The article of Pierre Defraigne “Who will pay the bill for the coronavirus” (La Libre Belgique 18/03/20) is, as usual with this eminent specialist of European affairs, both pertinent and coherent insofar as it identifies precisely the major policy areas that must be managed at EU level if the Union wishes to justify its existence and consequently ensure its survival.
Nevertheless, I cannot endorse P. Defraigne’s rigorous analysis because it appears to me as a mere (useful) development of the arguments advanced over the last 50 years surrounding the EU project. Indeed, I believe that we have reached a point of rupture in which the accumulation of tensions in several key areas, considered up to now separately, are intermingling, making it impossible to consider recipes (even if they have been successful in the past) that fail to take this interdependence into account.
In the name of ethics and morality, the absolute priority given to the treatment of the coronavirus sanitary urgency is the subject of a unanimous consensus in which preservation of life overrides any other consideration; to that extent, the commitment of unlimited financial resources is fully justified.
Is it the same as far as the treatment of the economic urgency is concerned? In the last few days one has witnessed commitments of astronomical (preliminary) financial resources cumulating in the trillions of €, either in the form of fiscal and budgetary support (governments) or of monetary policy interventions (Central Banks).
It would appear – if one refers to the market response – that the answer is negative: indeed on the morrow of the first unexpected (on a Sunday) intervention by the FED, markets plunged. Successive announcements of massive support measures have only increased the awareness of the gravity of the situation (and an acceleration of the retreat of stock and commodity markets) reinforced by the fact that for the first time ever, a previously unknown sanitary event was interfering – if not pre-empting – the forecasting parameters applicable to an already fragile world economy. To this situation was added, by osmosis, the spectre of the huge additional costs of the other areas mentioned by P. Defraigne – climate change and defence – which had been considered separately but which strengthens the feeling that they are all part of an interdependent whole, requiring financial resources that seem out of reach.
Should this situation surprise us? I don’t believe so because it represents the final stage of an ideological and political trend that has dominated the globe since the end of WWII. It is irrefutable that it has brought with it huge progress and unequalled prosperity, visible in such diverse areas as the reduction of poverty (in relative terms), science, healthcare, innovation, communications, leisure not to forget the spread of democratic and other civilizational values. However, as has happened so many times throughout history, our failure to understand the meaning of the myth of the “Tower of Babel”, has encouraged us to differ constantly the measures needed to keep control over events. The exceptional breadth of the emergency measures that have been announced – and whose efficacy remains to be demonstrated – constitutes a clear example of this phenomena.
Despite their undoubted good faith, authorities appear powerless to master the crisis that is developing at the crossroads of several currents (sanitary – scientific – economic –social –political) whose reciprocal effects escape their control. Indeed, governments are differing to scientists, Central Bankers are improvising as ecologists and sociologies, politicians must manipulate novel concepts, etc. Thus, all the actors of our life as a global community are driven to expand the comfort zone of their specialisation to become “generalists” overnight. This revolution is the harbinger of a deep and irreversible transformation of our society (as was implied by President Macron in the closing remarks of his televised speech a week ago).
In the meantime, on a purely financial level, the recently accepted relationships between interest rates, inflation, stock prices stand to be thoroughly upset: in spite of the huge amounts of announced purchases of securities by Central Banks, they pale in significance in comparison with the much larger budgetary support that is being mooted which imply a record amount of debt issuance. Indebtedness – already at record heights – is set to explode which explains why – in anticipation – interest rates are rising. Furthermore, if initially, the expectation of a severe recession, with its attending spike in unemployment and other negative consequences might limit inflationary pressures (and risk an even more damaging depression), over time, the latter appear inevitable as soon as economic activity resumes because the level of accumulated indebtedness will have reached unsustainable levels.
Thus, one will finally have recourse to the thousand year old expedient of reducing the value of debts through a massive inflationary process that would defy any attempts to keep it under control. Such developments should lead to social disturbances (not to mention potential military confrontations) because, though debtors will repay their excessive obligations in worthless currencies, in parallel the assets of institutions (insurance companies, pension funds,…) as well as the savings of modest households will have been wiped out.
Keeping control of the process of reigniting the economic machine while avoiding its dangers would necessitate intense coordination (in addition to worthless appeasing declarations) between majors powers and in particular among Eurozone Members as well as among G20 nations. However, it is precisely the contrary that is emerging: there is a clear tendency to adopt measures nationally, whether in the management of the sanitary or economic crisis, the disagreements over the climate urgency or the manifest weakness of the EU in terms of influence over geopolitical developments. The first victim might well turn out to be EMU whose collapse would lead to a crisis of unheard proportions.
No doubt a new world will emerge at the end of the tunnel and people will rally around – as in 1918 and 1945 – claiming “never gain”. It is very sad that, despite all the historical precedents, we allowed ourselves once more to believe that “this time things are different!”