[New Year Interview] "Europe Begins Counterattack with COVID-19 Vaccines... Suppressed Economy Will Strongly Rebound"

by Jeong Hyunjin

Published 11 Jan.2021 11:15(KST)

Philip Legrain Senior Researcher at the European Institute, London School of Economics and Political Science

Philippe Legrain, Senior Research Fellow at the European Institute, London School of Economics (LSE)

[Asia Economy Reporter Hyunjin Jeong] "The most important factor for the recovery of the European economy this year is the vaccination against the novel coronavirus disease (COVID-19)."

Philip Legrain, Senior Research Fellow at the European Institute of the London School of Economics and Political Science (LSE), mentioned 'vaccination' as the remedy to revive the European economy worsened by COVID-19. In a recent New Year interview with Asia Economy, he said, "2020 was the worst year in the memory of people for the global economy, but 2021 will see a strong rebound," forecasting that as vaccinations begin in earnest, COVID-19 restrictions will be lifted and short-term uncertainties will be resolved.

The European Union (EU) approved the COVID-19 vaccine jointly developed by Pfizer (USA) and BioNTech (Germany) last month, followed by emergency use authorization and on the 6th (local time), approved the vaccine developed by Moderna (USA). Accordingly, the EU has pre-ordered 2 billion doses of vaccines so far, securing enough for the entire population of 27 member countries, approximately 450 million people, to be vaccinated more than four times. Senior Fellow Legrain said, "As the Western economy rebounds, the Korean economy, which was affected by exports, will also recover."

Legrain also predicted that fiscal and monetary policies in Europe would remain "extremely accommodative" this year. He said, "Thanks to government stimulus measures, the household economy in developed countries is holding up quite well, and pent-up demand has been waiting for the right time," adding, "Many companies have suffered due to the pandemic, but few have gone bankrupt, and supply is expected to increase in response to rising demand." He also mentioned the tourism industry, which was severely hit in Europe, saying that travel demand, which was frustrated due to movement restrictions last year, "will greatly revive in the summer of 2021."

Regarding concerns about growing public debt mainly in Europe and other developed countries, Senior Fellow Legrain stated, "Although the ratio of government debt to GDP has increased as developed country governments borrowed funds at negative real interest rates, the proportion of interest costs has decreased," asserting, "So far, there is no public debt problem in developed economies." He added, "As governments invest more funds in infrastructure, science and technology, and climate change measures to boost productivity, borrowing with longer maturities will continue, and the ultra-low interest rate environment should be maintained for some time."

However, Legrain expressed concerns about inflation and corporate debt issues in Europe. He said, "Even before the COVID-19 crisis, the European Central Bank (ECB) failed to achieve its 2% inflation target for several years, and it seems difficult to do so going forward," noting that expected inflation has fallen and the ECB will not be able to raise it. He predicted that deflation concerns in Europe, which grew after the Eurozone consumer price index (CPI) recorded negative growth in August last year, will persist. He also said, "The corporate debt problem was barely concealed last year through government guarantees and payment deferrals, but it will expand this year," forecasting that this will put pressure on banks' financial conditions.

This year, the EU faces the mission of establishing a new relationship with the UK following the full Brexit (the UK's withdrawal from the EU). Senior Fellow Legrain emphasized that both sides should aim to rebuild closer economic ties but noted that with the Conservative Party led by Boris Johnson, a strong pro-Brexit supporter, in power, rebuilding efforts will not be easy.

Regarding trade, he said the EU will focus on it after prioritizing COVID-19 recovery but mentioned, "Exports are one of the important factors for the European economy." He added, "The Trump administration in the US has damaged business sentiment, causing uncertainty in US-EU trade relations," but expressed optimism that "with President-elect Joe Biden's inauguration, stability, predictability, and cooperation will revive, benefiting the European economy." He also predicted that relations with China will be influenced by how the next US administration confronts China.