articles Ratings /ratings/en/research/articles/201012-economic-research-keynes-and-schumpeter-are-what-the-european-economy-needs-right-now-11688271 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List
COMMENTS

Economic Research: Keynes And Schumpeter Are What The European Economy Needs Right Now

COMMENTS

Economic Research: U.S. Election: Promises, Policy, And The Potential Effects On The Economy And Corporate Credit

COMMENTS

Economic Research: China's Careful Stimulus Dims Outlook For 2021

COMMENTS

Economic Research: U.S. Biweekly Economic Roundup: U.S. Consumer Spending Continues To Outperform Expectations

COMMENTS

Economic Research: U.S. Real-Time Data: The Economic Recovery Decelerates


Economic Research: Keynes And Schumpeter Are What The European Economy Needs Right Now

"Glass-half-empty" observers of the European economy see the better-than-expected third-quarter economic rebound as just a mechanical bounce-back from the pandemic-related lockdown. That was the easiest part of the recovery, they say. From now on, we are in for a tougher, slower climb.

The pessimists are right to point out that the European economy is clearly entering a tricky transition period--phase 3, as some say. Government support measures will gradually end at the turn of the year, but it won't be until mid-2021 at the earliest that European recovery plans will kick in. Meanwhile, dangers are looming that could derail the economy during this delicate phase:

  • The withdrawal of government support--short-time work, guaranteed loans, and exemptions from the bankruptcy register--could tip the economy, leading to an abrupt surge in unemployment and insolvencies.
  • Banks, which helped economic agents avoid cash crunches during the lockdowns, might turn off the money tap this time.
  • If the second wave of COVID-19 again leads to lockdowns, the economic fabric may not recover as quickly as it did in the third quarter. One month of second lockdowns might cost more than 4 percentage points of GDP, as was the case during the first lockdowns.
  • European households may consume only a small part of the whopping 24% of income they saved during confinement because of economic uncertainty and slack in the labor market. Online job openings are 46% lower than last year in the U.K. and down 36% in France and 20% in Germany.
  • And then there are Brexit negotiations, which could turn sour.

All of these arguments are perfectly valid. However, they overlook some Keynesian and Schumpeterian economic forces that are at work today that might help the European economy fully recover from COVID-19.

The British economist John Maynard Keynes would have spotted the shortage of demand and the overabundance of savings. Putting aside negative interest rates--a "hypothesis" he rejected in his "General Theory" of the 1930s–-he would have pointed to excruciatingly low financing costs and advocated for strong public investment to reflate the economy. Before even asking himself whether French, German, and European recovery plans were well designed or not, he would have interpreted them as an element of "expected demand", needed to provide incentives to economic agents to convert their savings into consumption and investment decisions. In addition, he would have stressed that the positive "multiplier effects" of investment in green and digital infrastructure, part of the European recovery plan, might strengthen the European economy's long-term path. In other words, Keynes would have applauded the fact that Europe had found more fiscal space. Let's face it: Without this pandemic, the European Commission's "Green Deal" would probably not have been endowed with €750 billion or so.

Chart 1

image

As respectful as he was in his "History of Economic Analysis", it is no secret that Joseph Schumpeter was not enthusiastic about Keynes' ideas. What would the Austrian economist have said about the current situation? Certainly, he would have recognized an inexorable temporary rise in unemployment and bankruptcies in sectors most affected by COVID-19. But he would have considered this as a short-term process of destruction that will create value over the medium term. Schumpeter would have pointed out that jobs will spill over to other sectors. He would have seen that the health sector is creating jobs today. He would have noted that because of the pandemic, the number of startups created in transportation, accommodation, trade, or the property sector is skyrocketing in France. Even in Germany, net business creation seems to have bottomed out. In other words, Schumpeter would have said that the COVID-19 pandemic is a horrible shock that is getting the European economy out of its rut and spurring it to test other, better, technological and behavioral solutions. Indeed, COVID-19 is spilling the glass so it can refill with a better fuel.

Chart 2

image

Chart 3

image

Keynesian and Schumpeterian dynamics are exactly what the European economy needs right now, right here, to successfully transition out of the COVID crisis. Both dynamics are starting to kick in as phase 3 begins. We have a combination of excess savings and strong expected demand via the European Recovery Program on one hand, and on the other, an acceleration of the digital and environmental transformations that will make the European economy more sustainable. Statistical evidence suggests that dissaving has started, and the incredibly high number of start-ups in France--and its upturn in Germany--speaks for itself. It's clear that the transition won't be smooth, but there is reason to believe the glass might be half full.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The current consensus among health experts is that COVID-19 will remain a threat until a vaccine or effective treatment becomes widely available, which could be around mid-2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: https://www.spglobal.com/ratings/en/). As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

This report does not constitute a rating action.

EMEA Chief Economist:Sylvain Broyer, Frankfurt (49) 69-33-999-156;
sylvain.broyer@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back