Damage is concentrated in southern Europe with low fiscal capacity and high proportion of service industries
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With the new coronavirus infection (Corona 19) as a trigger, the economic power gap between southern and northern Europe was further widening. Southern Europe, where the financial situation is already poor, has a high proportion of food and lodging industries, because the impact of Corona 19 was concentrated in the face-to-face service industry. The euro single currency system is highly likely to survive, but there is a prospect that the dissonance within the euro system will not end due to economic and political conflicts between southern and northern Europe.
According to a report on the’Economic Power Gap Status and Implications in the Euro Region After Corona 19′ released by the Bank of Korea on the 10th, the growth rate of Southern European countries such as Italy (-3.6%) and Spain (-3.1%) during 2019-2021 was Germany (-1.0 %) and Austria (-0.8%). Southern Europe has already suffered from low growth and high unemployment rates since the fiscal crisis, but the growth rate is falling further due to the Corona 19 incident.
The euro system, which was launched in 1999, was established on the premise that the gap in economic power between member states was narrowing, but the opposite phenomenon appears. Controversy over the persistence or effectiveness of a single monetary region has been steadily raised as it becomes difficult for the European Central Bank (ECB) to implement optimal monetary policy if there are significant differences in economic conditions between countries in the euro area.
The reason the Corona 19 damage is concentrated in Southern Europe is that the level of medical personnel and equipment is relatively poor compared to Northern Europe, and the level of containment has to be raised. The industrial structure of southern Europe is also in a situation where the proportion of service industries such as food, lodging, and travel is high, and the loss is greater than that of Northern Europe, which is centered on manufacturing. South Europe, such as Greece (196%), Italy (159%), and Spain (116%), is significantly higher than Germany (76%), so there is enough fiscal capacity to absorb the impact of Corona 19. Not.
As the economic power gap widens, southern Europe’s economic dependence on Northern Europe is growing seriously. Looking at the net contribution to the EU (budget contribution-beneficiaries), Nordic Europe was 19.6 billion euros in 2019, while Southern Europe was -12.4 billion euros, showing a large negative (-). In southern Europe, the growth potential is decreasing as the labor force of high-educated youths is driven to Northern Europe, where wages are high.
In the end, the people of Southern Europe see that the interests of the euro integration are concentrated in Northern Europe, while the people of Northern Europe are dissatisfied with the concentration of economic support in Southern Europe. However, the report believes that it is unlikely that the single currency system will be divided, given the historical background and political implications of the euro system. A BOK official said, “The concentration of economic power and the accumulation of mutual complaints between Southern and Northern Europe is a task to be overcome in the future.”
/ Reporter Jo Ji-won [email protected]
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