The Unfolding of the Economy in the Coronavirus Era
After the financial crisis of 2008, the world is now facing the most difficult economic challenge yet, caused by the of COVID-19 pandemic. Governments all around the world have taken lockdown measures to avoid a humanitarian catastrophe. Many economists argue that this crisis is similar to the Great Depression of 1930s, while others argue that this is an unprecedented crisis, and being unprecedented makes it even more difficult to tackle.
Going through economy’s history we can see that economic crises have always been different from one another. Economic, social and political contexts change over time, and so produce different realities. It is no surprise that the world economy is struggling now that it found itself in a new economic environment in which Gross Domestic Product (GDP) does not play its previous role for the economy, economic growth does not necessarily affect the economy qualitatively, fiscal policies pose serious questions, in which the liquidity trap is present even more and monetary policy could not intervene conventionally…etc
According to the International Monetary Fund’s outlook, the economic contraction was 16% during the 2008 financial crisis, and the current one is 6%. To be clear, the crisis we are currently facing has caused less damage than the financial crisis of 2008. The fact that this crisis is unprecedented does not mean it is more serious. Each economic crisis is different from one another, as it occurs in different conditions and economic contexts, as well as seeks different types of policies and responses for the economy to recover.
The Liquidity trap has been a huge gap for Central Banks over the last years in order to raise their effectiveness while dealing with monetary policies. And if we look carefully, an interest rate of about 0% has practically no effect on the economy, at least in the short turn. The reactions of an economy are obviously based on the factors that influence its trends. Low rates of economic growth have led to low savings, economic uncertainty, unemployment, and therefore, the economy remains contracted. The limits of Central Banks conventional instruments are pretty obvious. There is no guarantee for their effectiveness. The Federal Reserve and the European Central Bank are using unconventional monetary instruments to support the economic growth. Thus, the liquidity trap is currently structural rather than temporary.
The global economy is also experiencing an important shift in the labour market. During and after the emergency, this trend could potentially intensify. Why? Because the digitalization of economy seems to be an alternative choice for businesses and workers in such a difficult time. The economy must be robust in difficult situations, and digital channels have undoubtedly contributed to the way the economy worked during the blockade. The shift towards digitalization of work environments began a few years ago and was obvious to everyone, including those with modest knowledge in the field of economics.
Emerging markets have been hit a lot by the lockdown of the global economy and the disruption of the international supply chain. Especially the South Asian markets, where a significant part of the global volume of retail products is concentrated. According to the World Trade Organization (WTO), trade disruptions will range from 13% to 32%.
National debt crises in emerging markets are not a novel problem. In fact, they have been steadily increasing over the past two years and are indeed resulting in “debt spiral”, as Joseph Stieglitz called it. In addition, some emerging markets, such as Argentina, have to face private debt as well.
An important factor affecting the ability of emerging markets to be resistant to foreign investors is related to the dependence on the US dollar as a borrowing and trading currency in international markets. We have to be honest: the dominance of the dollar in international finance is neither random, nor unknown. The US dollar dominates the international trade and finance since the end of World War II.
After all, what is noticed during the COVID-19 crisis is the lack of cooperation between governments all around the world, or, at least, the collaboration does address urgent matters. Even with such a humanitarian crisis, a national approach prevails, although the problem is common. The emergency response policies to COVID-19 vary from country to country. There is no reason to be surprised of the fact that there is a lack of coordination measures on an international scale, as nationalism and protectionism manifest in earnest.
In fact, the emerging protectionism has a direct impact on growth. The escalation of trade tension has had a significant impact on the global economy and has led to a decrease in the intensity of global supply chains. With the lockdown of the economy, demand, at least in the short term, seems to be problematic. The shock of the global supply chain may raise the question of the future of globalization. Protectionism has always been there, but the emergency situation of COVID-19 just gave it the opportunity to be noticeable.
Another issue of which governments are pretty wary, is a sharp increase of unemployment. Just before the crisis, unemployment rate in U.S. was at its lowest historic level since 1960. It has been at 7% In Europe. Unemployment is likely to exacerbate inequalities between and within countries. The most vulnerable part of society is the working and middle-class. The poor and the middle-class will be the ones to suffer most. According to Nouriel Roubini, in case of U-shape recovery scenario, the time required for the economy to recover will at least be till 2021, as well as in case of the L-shape scenario. In both cases, in a realistic, so as in a pessimistic one, all evidence warns of widening inequality, especially in advanced economies.
The purpose of this article is to emphasize that the global economic crisis we are going through is only one side of the coin. Governments and Central Banks should keep in mind that crucial and deep structural anomalies held the economy back before the COVID-19 did. The lockdown of the economy is temporary; the structural economic crisis is already constant in the global economy.
Edited by Hiba Arrame
Homo Economicus? - Why Economists Need to Revise Their Most Basic Assumption
In 1982, a group of economists conducted a famous experiment, the ultimatum game. In its simplest form, the experiment employs two subjects, which we will call A and B. Person A receives a certain amount of money and has then to offer splitting it with person B. Person A is free to offer person B any amount of money out of the initial sum, which person B is free to accept or decline. If the offer is declined by person B, the two people get nothing. The results of the experiment showed that the lower the offered sum to person B was, the more likely they are to decline the offer. This may sound sensible to most people but it contradicts the assumptions economists have long held. If person B was a rational actor, any offer would make them strictly better off or at least indifferent. Furthermore, if person A was a rational actor too, they would always propose keeping the entire sum. However, when this experiment is conducted, the most successful strategy for person A turns out to be offering a split close to half-and-half. This proposal is the one most likely to be accepted by person B, and thus, the most potentially profitable for A.
Zach Weinersmith (2014) (source)
This experiment challenges the most basic assumption of mainstream economics, namely, that humans are self-seeking rational beings. This opens up notions foreign to the field, such as fairness, socialization or pure irrationality. However, economics were not always like this. From Keyne’s animal spirits to the nowadays despised adaptative expectations, there was a time in which economists seemed to have their feet more firmly on the ground than today. Today’s economics are, to a great extent, the result of taking the self-seeking rational human assumption to the extreme. Through this article we will examine how human irrationality is a real force shaping the economy, explore the dangers of transforming the homo economicus into dogma, and propose a more down-to-earth approach to economics. Although the topic can be analyzed from many different perspectives we will focus here on the issue of economic downturns and the responses to them, something that seems fairly relevant given the current situation of the world economy.
Rationality in Crisis
Although it is clear that the current recession has not been due to a lack of rationality, lots of previous crises do. Furthermore, there is an important and often overlooked factor present in all crises that directly challenges the homo economicus position. Let us have a look first at some irrational forces that continuously threaten economic stability, what Keynes called animal spirits. He put it this way back in the 1936:
“[…] a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities” — Keynes, 1997.
Animal spirits are those forces that drive humans to take irrational decisions and that, very often, lead them into disaster. These spirits are nothing more than human emotions, ethics or even lack of thinking. A common denominator to most financial crises is what is called optimism bias. Optimism bias leads people to be excessively optimistic about their beliefs of the current and future trend of the economy. By overemphasizing positive information and overlooking warning sings, it leads us to take irrational decisions (Akerlof, Shiller, 2009). This is often reinforced by pure social pressure and confirmation bias, that molds our beliefs and perceptions in a manner consistent with the socially accepted ones and makes us reject, and even despise, the outcasts. For example, the overemphasis on the data that showed an apparently unstoppable rise in real estate prices and the dismissal of the voices that were warning of a housing bubble, led the world in 2008 to a tremendous recession. The “this-time-is-different” syndrome usually accompanies the optimism bias. Irrationally, by laying aside common-sense and well-founded knowledge, we are led to taking stupid decisions. Still with the 2008 example, by dismissing the common-sense of “what goes up must come down” and the well-founded economic notion that you cannot have high returns and zero risk at the same time, a housing and financial bubble was created.
New York Stock Exchange Market (source)
Forces foreign to the homo economicus realm play a role even after the fire breaks out. As Nobel Prize-winners Akerlof and Shiller have pointed out, narratives are of the uttermost importance (Ibid). A story telling that the economy has been severely hit is a powerful force that leads to an irrational loss of confidence, ultimately self-fulfilling the narrative. Severity is often overestimated, which leads people to restrain consumption and investment and, in turn, makes that severity true (Ibid).
As a common and painful feature of all recessions, unemployment is something to look at attentively. Although this phenomenon is so common that we all now take it for granted, its existence undermines important economic assumptions about the functioning of the markets. The labor market, as any market, supposedly equates demand and supply through a price that clears it. That is, enterprises demand labor, workers offer it and a wage ensures that at the end of the day there are no vacant posts and no unemployed workers. This is clearly not the case. A rise in unemployment during a recession evidences one thing: labor markets are not functioning “properly”. If markets were perfect, they would simply adjust through changes in wages (downwards evidently) in order to equate the new supply and demand. The truth is, markets suffer of wage rigidity, wages do not react well to changes and remain inefficiently high, thus provoking unemployment. Empirical work shows that wage rigidity is not due to minimum wages or laws, at least not in the majority of cases (Snowdon, Vane & Wynarczyk, 1994). Governments are normally sensible enough to relax labor regulation in times of crisis. A very anti-homo economicus notion, fairness, could be behind a lot of this rigidity. It is important to acknowledge that people have a need to feel fairly treated and that wages are the primary signal through which workers evaluate the fairness of their relationship with the employer. By comparing their wages to others, in and out of the firm, workers adjust their work effort following the “fair day’s work for a fair day’s pay” premise (Akerlof, Yellen, 1990). Enterprises have then a reason to pay wages above the efficient one, since the productivity of its workers and their success in acquiring labor depend on the wages being deemed as fair. There exist other theories, such as the refusal of unemployed workers to offer their workforce at a price that could hinder the position of their employed pairs (Snowdon, Vane & Wynarczyk, 1994).
It is clear that important forces deviating from the homo-economicus assumption play very relevant roles in provoking malfunctions in financial and labor markets that can ultimately lead to painful recessions. From over-optimism to fairness notions, passing through collective narratives; animal spirits are more material than their name could suggest. Let is examine the painful consequences of thinking that these very real spirits do not exist.
The Dangerous Consequences of Rational Expectations
In November 2008, Queen Elizabeth II asked why almost no economist had been able to predict the financial crisis of that same year. The answer has probably something to do with an inherently flawed assumption: rational expectations. In fact, it was Shiller, one of the few economists who saw a major recession coming, and he did so precisely by moving away from it and by taking into account the possibility of irrational forces shaping the fate of the global economy. Some rational expectations hooligans, incapable of envisaging unemployment as something sensible within their models, went as far as stating that unemployment cannot exist and that what we see as unemployment is nothing more than a voluntary retreat from the labor market. This goes against common sense and, although the existence of unemployment contradicts the very foundations of markets, there are more sensible answers out there, as explained before.
Among the most salient contributions of neoclassicist economists to mainstream economics is the concept of rational expectations. In economics, expectations are informed predictions that economic agents make about future trends and events. For example, thinking that next month prices are going to be higher or that the economy will continue growing are expectations. Expectations are of the uttermost importance: thinking that prices will rise could make agents change their portfolio structure in order to increase their share of non-monetary assets, or thinking that growth will be positive will make entrepreneurs decide to invest or hire more workers. Traditionally, the clumsy adaptative expectations were the ones thought to be more realistic. They envisage agents as doing their predictions based on past events. For example, since prices this month increased, next month they should be higher too; or since the economy was growing this month, it should continue doing so the next.
However, a group of economists in the 1970s and 1980s challenged adaptative expectations. Reputed names, such as Robert Barro or Robert Lucas, proposed a different approach to dealing with expectations (Ibid). If humans are rational beings, they argued, then the way they form expectations should be rational too. Expecting something to be as it was in the past is irrational, since things can and do change. As a result, rational expectations were born. This line of thought assumes that agents’ expectations will be formed through the most rational use of all publicly available information and that their expectations will, on average, coincide with reality. Rational expectations soon became mainstream, how could they not? If agents are rational then their expectations must be rational too. As Barro pointed out:
“One of the cleverest features of the rational expectation revolution was the application of the term “rational”. Thereby, the opponents of this approach were forced into the defensive position of either being irrational or of modelling others as irrational, neither of which are comfortable positions for an economist” (Ibid).
But, while rational expectations are theoretically sound, they do not seem very realistic. It is not very sensible to think that the owner of the bakery from which you buy bread is reading the last IMF estimations about the future trends of the global economy to decide if he should invest in another oven. Even if he did, it is difficult to imagine that he has a perfect model of how the economy works in his mind when not even Nobel Prize economists agree on how economy actually works. How could your baker know how the trend of the global economy is going to affect his investment while the IMF is recurrently incapable of estimating how this or that sector is going to react?
Believing in rational expectations has important consequences in the real world. First of all, they fail to take into account the very real possibility, as we have seen, of recessions emerging out of irrational decisions due to emotions, ethics or simple clumsiness. Furthermore, they imply that economic policies are useless. Take a look at fiscal policy for example. Imagine the economy is in a downturn, with all the consequences that this has on people’s lives, and that the government decides to lower taxes or raise public expenditure through an emission of public debt. Since this debt will eventually have to be paid back, people will ultimately pay it either through an increase in taxes or a reduction of public services. If rational expectations were at play, individuals, anticipating this, would save in order to pay for the future burden without increasing consumption. This is called the Ricardian Equivalence and, at the end, affirms that fiscal policy is pointless. This is of course not true, fiscal policy does usually work. Continuing with our recession, imagine that the government decides to use monetary policy instead. By increasing the growth rate of money, the government expects a shift of savings into capital as a result of the change in the relative rate of return. Nevertheless, if expectations were rational, the only thing that would happen would be an increase in the nominal rate of return with no real effect on the structure of savings. This is called the Fisher Effect and entails that monetary policy is pointless. This is clearly not the case; monetary policy does work most times. By believing in rational expectations we fall into an unrealistic complacency that does much harm to a lot of people whose suffering could be relieved.
The European Central Bank (source)
A more Sensible Assumption about Human Nature
The aim of this article is not to say that human beings are always irrational. They actually behave like true homo economicus when it comes to their economic decisions most of the time. But assuming that this is always the case and, more dangerously, taking it to the extreme, jeopardizes both the discipline and our responsiveness in times of crisis. Humans sometimes depart from the self-seeking rationality assumption. In some cases, it causes no major trouble, such as in our experiment example, in others the consequences can be dire, such as in the creation of financial bubbles. It is important to be aware of this and employ mechanisms and measures that can prevent the disaster. Furthermore, expanding the assumption to include all aspects of the discipline might be theoretically sound but it is utterly unrealistic. As we have seen, believing in rational expectations is turning the homo economicus into dogma, which can have painful consequences. Mainstream economics needs to take into account the critiques made and start considering that humans might not be as rational as they are thought to be.
References
Akerlof, G.A. & Yellen, J.L. 1990, "The Fair Wage-Effort Hypothesis and Unemployment", The Quarterly Journal of Economics, vol. 105, no. 2, pp. 255-283.
Akerlof, G.A. & Shiller, R.J. 2009, Animal Spirits, Princeton University Press, New Jersey.
Greenspan, A. 2013, Never Saw It Coming: Why the Financial Crisis Took Economists by Surprise, Council on Foreign Relations.
Keynes, J.M. 1997, The general theory of employment, interest and money, Prometheus Books, Amherst.
Snowdon, B., Vane, H. & Wynarczyk, P. 1994, A Modern Guide to Macroeconomics, Edward Elgar Publishing, Vermont.
Edited by Hiba Arrame
COVID-19 THE ECONOMIC COST: A Preview of the Current Situation
The COVID-19 virus has dominated the international news and affected our lives. Currently, the world's policies are busy protecting humanity against this virus, by taking many measures that will decrease the pervasion of the virus, including media and social media to spread awareness about the danger humanity is exposed to due to this pandemic.
After declaring it a pandemic by the World Health Organization, each country in the world has become officially isolated, so they were in the obligation to declare the situation of health emergency by avoiding circulation between cities, closing all public utilities, and restricting people's circulation by lock-down or social distancing (quarantine) until further notice.
The charts below show daily and total case trends. Data was added, and the charts were updated as of March 30th, 2020 (source)
"Total Cases" = total cumulative count (737,577). This figure therefore includes deaths and recovered or discharged patients (cases with an outcome) (source)
The data collected so far on how people are getting infected and how the epidemics is involving are unreliable.
There are three parameters to understand the situation in order to assess the magnitude of the risk posed by this novel coronavirus:
Transmission Rate (Ro) - number of newly infected people from a single case
Case Fatality Rate (CFR) - percentage of cases that result in death
Determining whether asymptomatic transmission is possible
The Economic Impact
The coronavirus outbreak, which originated in China, has infected more than 200 000 people; its spread has left businesses around the globe, counting losses.
It is too early to talk about an economic crisis caused by the COVID-19 pandemic, but we can evaluate the impact of the virus on economy so far.
"This virus is as economically contagious as it’s medically contagious," said Richard Baldwin, a professor of international economics at the Graduate Institute of Geneva.
It is considered as phenomena for the manufacturing sector in most high economies: Supply chain disruptions overall, and a decline in the demand on cars, electronics and many other manufactured goods as people take a step back and observe the turnout of the crisis.
A Nervous Stock Market
It is certain that we cannot consider the state of the stock market as a big economic factor, but it could be a sign that the investments in stock exchange will, surely, be affected, due to the virus, during the upcoming years.
The same applies to the travel and tourism industries, which have been pounded by the outbreak, by the cancellations of all events that regroup more than 50 persons, and cessation of all the trips around the World.
We cannot ignore the fight of oil production between Saudi Arabia and Russia that caused a decline in oil prices, and enhanced fears of a broader slow down.
Businesses are already taking a hit, but how bad it gets depends on how the virus lasts…
Strong companies like Nike and Apple are not going to be ruled out by this virus, "those are two companies that manufacture a significant amount of their products in China" - Randy Frederick vice president of trading and derivatives at Charles SCHWAB.
As considered, all businesses relying on China as part of their supply chains, and having big retail presences within the country, face the phenomena.
"I don’t think the Amazon platform has seen such a massive amount of inventory problems as we are about to see" reported the World Street Journal in February.
Then there are the airlines, which some experts say could lose as much as 100 Billion Dollars, and all the other businesses related to tourism as hotels, casinos, tour companies and more…
The question now is about whether this situation is going to lead the world through a global recession.
Everybody wants to know if this virus is going to cause a global crisis or not, the short answer is that it could.
"A recession is generally defined as a macroeconomic term that refers to a significant decline in general economic activity in a designated area, it had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators like a rise in unemployment" - Investopedia
What is happening in China, being the Octopus of the world's economy, will heavily affect the rest of the economies, the Eurozone countries are definitely simulating, their GDPs only increased by 0.1% by the end of last year, any unexpected movement may push them to a negative growth.
The United states being one of the strongest economies of the world, its GDP grew 2.1% in the last fourth quarter, so it could be more protected comparing with the rest of countries.
The New COVID-19 detonation has definitely exposed the weakness of companies, especially those that rely heavily on china regarding their supply chains and manufacturing.
This may engender companies to cut some of their dependence on China, and start to diversify supply chains to protect against major crisis that impact one country more than another.
Moreover, this virus is a good reminder for companies that are not relying on China, to start looking for other alternatives regarding their economies, because no one knows where or when the next pandemic might happen.
References:
https://www.weforum.org/agenda/2020/03/should-you-self-isolate-self-quarantine-or-self-monitor/
https://www.ncbi.nlm.nih.gov/pubmed/21871188
https://www.who.int/emergencies/diseases/novel-coronavirus-2019/advice-for-public
https://www.worldometers.info/coronavirus/
Edited by Hiba Arrame
The Belt and Road Initiative, Opportunities for EU-China relations
The Belt and Road initiative (BRI) figures as the most substantial and far-reaching connectivity project of our current times, and constitutes an essential pillar of China's foreign policy. The BRI aims to ameliorate the linkage and connectivity between Asia, Europe, and Africa across a road matching the ancient Silk Road. It will link China to Europe through terrestrial transport corridors spread out across Central Asia, Russia and the Middle East. As for the maritime route, it will connect the South China Sea and the Mediterranean Sea all over the Indian Ocean, Strait of Malacca and the Suez Canal. (1)
This initiative includes 65 countries and comprehends six principal corridors:
“China – Mongolia – Russia Economic Corridor
China – Central Asia – Western Asia Economic Corridor
China – Indochina Peninsula Economic Corridor
Bangladesh – China – India – Myanmar Economic Corridor
China – Pakistan Economic Corridor
Maritime Corridor “ (2)
Since the launch of the BRI in 2013 by the Chinese president Xi Jinn Ping, this initiative drew an international interest regarding the impacts it might have on the three continents and the beneficiary countries of the project. Furthermore, it raised questions on the effects it will have on China's relations with other global actors. In this paper, we shed light on the EU-China cooperation on the BRI and the different opportunities this initiative offers to the EU-China relations.
After six years of the set-in motion of this ambitious initiative, the EU and its member states have failed to come up with a unified position over the BRI. This issue has been debated in several European capitals and EU institutions, which resulted in different views and perceptions over the BRI. Brussels expressed its concerns over this initiative owing to its lack of a rule-based approach on market entry, public tenders, and ecological and social norms. Besides, The BRI has been viewed by some important EU member states (France, Germany) as a Chinese strategy intended to impose geopolitical domination and redefinition of international rules. (3) Nevertheless, other EU member states (Italy, Portugal, Greece, Poland and Hungary) view the BRI as an opportunity to enhancing connectivity and stimulating economic growth. While this debate continues among European centres of power, media and academia, Europe has already begun getting involved in the BRI in diverse ways.
China and Europe cooperate on the BRI initially through a set of bilateral agreements and memorandum of understanding that China signed with several EU countries (Portugal, Italy, Greece, Estonia, Poland, Hungary, Croatia etc.) in addition to some non-EU countries, mainly in the Balkan region. On top of that, China and some Central and Eastern European countries implemented a framework of cooperation called 16+1, which aims to foster cooperation in order to promote the belt and road-related projects in this region. (4)
Additionally, the EU and China established in 2015 an EU-China connectivity platform, which is considered to be the EU response to the BRI. This framework aims to promote connectivity through enhancing cooperation on infrastructure building and transport policies. (5) In their turn, EU financial institutions, such as the European Investment Bank and the European Bank for Reconstruction and Development, have engaged in financing some BRI projects. More importantly, 13 EU member states are among the 57 founders of the China-led Asian Infrastructure Investment Bank (AIIB).
The fourth summit of China and Central and Eastern European countries 16+1
BRI Opportunities for EU- China Relations
The EU figures as China's largest trading partner and China is the second-largest trading partner of the EU. (6) For this reason, enhancing connectivity between China and Europe by building infrastructure (railway networks, ports, airports, highways) will positively promote trade, in addition to spurring economic growth and creating a people-to-people exchange.
Trade’s Promotion and Reduction of Shipping Time and Cost
The gravity model of trade suggests that the amelioration of infrastructure and transport technology, leading to minimizing shipping and transportation cost, promotes trade and enhances transactions. This applies to the BRI, as this initiative gives birth to giant infrastructure projects linking China and Europe and more importantly decreasing the shipping time and cost. (7)
In this context, the high-speed railway running from the Chinese province Sichuan to Lodz in Poland has led to the reduction of the shipping time and cost. Now, goods from China to Lodz arrive in only 10-12 days instead of 20 -22 days via sea shipping. After their arrival in Lodz, products can attain other EU countries through EU railways and highway networks. (8)
Additionally, by the completion of the speedy sea-land path connecting Budapest with Piraeus port in Greece, Chinese goods will be able to attain Western Europe 10 days earlier. Hence, this will bolster trade flows between China and EU. This project consists of the enlargement of the high-speed railway Budapest - Belgrade in order to reach Athens and then link it with a highway to Piraeus port. (9)
Tackling Climate Change and Reducing CO2 Emissions
The BRI investment in high-speed railways and shift from sea shipping to rail freight linking Europe and China is likely to reduce the CO2 emissions, as trains are considered environment-friendly transportation means. (10) This aligns with EU and international community efforts to reduce CO2 emissions and tackle climate change.
Direct Investment and Economic Growth
The Belt and Road Initiative has led to an increase in Chinese direct investment in Europe, moving from 1 Billion US dollars in 2008 to 35 Billion US dollars in 2016. (11) BRI related investments are likely to spur Economic growth in Europe, specifically in countries severely affected by the Euro economic crisis, for instance, Greece and Portugal. It should be noted that investment directly influences economic growth, as it is a principal component of aggregates demand. (12)
For instance, the investment in Piraeus Port in Greece has led to the augmentation of containers flow, which went from 1.5 million twenty-foot equivalents units (TEUs) to 3.7 million TEUs. As a result, the Greek economy benefited from an add value of 700 million US Dollars as well as the creation of 10 000 job opportunities. (13)
Given this positive outcome, we can see the benefits of the BRI for both the EU and China. The BRI contributes to enhancing economic growth and generating jobs in EU countries, in parallel, Chinese companies benefit from the return on investment and the development of their exports to Europe.
We can assert that the BRI has offered several opportunities to the EU-China relations. The BRI shall enhance connectivity, promote trade, reduce CO2 emission and stimulate economic growth in Europe and China. The two powers are urged to deepen political dialogue and enhance cooperation on the BRI. Consequently, defining a set of standard rules in terms of transparency, governance, protection of the environment and human rights. These rules should be respected in the implementation and management of BRI projects.
Edited by Hiba Arrame