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Law360 (May 6, 2020, 2:40 PM EDT) -- The European Union's economy is set to contract by 7.4% in 2020 due to the COVID-19 economic shock, and that of the U.K., which left the bloc, is expected to contract by 8.25%, according to figures the EU released Wednesday.
The U.K. and France, which is predicted to see an 8.2% reduction in gross domestic product due to the pandemic, are the exceptions to a trend that shows northern European countries faring better than those in the south, according to the EU.
Greece, Italy and Spain, for example, will see their economies contract by 9.7%, 9.5% and 9.4% respectively, according to the EU figures, while the economies of Germany, the Netherlands and Sweden will shrink slightly less, by 6.5%, 6.8% and 6.1% respectively.
Neither the European Commission, which published the figures as part of its spring 2020 economic forecast, nor HM Treasury in the U.K. immediately responded to requests for comment.
The more severe slump forecast for the U.K. relative to other northern European countries can be attributed to a decade of regressive fiscal policy, according to Alex Cobham, chief executive of the Tax Justice Network.
Due to the economic scars from 10 years of austerity, "the U.K. is forecast to experience one of the worst slumps in Europe, on a par with Italy and Spain," Cobham told Law360. This is despite the country's comprehensive pandemic plan and the fact that it was able to see the virus play out in other countries first, he said.
The dire economic forecasts will increase pressure on governments to cut spending and increase taxes as revenue plummets amid the unprecedented economic shock that has resulted from the coronavirus pandemic. Experts have repeatedly warned that any move toward fiscal consolidation, or austerity, too early could have disastrous effects on the economic recovery.
"Faced with a debt-to-GDP ratio likely to be in excess of 100% from next year, the U.K. government will face a stark choice," Cobham said. "It may be minded to double down on a decade of regressive cuts to public services and benefits, perhaps combined with some regressive tax rises in VAT," or value-added tax.
Countries attempting to claw back lost revenue should consider measures such as excess profits taxes; a move to a unitary approach to corporate taxation, which would take a company's global profits into account; and a one-time wealth tax, according to Cobham. Introducing those measures now could lay the foundation for implementing them on a more permanent basis, he said.
Pascal Saint-Amans, the head of the tax unit at the Organization for Economic Cooperation and Development, told a virtual conference Monday that governments need to learn from their mishandling of the recession that grew out of the 2008 financial crisis. The response at the time included painful cuts to government spending and tax increases across the EU, which hit countries in southern Europe especially hard and is still a source of tension within the bloc.
Chiara Putaturo, a tax policy adviser for the charity Oxfam, recommended measures targeting corporations and the wealthy.
"New taxes on the wealthiest individuals and the most profitable corporations, together with a serious fight against corporate tax avoidance, could bring significant resources" to Europe, Putaturo told Law360.
--Editing by Neil Cohen.
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