The Coronavirus Response: Why So Much Talk About The U.S.?

Fiscal policy: the U.S. vs. Europe

When comparing the fiscal relief packages seen in Europe to those in the U.S., some notable differences exist, particularly as it relates to the relative social safety nets of the U.S. and Europe. One of the keys to the success of the responses of policymakers is to try to limit the economic damage of the crisis, so as not to inflict significant permanent damage to the pipes and plumbing of commerce, or to the ability of the consumer to resume spending upon recovery from the virus. 

In order to ensure consumers are not permanently impaired in their ability to consume, policymakers need to provide support. Bluntly, the social safety nets in Europe are more extensive than those in the U.S. Universal healthcare, more generous unemployment and sick leave benefits are among the most notable differences. In the U.S., just to match the existing safety nets in Europe, policymakers are having to make unique efforts to approve and fund that relief. An examination of the package approved by the Senate last night demonstrates how much of the focus is in those areas.

The net result is that the fiscal response necessary to avoid massive permanent consumer spending impairment is larger in the U.S. That is not to say Europe is off the hook in terms of fiscal relief, but rather to say the need is not as great.

To give some context to this, courtesy of our friends at UBS, here are the sizes of the packages being considered or approved in the U.S. and Europe, in terms of percentage of annual GDP (as of last night):

  • U.S. package passed by Senate: 10% of GDP
  • EU: 0.3% of GDP
  • France: 1.9% of GDP
  • Germany: 4% of GDP
  • Italy: 1.4% of GDP
  • Spain: 2.8% of GDP
  • UK: 3.2% of GDP (the UK is closer to the U.S. on some of these issues, and they may need to do more than the EU countries).

There are a lot of other countries that are initiating relief packages, but the above should give credence to the relative size of the U.S. packages. Ultimately, the U.S. is doing more in this crisis because more is needed.

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