them were at Wembley Stadium, while most of the others contracted the disease while attending public viewings in central London.

Finnish health authorities reported at least 300 fans infected with the coronavirus after watching a match in St Petersburg. The Delta variant is also rampant in Russia.

For Germany, whose squad dropped out of the tournament in the round of 16, this at least provides some consolation: Since the team will not play in the final in London on July 11 there will not be many German fans attending what could turn out to be a super-spreader event.