Europe Is Unprepared for the COVID-19 Recession
If there is one European body that has consistently demonstrated its lack of fitness for managing economic crises, it is the Eurogroup of eurozone finance ministers. True to form, it will respond to the COVID-19 crisis with heroic announcements heralding impressive numbers that disguise the irrelevance and timidity of the agreed policies.
ATHENS – The Eurogroup of eurozone finance ministers is struggling to agree on a macroeconomically significant coordinated fiscal response to the enormous recessionary effects of the COVID-19 pandemic. The result, I fear, will be heroic announcements heralding impressive numbers that disguise the irrelevance and timidity of the agreed policies.
The first indication of this comes from the recent announcement of the German government’s financial aid package to the private sector. While the international media referred to it as a €550 billion ($600 billion) bazooka, close inspection suggests it is no more than a water pistol.
Comprising tax deferments and large credit lines, the German package reveals a serious misunderstanding of the nature of the crisis. And it is the same misunderstanding that turbocharged the euro crisis a decade ago. Now, as then, companies and households are facing insolvency, not illiquidity. To arrest the crisis, governments must go “all in” with stupendous fiscal expansion. But that is exactly what the German package was meant to avoid.