Halfway measures

The huge expectations on the continent to counteract the emerging but rapid economic crisis caused by the coronavirus are today placed with the Governing Council of the European Central Bank (ECB). This is the case because the will of all European institutions (and from there down to national, regional and local ones) to take single and coordinated action has taken hold like a categorical imperative: it responds to the evidence that the epidemic is now a pandemic – it goes beyond borders – and it is interrupting an economic stability that can only be redirected through cooperative action. This is underscored by the sequence of contributions by Ecofin, the European Commission and the European Council, which will continue today in Frankfurt, as well as the reaction packages from the different member states. And this is no small thing.

Two of the measures that have now been adopted deserve particular criticism, not for their supposed excesses but rather for their clear defects

But at the same time this excess of hopes focused on the ECB underlines the fact that, in the absence of its magic wand, the measures provided up to today are shamefully insufficient, that some of them hide a misleading architecture, and if the reaction is not sped up, the EU runs a serious risk: that of repeating the slow, tardy and short-lived strategic reaction that was adopted shortly after the start of the Great Recession in 2008, and above all after the backslide of 2011 when the sovereign debt crisis was created and led to the hapless policy of excessive austerity.

Two of the measures that have now been adopted deserve particular criticism, not for their supposed excesses but rather for their clear defects. One, the flexibility of the demands for budgetary strictness (limits on the deficit and debt of member states) in the face of “exceptional and temporary” adverse circumstances do not constitute anything new. This is written into the very text of the Stability Pact, since it was agreed in 1997. As such, what is being sold officially with dramatic and ridiculous emphasis is nothing more than the obvious and automatic application of what was already planned there: in the face of a surprising crisis, tolerance with additional spending and with the unexpected rise in the public deficit.

The ruling class should not treat citizens like ignorant creatures

The ruling class should not treat citizens like ignorant creatures. If they definitively assume the urgency of an expansive fiscal policy that will stitch up the seams of an eventual recession, regulated tolerance is not enough. Huge budgetary resources are needed, at all levels of the administration. Without being alarmist, but at the speed that the situation requires.

The second measure, the supposed immediate investment package of €7.5 billion (and up to €25 billion) from the budget does not even augur well. It was announced last thing on Tuesday and its less laudable details were confirmed into the night, something that helped to conceal its stinginess and to raise expectations of a sizeable new investment.

But this is not the case. This is not new money, but rather the retreading of budgetary leftovers – outstanding returns of capital to Brussels on its prefinancing of structural funds, which now have been forgiven – for the most urgent objectives. The transfer of budget lines does not, in principle, raise the amount of the entire investment. It lacks the indispensable countercyclical effect: the essential dimension (to verify this, divide the figure between 27), and the necessary potentially unlimited character of a firewall. Ingenious financial engineering saves minor bumps in the road, not an increasingly highly dangerous economic scenario.

English version by Simon Hunter.