EconPol Policy Briefs

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How Fast Must Vaccination Campaigns Proceed in Order to Beat Rising Covid-19 Infection Numbers?

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Facing a third Covid-19 outbreak in the spring of 2021 a central question for European policymakers is at what point a vaccination campaign has acquired sufficient speed to overcome the increase in infections, so as to justify lifting NPIs at least partially. The authors of this study derive an expression for a critical threshold that is shaped by three factors: First, the mortality risk from a Covid-19 infection increases exponentially with age. Second, the sizes of age cohorts decrease linearly at the top of the population pyramid. And third, vaccination proceeds at an increasing speed. The study finds that it is easier for countries with a comparatively young population and fast vaccination programs to reach this critical threshold than for countries with an older population and slower vaccination programs. An important conclusion of the research is, that slow vaccination hurts twice: The number of vaccinated people increases only at a slow rate. But it also means that vaccination programs’ ability to control aggressive new Covid-19 strains is strongly reduced. 

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Incentives for Accelerating the Production of Covid-19 Vaccines in the Presence of Adjustment Costs

Claudius Gros (Goethe University Frankfurt), Daniel Gros (EconPol Europe, CEPS)

Delays in the availability of vaccines are very costly for society but existing fixed price contracts provide no incentives for producers to speed up delivery: a dose delivered tomorrow receives the same price as a dose delivered in the next quarter. The benefits for early delivery are huge for society, but non-existent for suppliers. A better contract would have the price fully  variable over time. In this policy brief, the authors show that it is straightforward to design an optimal contract, which aligns the time paths of the price with that of the social value of a vaccination. There is a clear policy conclusion: contracts should contain incentives for accelerated production. Vaccines delivered early should command a higher price.

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EU27 and the UK: Product Dependencies and the Implications of Brexit

Lisandra Flach (EconPol Europe, LMU Munich and ifo Institute), Feodora Teti (EconPol Europe, LMU Munich and ifo Institute), Lena Wiest (EconPol Europe, University of Tübingen and ifo Institute) and Margherita Atzei (EconPol Europe, University of St. Gallen and ifo Institute)

The decision of the UK to leave the EU imposes a key challenge for trade relations and, depending on the outcome of the ongoing Brexit negotiations, will cause severe increases in bilateral trade costs. The experience from former crises has shown that disruptions caused by negative shocks are more severe in case of highly dependent goods, which are sourced from few suppliers. This report provides an overview on product dependencies between EU27 and the UK and uncovers several stylized facts. It shows that, whereas for most of the EU27 countries less than 10% of the highly dependent goods are sourced from the UK, the majority of UK’s imports of highly dependent goods are sourced from countries in the EU27. However, for both, the UK and the EU27, Brexit imposes challenges for supply chains, as in both cases most of these goods are classified as intermediate goods, which are used as input for final production in the destination country. For those goods, uncertainty and rising costs due to Brexit may cause an additional distress on supply chains.

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The Impact of the COVID-19 Crisis on European Businesses: Evidence from Surveys in Austria, Germany and Spain

Raquel García (SIMPLE LÓGICA, Madrid), Christian Gayer (European Commission DG ECFIN), Werner Hölzl (WIFO - Austrian Institute of Economic Research, Vienna), Sergio Payo (Ministerio de Industria, Comercio y Turismo), Andreas Reuter (European Commission DG ECFIN), Klaus Wohlrabe (EconPol Europe, ifo Institute, CESifo)

A survey of German, Spanish and Austrian firms in the industry, services, retail trade and construction sectors finds that the overwhelming majority expect a negative impact of the corona-crisis on annual turnover (to the tune of 20% in Germany and Austria and 25-44% in Spain). The sub-sectors hardest hit are manufacturing of consumer durables and investment goods, services in the field of tourism and gastronomy and retailers selling neither food nor beverages. If confinement measures aren't lifted or countered by appropriate policy support, say the survey's authors Raquel García (SIMPLE LÓGICA, Madrid), Christian Gayer (European Commission DG ECFIN), Werner Hölzl (WIFO - Austrian Institute of Economic Research, Vienna), Sergio Payo (Ministerio de Industria, Comercio y Turismo), Andreas Reuter (European Commission DG ECFIN) and Klaus Wohlrabe (EconPol Europe, ifo Institute, CESifo), the prevailing confinement measures will cause insolvencies or bankruptcies of 30-50% of all businesses by the end of July, rising to 50-80% by October.

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European Banks and the Covid-19 Crash Test

Jézabel Couppey-Soubeyran (EconPol Europe, University Paris 1 Panthéon-Sorbonne, CEPII), Erica Perego (EconPol Europe, CEPII), Fabien Tripier (EconPol Europe, Université Paris-Saclay (Univ. Evry), CEPII)

The Covid-19 crisis is not a financial crisis but it can become a serious test for European banks’ strength and resilience: they are stronger today than they were on the eve of the 2007-2008 financial crisis, however the Covid-19 shock more closely resembles the Great Depression of the 1930s. This policy brief from Jézabel Couppey-Soubeyran (EconPol Europe, University Paris 1 Panthéon-Sorbonne, CEPII), Erica Perego (EconPol Europe, CEPII) and Fabien Tripier (EconPol Europe, Université Paris-Saclay (Univ. Evry), CEPII) presents the problems that the Covid-19 crisis poses to banks, the proposals currently under discussion and the decisions taken to date by the monetary and prudential authorities. It highlights the fragility of the current prudential framework and the inadequacy of the resolution mechanism, which will require additional resources if the banking crisis cannot be avoided.

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