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AB 2000 studies

Alain Boublil Blog


Europe and the coronavirus

The failure of the meeting between the European leaders occurred on March 26th about the measures to be adopted to strengthen the solidarity between State-members and soften the economic consequences of the current outbreak shows to which point the European Union has not assessed the challenges to which it is confronted. So, it risks being one of the main victims. Germany and the Netherland have put their veto to the proposal of nine other States, among which are France, Italy, Spain, Belgium and even Luxemburg, to issue European bonds, the “corona bonds”, assigned to finance the countries which were the most hurt by the outbreak. Their leaders are giving to them fifteen days to find a solution but the damage is done. Procrastination is never a good way to overcome a crisis.

In China, which was at the origin of the crisis, the situation is giving significant signals of improvement and the State is taking rebound measures along with proposing to the others countries its help and the equipments it didn’t anymore need. In the United States, the Congress and the White House, which, all the same, took a lot of time to assess the seriousness of the situation, have quickly reached an agreement about a supporting plan for the economy for an amount of 2 000 billion dollars. American and Chinese Presidents even had a meeting to show their common will to overcome that crisis. All the same, bones of contention between both are not missing, as in the Congress where Republicans and Democrats are never losing the opportunity to show their differences.

Obviously, European countries do not seem to be ready to follow their example and the European institutions have seemed to be more aware of their bureaucratic quarrels than of the situation seriousness and urgency. On February 20th and 21st, when the first alarming signs were appearing in Lombardy and in Alsace, they spent hours to discuss about the European budget for the 2021-2027 period, whose amount is near to 1% of the Union GDP, without even touching on the threat which was weighting on the continent. On March 9th, the new Commission president, Ursula van der Leyen gave a press conference to present an evaluation of her mandate first months. She focused her intervention on the need of a Green Deal, without mentioning, her too, the issue of the risks the outbreak was weighting on the economy and the measures it was necessary to adopt. The day after, when there was not anymore doubts about the seriousness of the situation and when the confinement measures were about to be generalized with huge consequences on the economic activity, it is only started to touch on the suspension of the Stability Pact, inscribed in the Maastricht Treaty which limits public deficits and indebtedness.       

On March 12th, it was to the turn of the European Central Bank president to make a disastrous declaration, which will madden financial markets, explaining that it was the States duty and not the ECB one to take the appropriate measures to support economy. It will be necessary to wait for a week, on March 19th, that she makes a 180° turnaround and she announces an asset buying program and the support provided to financial institutions for an amount of 750 billion euro along with the suppression of the ceilings for each country regarding its bonds purchases. It will be also necessary to wait for two weeks, on March 22nd, to register the actual suspension of the Stability Pact.

The failure of the March 26th summit carries heavy consequences because it has been provoked more by a symbol, a principle issue, than by a real financial stake. Several countries, including France, were proposing to issue European bonds in order to cover expenses addressed to support the most affected countries by the consequences of the outbreak. The States would have been collectively responsible for their reimbursement. Netherlands and Germany did oppose to that basic solidarity move, explaining, as during the euro crisis in 2010, that it was out of question that they pay for countries which were spending too much.         

There are two kinds of European intervention mechanisms whose resources are shared. There is first the budget, directly financed by the States, whose amount and expenditures are the purpose of classical negotiations. But the related amounts are without any dimension with the resources to be put in place in order to support economies hurt by the crisis and credits are already assigned. There is also the Stability European Mechanism, dedicated to a country, included in the euro zone which would carry an heavy deficit and which would be facing a financial crisis. It had been created during the euro crisis in 2010. But SEM resources utilization is subject to draconian conditions, including structural reforms and reduction of public expenditures to be adopted by the country which wants to benefit from it. Obviously, it is impossible to demand to Italy for example it reduces today its deficit to benefit from this mechanism. It is why had emerged the idea of global direct contribution financed by the issuance of bonds whose reimbursement would be guaranteed by the all the State-members of the euro zone.

It is that proposal which has been rejected, once more in the name of a principle according to which countries which thought they were virtuous under the pretext they have a public finance surplus, do not have to secure the deficits of spendthrift countries, so less virtuous. These lessons of morality are so more shocking that if there are two countries which are taking advantage of Europe, they definitely are Germany and Netherlands. The first one enjoys high trade surplus with all its partners and the second can deliver its fresh agricultural products and is very happy that its harbor, Rotterdam, is the privileged entrance and exit point of imports and exports in the Union. Atop of that, it uses fiscal incentives to attract in the country headquarters, which generates tax receipts transfers to the detriment of the other State-members. The good management lesson is especially unwelcomed in the dramatic environment which affects several European countries. The selfishness they show will only make losers with, at the first place, the European project itself because it will give arguments to euro skepticism in every country.

It is the duty to the European Commission to take its responsibilities and to put these two obstinate countries in face of their own. Germany, was already weakened by the triple challenge to which it is facing, with the car industry crisis, the accelerate ageing of the population and the environmental emergency with the end of the coal predominance in its power mix. If there is an aggravation of the European economic situation caused by the incapacity of its members to find the good solutions to the current crisis, the country will not be able to rely on its exports, its clients being affected by a lasting recession. And if Germany joins the project, Netherlands will have no other options than supporting it.

During war time, and this example is used today by many political leaders, it is the States duty, and not enterprise and household ones, to raise the resources to guarantee the country defense. It is what they do since the beginning of the crisis, directly or on relying on their banking system through guaranteeing the funding which is indispensable to secure enterprises survival. This principle must also be put in application by European institutions. It is what Netherlands and especially Germany will have to accept.            


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