Rebased's line chart shows that European oil companies are selling heavily

The clouds are darkening over the eurozone economy as new lockdowns emerge

Activity in Covid-19-hit Europe is believed to have skyrocketed in the third quarter, but the finance ministers' meeting early next week will add little comfort to the heady-looking economic numbers.

The reason is simple: the ongoing new restrictions announced in recent days are casting a new shadow over the region's prospects and making it nearly impossible to know exactly where production will go next.

Germany and France introduced new lockdown measures on Wednesday as the number of cases in Europe has skyrocketed. Other member states are pushing too, and both Belgium and Greece are expected to announce new restrictions as early as Friday.

Euro area ministers will have an extensive debate on Tuesday on what all of this means. The focus will be on understanding the interaction between the pandemic and economic conditions, in light of the experiences made earlier this year. The new anti-coronavirus measures will have "important ramifications" for economic activity, a senior EU official said. "It is inevitable."

The European Commission has the unenviable task of predicting what the revised forecast will look like when it releases its latest outlook next week, which will be extremely difficult in the current situation of "extreme uncertainty", the official added. However, the European Central Bank on Thursday gave a fair indication of likely direction as it predicted a “significant slowdown in economic activity” and laid the groundwork for further easing.

The question for finance ministers is how and when fiscal policy should react, but it is probably too early to make concrete new collective contributions to the debate. Officials note that large EU-wide fiscal support has already been raised for the bloc, much of which has not yet been tapped or made fully available.

The Eurogroup helped launch a EUR 540 billion emergency offer this spring, consisting mainly of loans, before EU leaders launched their EUR 750 billion recovery fund in July. For now, ministers are focused on ensuring that the existing package is rolled out as soon as possible – hampered by the ongoing disputes with the European Parliament over the exact size of the EU's upcoming seven-year budget and recovery package.

But the inevitable question is: will everything be enough? Olivier Blanchard, former chief economist at the IMF, made a notable contribution, arguing that the second wave is different and arguably even more serious for policy makers who are already testing the limits of fiscal policy (see: Tweetstorm).

Mr Blanchard believes the recent round of lockdowns brings increased levels of uncertainty for governments as initial hopes that infection rates could be controlled after prolonged inactivity have proven false. The fiscal response must also be "more generous and aggressive" than the first time, he argues, calling for help in the form of grants instead of loans for companies that are already in debt.

"Pinching pennies and allowing large-scale bankruptcies, capping unemployment benefits and collapsing demand would be penny-wise and pound-stupid," he writes. “Governments will need strong nerves. Let's hope you have it. "

Chart du jour: Black gold is losing its shine

It's been a bumpy year for oil. Since January, major European oil companies like BP and Shell have lost a combined market value of EUR 360 billion – that's 53 percent of their total market capitalization. Much of the oil wealth lost can be attributed to the pandemic-induced travel bans, but the linchpin of clean fuels has played no small role.

The wealth of renewable energy stocks has risen as oil has plummeted. The Dutch energy storage company Alfen saw a 230 percent increase in 2020. The rise of renewable energies is happening as big players like the EU made big plans to reduce emissions over the next few decades. (Diagram over FT)

Summary of Europa News

Customers sit outside a bar in Barcelona in August. Trips to Spain in the summer are said to have played a major role in the transmission of the new strain of the coronavirus © Bloomberg

  • A new strain of coronavirus appears to be responsible for the rise in Covid-19 cases in major European countries. The new variant has caused 80 percent of cases in Spain in Great Britain. The study, which has yet to be peer-reviewed, suggests that the new mutation in the virus spread through summer trips to Spain. The results come at a time when cases are increasing across Europe and many countries are imposing various forms of lockdown. (FT)

  • A man with a knife killed three people in a church in the French city of Nice on Thursday in what President Emmanuel Macron described as an “Islamist terrorist attack”. In response, Mr. Macron announced that up to 7,000 soldiers would be deployed to protect churches and schools. A man was shot dead by police in Avignon on Thursday after threatening a shopkeeper with a gun. Mediapart reports that the man was wearing a t-shirt with a slogan belonging to a far-right group. (FT / Mediapart)

  • The valued image of the Netherlands as an efficient bureaucracy is crumbling under the weight of the coronavirus. The Dutch style of consensus politics and the increase in individual freedom have proven to be too slow to fight the pandemic, which is spreading at one of the fastest rates in Europe. It also shakes the country's belief in some of its most widespread national myths. (FT, NYT)

  • The EU border agency Frontex is at the center of a growing scandal accusing the agency of playing a role in "pushbacks" preventing refugees from landing on European shores. The investigation by various media outlets accuses Frontex of turning a blind eye to setbacks by the Greek coast guard and, in some cases, of actively participating. Ylva Johansson, EU commissioner for home affairs, has asked for an extraordinary meeting of Frontex management to discuss the allegations. (Guardian / Bellingcat)

Come on Friday

EU health ministers will hold their final conference call on Friday afternoon to discuss Covid-19 management. The third quarter growth figures in the euro area are due, and economists are forecasting a strong quarter-on-quarter recovery.

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