Financial Times, March 13 2020
The health emergency triggered by the Sars-Cov-2 virus is already an economic crisis.
The coronavirus shock is hitting a very fragile international economy, which was already suffering from the unsolved imbalances inherited from the great recession. Although the prevailing analyses tend to consider the economic consequences of pandemics and related quarantines as short-term phenomena, this time is different: we must admit the case of much more intense and prolonged slowdowns.
At this stage, Italy represents a trench of the health and economic emergency. Analogous problems, however, will reoccur on a more or less similar scale throughout Europe.
In this scenario, it becomes urgent an “anti-virus” plan that is up to this unprecedented turmoil. In the immediate term, a massive and rapid intervention by monetary and fiscal authorities is needed to control capital markets, provide liquidity in order to support private demand and ensure solvency in the banking and production systems. Further measures that shift tax burdens to higher incomes, profits and rents can help to reduce the iniquities fueled by the crisis. Meanwhile, the central bank and governments must coordinate to prepare a huge public investment plan primarily in the health sector and more generally in areas where market failures occur: welfare, infrastructures, education, research, ecology. The plan must intervene not simply to support effective demand but also to counter possible “disorganization” in the markets and bottlenecks on the supply side.
What is difficult in promptly adopting such a plan is that it would require centralized financing and coordinated action. As already pointed out in a previous appeal published in the FT ("The Economists' Warning"), the European Union and the Eurozone appear to be among the most deficient institutions from this point of view. It is no coincidence that once again the response of the ECB, EU institutions and governments has so far been hampered by conflicts, slow and completely inadequate. If egoism and ineptitude prevailed also in the case of the coronavirus it would be a shame even worse than the previous ones.
If a Union really exists, it must give us a sign now. Otherwise, with or without Europe we will have to do whatever it takes to overcome the crisis.
Emiliano Brancaccio and Riccardo Realfonzo (University of Sannio), Mauro Gallegati (Università Politecnica delle Marche), Antonella Stirati (Università Roma Tre).