THE OBSERVER

Saving the economy

Saving the economy / MARI FOUZ

Surviving, emerging from the rubble —and doing so before the whole building collapses on top of us— has become the goal for half of humankind. The COVID-19 pandemic is on the wane in Europe and easing the lockdown sets new objectives that call for competent individuals who are able to make enough decisions quickly. The economic emergency has begun taking its toll and the situation threatens to get worse before it gets better. Red tape slows down the reaction time of the authorities, which makes the situation worse and, in turn, leads to the loss of jobs and businesses. As poverty increases, the funds available to the administrations shrink just when the situation desperately calls for government to play a greater role —not a smaller one— and, therefore, make swifter decisions and pump more cash to fund the urgent policies that should soften the blow of a recession whose scope we can’t begin to imagine.

The consequences of the pandemic will impose a profound economic and social change and, just as we cannot anticipate its end result today, it is equally clear that the outcome of this tragedy will depend on our collective reaction, adopting the right policies and collective responsibility in the coming years. We can either keep prioritising business neckties or realise the key importance of hospital gowns. We can shun arrogance and, instead, embrace social skills in management at any level. We can admire stock brokers and the speculative economy or appreciate the economy that carries social value. We can remember the people who have got us out of this crisis: nurses, doctors, cleaners, supermarket cashiers, carers for the elderly, delivery staff and food producers. We can either go back to basics or keep chasing shadows.

We can base our economy either on cooperation and solidarity or on competition and blind profit. We can even become aware (or not) that the COVID-19 crisis is a dress rehearsal, a first step towards a climate emergency.

The clash with the “new” reality is so violent that we can hardly continue as if nothing had happened. The entire ideological spectrum unanimously agrees that reality has changed. To quote Yuval Noah Harari, the author of Sapiens, “it will be much easier to defeat this pandemic if we show solidarity with people across the world; if we generously help those most in need; if we strengthen our trust in science […], and we will live in a much better world”. We will have to build what Edgar Morin called “a new aggregate of solidarity” that incentivises cooperation or a “new social contract”, to quote the same author writing in The Financial Times, the Bible of liberalism.

The emergency requires bold policies to reverse the current cycle of economic contraction. In other words, when all is going well, aversion to risk, self-protection and debt decreases. But when the tables turn, everyone realises they lack capital, businesses try to clear their debt and banks cut off lending, all of which makes the recession grow even worse. Therefore, now we need spending and cash that flows straight into the arteries of the economy to prevent companies and the self-employed from being wiped out. A half-hearted reaction will not do and today we can start comparing the reactions of countries and clubs of countries. According to a Bruegel report that we publish today in a special dossier about the economy, while direct aid in Germany amounts to 10 per cent of the country’s GDP (in France it is 2.4 per cent), in Spain it is 1.1, the same as Greece.

Any delay in taking steps —or any half-hearted measures— will result in businesses shutting down, joblessness and growing social unrest, as well as a drop in tax revenue for countries, which will in turn lead to fewer funds to pay for social and economic policies.

In the US the Federal Reserve has set up a $2.3bn relief fund for the economy, while the ECB has freed up €1.1bn to buy sovereign debt and bail out companies. As ever, the US have reacted to the crisis with greater speed and a bigger bang than the EU, which survived the previous recession without setting the foundations to avert the next one. Banks and some southern European member states were bailed out with loans from a relief fund, the European Stability Mechanism (ESM). This is the same scheme that will be implemented from June 1st, offering loans to be repaid over ten years at a 0.1 per cent interest rate and no men in black watching over anyone’s shoulders. This might afford Spain a further €25bn. Italy and Spain, whose public debt amounts to 135 and 96 per cent of their GDP respectively, would have preferred other mechanisms, but Europe’s reconstruction fund —with €1.5bn worth of loans and transfers— remains frozen. Eurobonds are a taboo subject as far as Germany and other northern European countries are concerned because they are not prepared to share the financial burden of the southern countries they scorn. The world has changed before our eyes. It is up to all of us to decide what values and priorities we set for its reconstruction.

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