Paschal Donohoe, the Irish finance minister and president of the Eurogroup, has written a preposterous article in the Financial Times claiming that the budgetary response of the EU and US to the pandemic has been more or less similar.
Donohoe states that “in 2020 alone, Europe implemented budgetary supports equal to 7 per cent of gross domestic product […], while the US stimulus figures [was] 10 per cent”. He thus concludes that “there is a difference, but it is not as significant as suggested by some”.
One could object to using overall budget changes (whether primary or not) to assess the fiscal stimulus in an economy, since to a certain degree the deficit increases automatically in a recession due to a fall in tax revenues. That’s why economists look at discretionary fiscal measures (spending increases and tax reductions) to assess the size and quality of an economy’s fiscal policy response.
Even using budget changes as an indicator, however, it’s not clear where Donohoe is getting his numbers from. Indeed, latest Eurostat data currently puts the EU’s current deficit (always a few notches above the euro area) at 5.8% of GDP. Considering that the EU’s deficit in 2019 was 0.6%, that’s an overall increase of around 5% in GDP — not 7%.
So where is Donohoe getting his 7% figure from? The link in the article leads to an ECB report which relays the same data, claiming a primary deficit increase for the euro area and for the US of 6.7 and 9.8% of GDP respectively.
Interestingly, the source for the euro area data is revealed to be the March 2021 ECB staff macroeconomic projections for the euro area, while the source for the US data is an October 2020 IMF report. Using data that is five months old for the US and new projections for the euro area is dodgy in itself, but we’ll overlook this detail. The point is that the ECB’s data — which puts the EU’s 2020 deficit at 7.2% (a year-on-year increase of around 6.5%) — conflicts with the Eurostat data, which puts the EU’s current deficit at less than 6% of GDP.
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